SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
The Securities and Exchange Act of 1934
For the quarter ended . . . . . . . . . . . . . . . . . . . .September 30, 2001
Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347
ALANCO TECHNOLOGIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
(Formerly reporting as Alanco Environmental Resources)
Arizona 86-0220694
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
(Address of principal executive offices) (Zip Code)
(408) 607-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
As of November 2, 2001 there were 8,729,400 shares of common stock
outstanding.
ALANCO TECHNOLOGIES, INC.
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2001 and June 30, 2001 . . . . . . 3
Consolidated Statements of Operations
For the three months ended September 30,
2001 and 2000 . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
For the three months ended September 30,
2001 and 2000 . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
Note A - Basis of Presentation
Note B - Inventories
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 7
PART II. OTHER INFORMATION
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . .10
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . .10
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30 AND JUNE 30, 2001
ASSETS
Sept 30, 2001 June 30, 2001
------------- -------------
Cash $ 89,900 $ 81,000
Accounts receivable, net 1,534,600 1,209,400
Subscriptions receivable -- 563,500
Notes receivable, net 625,800 677,500
Inventories 1,228,100 1,218,500
Prepaid expenses 35,600 35,000
----------- -----------
Total current assets 3,514,000 3,784,900
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 416,200 496,000
----------- -----------
OTHER ASSETS
Intangible assets, net 1,580,300 1,420,400
Notes Receivable, net 960,100 966,100
Investment at cost 2,475,200 2,475,200
Net assets held for sale 596,900 603,300
Other assets 35,600 35,500
----------- -----------
Total other assets 5,648,100 5,500,500
----------- -----------
TOTAL ASSETS $9,578,300 $9,781,400
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accruals $1,264,000 $1,010,600
Bank line 1,110,900 885,600
Notes payable, current -- 248,600
Deferred gain 589,700 589,700
----------- -----------
Total Current Liabilities 2,964,600 2,734,500
Deferred gain, long term 378,000 378,000
----------- -----------
TOTAL LIABILITIES 3,342,600 3,112,500
----------- -----------
SHAREHOLDERS' EQUITY
Preferred Stock:
- Class A, cumulative convertible preferred stock;
5,000,000 shares authorized, none outstanding -- --
- Class B, cumulative preferred stock; 20,000,000
authorized and none outstanding -- --
Common Stock, no par, 100,000,000 shares authorized,
8,728,400 and 8,720,300 shares issued 57,561,000 57,653,000
Treasury Stock -- (40,000)
Accumulated deficit (51,325,300) (50,944,100)
------------ ------------
Total shareholders' equity 6,235,700 6,668,900
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $9,578,300 $9,781,400
============ ============
The accompanying notes are an integral part of these financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2001 2000
----------- -----------
NET SALES $2,138,600 $2,746,400
Cost of goods sold 1,247,400 1,575,800
----------- -----------
GROSS MARGIN 891,200 1,170,600
Selling, general and administrative 1,273,600 1,467,300
----------- -----------
OPERATING LOSS (382,400) (296,700)
Other income (expense), net 2,600 (7,700)
----------- -----------
LOSS - CONTINUING OPERATIONS (379,800) (304,400)
INCOME(LOSS) - DISCONTINUED OPERATIONS (1,400) 37,000
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (381,200) $ (267,400)
=========== ===========
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED
- Continuing Operations $ (0.04) $ (0.05)
=========== ===========
- Discontinued Operations $ (0.00) $ 0.01
=========== ===========
- Net Loss $ (0.04) $ (0.04)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,707,400 6,767,000
=========== ===========
The accompanying notes are an integral part of these financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (379,800) $ (304,400)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 64,000 82,000
Stock issued for services 23,000 3,300
Other -- 2,000
(Increase) decrease in:
Accounts receivable 238,300 (566,500)
Inventory 105,600 59,600
Net assets of disposed operations 6,400 (40,100)
Prepaid expenses and other assets (600) (89,800)
Increase (decrease) in:
Accounts payable and accrued expenses 253,400 (127,200)
----------- -----------
Net cash used in continuing operations 310,300 (981,100)
Income (loss) from discontinued operations (1,400) 37,000
----------- -----------
Net cash provided by (used in)
operating activities 308,900 (944,100)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 6,700 2,900,000
Purchase of property, plant and equipment (99,400) (96,400)
Investments (160,000) --
Purchase of treasury stock (24,000) --
----------- ----------
Net cash provided by (used in) investing
activities (276,700) 2,803,600
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from borrowings 535,000 --
Repayment on borrowings (558,300) (1,265,100)
Issuance of Stock -- 51,000
Net cash used in financing activities (23,300) (1,214,100)
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 8,900 $ 645,400
CASH, beginning of year $ 81,000 $ 176,700
----------- -----------
CASH, end of quarter $ 89,900 $ 822,100
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 29,300 $ 20,900
=========== ===========
Stock issued for services $ 23,000 $ 3,307
=========== ===========
Computer equipment moved from PP&E to Inventory $ 115,200 $ --
=========== ===========
Note receivable repaid through surrender
of options $ 51,000 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements
ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS ENDED SEPTEMBER 30, 2001
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for interim
financial information and in accordance with the instructions to Form 10-QSB.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally Accepted Accounting
Principles have been condensed or omitted. These interim consolidated financial
statements should be read in conjunction with the Company's June 30, 2001,
Annual Report on Form 10-KSB. In the opinion of management, the accompanying
consolidated financial statements include all adjustments consisting of normal
recurring accruals necessary to present fairly the financial position, results
of operations and statements of cash flows as of September 30, 2001, and for all
periods presented. The results of operations for the three months ending
September 30, 2001, are not necessarily indicative of the operating results to
be expected for an entire year.
All significant intercompany balances, transactions and stock holdings
have been eliminated from the accompanying interim financial statements.
Note B - Inventories
Inventories have been recorded at the lower of cost or market. The
composition of inventories as of September 30, 2001, and June 30, 2001, is
listed below:
September 30, 2001 June 30, 2001
Finished goods $ 782,500 $ 824,200
Work-in-process 89,400 109,500
Raw material 356,200 284,800
---------- -----------
$1,228,100 $1,218,500
========== ===========
Note C - Acquisition and Business Development
Continuing the Company's acquisition strategy, the Company acquired, in
August 2001, the assets and technology of Microtest Inc.'s FileZerver network
attached storage (NAS) business. The Company believes the addition of the
FileZerver technology and business significantly enhances the Company's computer
data storage proprietary intellectual property and represents a strategic fit
for Alanco, complementing current SAN and NAS market activities, as well as
Arraid's Linux-based single board computer (SBR) technology (discussed below).
The FileZerver product is considered a leading NAS technology and previous to
the acquisition, had been incorporated into the Company's NAS product line. In
addition, a substantial portion of FileZerver's revenue had been to
international customers, a new market for the Company's data storage business.
The Company has created a new subsidiary called NetZerver, Inc. to assist in the
sales and marketing of this new product.
In July 2001, the Company's Arraid, Inc. subsidiary announced the
commercial availability of its new ESP-1 single board computer. The ESP-1
computer is the common platform for a family of proprietary data storage
products targeting significant new market niches, such as data systems for
military reconnaissance and surveillance, commercial flight recorder systems,
telecom data storage and specialized storage applications requiring internet
communications.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, the
following factors: general economic and market conditions; reduced demand for
information technology equipment; competitive pricing and difficulty managing
product costs; development of new technologies which make the Company's products
obsolete; rapid industry changes; failure by the Company's suppliers to meet
quality or delivery requirements; the inability to attract, hire and retain key
personnel; failure of an acquired business to further the Company's strategies;
the difficulty of integrating an acquired business; undetected problems in the
Company's products; the failure of the Company's intellectual property to be
adequately protected; unforeseen litigation; the ability to maintain sufficient
liquidity in order to support operations; the ability to maintain satisfactory
relationships with lenders and to remain in compliance with financial loan
covenants and other requirements under current banking agreements; and the
ability to maintain satisfactory relationships with suppliers.
1. Results of Operations - Three months ended 9/30/2001 versus 9/30/2000
In accordance with Generally Accepted Accounting Principles, the Company
has limited its reported consolidated revenues for fiscal quarter ended
September 30, 2001 and 2000, respectively, to revenues from its Computer Data
Storage segment, the only operation classified as a continuing operation. To
maintain comparability, certain balances from the Consolidated Statement of
Operations and Consolidated Statement of Cash Flows for the quarter ended
September 30, 2000 have been restated.
Consolidated revenue for the quarter ended September 30, 2001 was
$2,138,600 compared to $2,746,400 for the comparable quarter of the previous
year, a decrease of $607,800 or 22.1%. The net loss for the quarter was
$381,200, or $.04 per share, compared to a loss of $267,400, or $.04 per share,
for the same quarter of the prior year. The reduction in revenue and increase in
loss were attributed to recent unfavorable economic conditions that have
resulted in deferred and cancelled purchase orders. Recent unfavorable economic
conditions and reduced capital spending have adversely affected Alanco's
business in recent quarters. If the economic conditions in the United States
worsen or if a wider or global economic slowdown occurs, Alanco may experience a
material adverse impact on its operating results and business conditions.
The Company reported a net loss from continuing operations for the current
quarter of $379,800, or $.04 per share, compared to $304,400, or $.05 per share,
for the comparable quarter in the prior fiscal year. The net loss from
continuing operations for the quarter ended September 30, 2001 was attributable
primarily to reductions in revenues related to current economic conditions,
offset by reduced expenses and investment related to the implementation of the
SanOne Storage Area Network (SAN) market development initiative.
Operating results for the quarter reflected a loss from discontinued
operations of $1,400, or nil per share, compared to income from discontinued
operations of $37,000, or $.01 per share, for the comparable quarter in 2000.
The decrease in income from discontinued operations was due to the loss of
income from operations of the remaining Pollution control segment that was sold
during fiscal year 2001.
Selling, general and administrative expenses for the current quarter
decreased to $1,273,600, compared to $1,467,300 incurred in the comparable
quarter of 2000. The decrease was attributable primarily to reduction of sales
commissions and costs associated with the SanOne Storage Area Network (SAN)
market development initiative.
A significant element of the Company's future growth plan will continue
to be strategic acquisitions. Company management believes that the present
technology slowdown has resulted in a unique opportunity for potential
acquisitions at attractive terms among the numerous private data storage
companies in the under $25 million sales revenue range. The Company's
acquisition program focuses on two complementary objectives: (1) to consolidate
acquired company product lines and/or distribution channels with current
subsidiary company operations; and (2) to identify companies with proprietary
intellectual property complementary to that of existing subsidiaries. The
Company currently anticipates that the purchase price of any additional
acquisitions will be payable primarily in the form of shares of the Company's
Common Stock. While the Company has a number of acquisitions under serious
consideration, completion of acquisitions and successful post-acquisition
operation of the acquired business are subject to uncertainties and risks,
including among others those mentioned in the "safe harbor" statement at the
beginning of this Management's Discussion and Analysis.
2. Liquidity and Capital Resources
The Company's current assets at September 30, 2001 exceeded current
liabilities by $549,400, or a current ratio of 1.2 to 1, compared to a current
ratio of 1.4 to 1 at Fiscal Year End June 30, 2001. The decrease in current
ratio resulted primarily from the loss for the quarter.
The Company has a $1.5 million formula-based revolving bank line of
credit agreement with interest calculated at prime plus 1.25%. The line of
credit agreement formula is based upon current asset values and is used to
finance acquisitions and working capital. At September 30, 2001, the Company had
drawn $987,700 under the line of credit, which expires December 28, 2001. The
Company has received a formal compliance waiver as of June 30, 2001, and a
modification to the Agreement covenants has been reached whereby the Company is
in compliance. While the Company believes that it will be able to negotiate an
extension of the line of credit prior to its expiration date, there can be no
assurance that an extension will be obtained on satisfactory terms, or at all.
If the Company is unable to obtain an extension, the Company likely will need to
raise additional funds through public or private debt or equity financing. There
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. If adequate funds are not available or are
not available on acceptable terms, the Company's business, operating results and
financial condition could be materially adversely affected. Assuming that the
Company obtains an extension of its line of credit, obtains alternative
financing as discussed above, or a combination thereof, the Company believes the
cash flow from operations and existing cash resources will be sufficient to meet
its capital needs through fiscal year 2002.
Cash generated from operations was $308,900 for the quarter, an
increase of $1,137,800 when compared to cash used in operating activities of
$944,100 for the comparable quarter ended September 30, 2000. The increase in
cash generated from operations was due primarily to decreases in receivables
resulting from the collection during the quarter of subscription receivables
recorded at June 30, 2001, and increases in accounts payable and accrued
expenses.
During the quarter the Company purchased approximately $99,000 of
additional equipment and transferred excess interoperability lab equipment, with
a net book value of approximately $115,000, to inventory. Repayment on borrowing
during the quarter amounted to $558,300, while advances from borrowing amounted
to $535,000.
The Company recorded goodwill of $160,000 during the current quarter
related to the acquisition of the assets and technology of Microtest Inc.'s
FileZerver network attached storage (NAS) business.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the quarter ended September 30, 2001, the Company issued 20,000
shares of common stock for consultant services rendered and 12,000 shares for
settlement of accounts payable balances. In addition, the Company purchased
23,900 shares of common stock during the quarter at a price of approximately
$24,000. All Shares purchased, as well as treasury shares held at June 30,
2001 were cancelled prior to September 30, 2001.
Item 6. EXHIBITS 10.9
- Exhibit A. Bank loan
- Exhibit B. Modification to Bank Loan
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALANCO TECHNOLOGIES, INC.
(Registrant)
/s/John A. Carlson
---------------------------
John A. Carlson
Chief Financial Officer
Date: November 14, 2001
Exhibit A
AMENDED AND RESTATED
CREDIT AGREEMENT
This Amended and Restated Credit Agreement ("Agreement") is made and entered
into on December 27, 2000 by and between Alanco Technologies, Inc.,Arraid, Inc.
("AI"), Excel/Meridian Data, Inc. ("EMD")Arraid, Inc. ("AI"), SanOne, Inc.
("SOI"). ATI, AI, EMD, and SOI are herein severally and jointly referred to as
("Borrower") and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreement(s)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make the loans and or advances
(individually a "Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 Revolving Credit Commitment 1.
(a) Revolving Line of Credit 1. Subject to the terms and conditions of this
Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon ATI's request make advances ("Revolving Loans 1")
to ATI, for working capital and acquisition purposes in and the issuance of
Letters of Credit, an amount not to exceed the lesser of (a) $ 1,000,000.00
("Revolving Line of Credit Amount 1") or (b) the Borrowing Base defined below,
until December 26, 2001 (the "Revolving Line of Credit Maturity Date 1").
Revolving Loans may be repaid and reborrowed, provided that all outstanding
principal shall not exceed the Borrowing Base and that all outstanding accrued
principal and accrued interest on the Revolving Loans 1 shall be payable in full
on the Revolving Credit Maturity Date 1. Borrowing Base shall not exceed the
lesser of:
(i) The sum of
(1) Eighty percent (80.0%) of Eligible Accounts, plus
(2) Fifty percent (50.0%) of Eligible Inventory not to exceed $500,000.
(3) The aggregate of the amounts outstanding under 1.02, 1.03 and 1.04
of this agreement; Or
(ii) The Revolving Line of Credit 1 Amount.
If at any time or for any reason, the outstanding principal amount of
the Revolving Line of Credit 1 is greater than the lessor of: (x) the Borrowing
Base or (y) the Revolving Line of Credit 1 Amount, ATI shall immediately pay to
Bank, in cash, the amount of such excess.
"Eligible Accounts" Eligible Accounts shall mean the aggregate of
Eligible Accounts of the Borrowers and shall only include such accounts as
stated and recorded in Borrower's financial records according to Generally
Accepted Accounting Principles (GAAP). "Eligible Accounts" shall also NOT
include any of the following:
(1) All Accounts under which payment is not received within 90 days from
any due date;
(2) All Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset, counterclaim or
other right to avoid or reduce the liability represented by the Account;
(3) Any Accounts if the account debtor or any other person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower.
(4) Accounts due from a debtor if 25% or more of the aggregate amount
of accounts of such debtor have at that time remained unpaid for more than 90
days from invoice date.
(5) For accounts representing more than 25% of Borrower's total
accounts receivable, the balance in excess of the 25% is not eligible. However,
the Bank may deem, in its sole discretion, the entire amount, or any portion
thereof, eligible.
(6) Accounts with respect to international transactions unless insured
by an insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank. Bank, in its sole
discretion, may deem as eligible amounts due from major, publicly owned foreign
companies.
(7) Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
(8) Accounts where the account debtor is a seller to Borrower, whereby a
potential offset (contra) exists.
(9) Consignment or guaranteed sales.
(10) Bill and hold accounts.
(11) All United States Government receivables, unless formally assigned to
the Bank.
(12) Accounts representing billings, inventory or equipment on rent to
the account debtor.
(13) Deferred revenues.
(14) Pre-billings.
"Inventory" means all of the aggregate of the Borrowers' goods, merchandise and
other personal property which are held for sale or lease, including those held
for display or demonstration or out on lease or consignment or to be furnished
under a contract of service or are raw materials, work in process or materials
used or consumed, or to be used or consumed in Borrower's business, and shall
include all property rights, patents, copyrights, trademarks, plans, drawings,
diagrams, schematics, assembly and display materials relating thereto.
"Eligible Inventory" means Inventory eligible for advances hereunder
and shall be that Inventory deemed acceptable by Bank, and shall NOT include the
following:
(1) Supplies (e.g. packaging).
(2) Inventory consigned to sales representatives.
(3) Obsolete inventory.
(4) Inventory reserve amounts.
(5) Inventory in private warehouses (unless proper UCC-1 filing and a
warehouse bailment agreement are in place).
(6) Defective or inventory under repair.
(7) Inventory not insured naming Bank as Loss Payee.
(8) Any inventory owned by related entities of Borrower not a party to
this agreement.
(b) Revolving Note 1. The interest rate, principal and interest payments,
maturity date and certain other terms of the Revolving Loan 1 will be contained
in a promissory note dated the date of this agreement, as such may be amended or
replaced from time to time.
(c) Letter of Credit Usage and Sublimit. Subject to availability under the
Revolving Line of Credit 1, at any time and from time to time from the date
hereof through the banking day immediately prior to December 26, 2001 (the
"Revolving Line of Credit Maturity Date 1"), Bank shall issue for the account
of ATI such standby and commercial letters of credit ("Letters of Credit") as
ATI may request, which requests shall be made by delivering to Bank a duly
executed letter of credit application on Bank's standard form; provided,
however, that the outstanding and undrawn amounts under all such Letters of
Credit (i) shall not at any time exceed $200,000.00 ("Letter of Credit
Sublimit") and (ii) shall be deemed to constitute Revolving Loans 1 for the
purpose of calculating availability under the Revolving Line of Credit 1.
Unless agreed to in writing by Bank, no Letter of Credit shall have an
expiration date that is later than ninety (90) days subsequent to the Revolving
Line of Credit Maturity Date 1. All Letters of Credit shall be in form and
substance acceptable to Bank in its sole discretion and shall be subject to the
terms and conditions of Bank's form application and letter of credit agreement
and other agreements required by Bank. ATI will pay all usual issuance and
other fees that Bank notifies ATI will be charged for issuing and processing
Letters of Credit for ATI.
1.02 Revolving Credit Commitment 2.
(a) Revolving Line of Credit 2 Subject to the terms and conditions of this
Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon AI's request make advances ("Revolving Loans 2") to
AI, for working capital purposes, in an amount not to exceed One Hundred
Thousand ($100,000), (the "Revolving Line of Credit 2") until December 26, 2001
(the "Revolving Line of Credit 2 Maturity Date"). Revolving Loans 2 may be
repaid and reborrowed provided that all outstanding principal and accrued
interest on the Revolving Loans 2 shall be payable in full on the Revolving
Credit 2 Maturity Date.
(b) Revolving Note 2. The interest rate, payment terms maturity date and certain
other terms of the Revolving Loan 2 will be contained in a promissory note dated
the date of this agreement, as such may be amended or replaced from time to
time.
1.03 Revolving Credit Commitment 3.
(a) Revolving Line of Credit 3 Subject to the terms and conditions of this
Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon EMD's request make advances ("Revolving Loans 3")
to EMD, for working capital purposes, in an amount not to exceed Two Hundred
Thousand ($200,000), (the "Revolving Line of Credit 3") until December 26, 2001
(the "Revolving Line of Credit 3 Maturity Date"). Revolving Loans 3 may be
repaid and reborrowed provided that all outstanding principal and accrued
interest on the Revolving Loans 3 shall be payable in full on the Revolving
Credit 3 Maturity Date.
(b) Revolving Note 3. The interest rate, payment terms maturity date and certain
other terms of the Revolving Loan 3 will be contained in a promissory note dated
the date of this agreement, as such may be amended or replaced from time to
time.
1.04 Revolving Credit Commitment 4.
(a) Revolving Line of Credit 4 Subject to the terms and conditions of this
Agreement, provided that no event of default then has occurred and is
continuing, Bank shall, upon SOI's request make advances ("Revolving Loans 4")
to SOI for working capital purposes, in an amount not to exceed Two Hundred
Thousand ($200,000), (the "Revolving Line of Credit 4") until December 26, 2001
(the "Revolving Line of Credit 4 Maturity Date"). Revolving Loans 4 may be
repaid and reborrowed provided that all outstanding principal and accrued
interest on the Revolving Loans 4 shall be payable in full on the Revolving
Credit 4 Maturity Date.
(b) Revolving Note 4. The interest rate, payment terms maturity date and certain
other terms of the Revolving Loan 4 will be contained in a promissory note dated
the date of this agreement, as such may be amended or replaced from time to
time.
1.05. Documentation Fee, Costs and Expenses. In addition to any other amounts
due, or to become due, concurrently with the execution hereof, Borrower agrees
to pay to Bank a documentation fee in the amount of $750.00, and all other costs
and expenses incurred by the Bank in the preparation of this Agreement, the
other Loan Documents and the perfection of any security interest granted to Bank
by Borrower.
1.6 Loan Fees. Concurrent with the execution hereof, in connection with
(a) the Revolving Line of Credit 2, Borrower shall pay to Bank a loan fee of One
Thousand Dollars ($1000), (b) the Revolving Line of Credit 3, Borrower shall pay
to Bank a loan fee of Two Thousand Dollars ($2000), and (b) the Revolving Line
of Credit 4, Borrower shall pay to Bank a loan fee of Two Thousand Dollars
($2000).
1.07. Collateral. Borrower shall grant or cause to be granted to Bank a first
priority lien on any and all personal property assets of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest or pursuant to the terms of any
security agreement, an intellectual property security agreement or otherwise as
security for all of Borrower's obligations to Bank, all as may be subject to
Section 5.03 herein. ATI's collateral shall secure the Loans made by the Bank to
ATI and it's guaranty of the other Borrower's obligations to the Bank.
1.08 Collection of Payments. Borrower authorizes Bank to collect all interest,
fees, costs, and/or expenses due under this Agreement by charging Borrower's
demand deposit account number 9700 5885 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 Existence and Rights. ATI is a corporation, duly organized and existing and
in good standing under the laws of the state of Arizona, without limit as to the
duration of its existence, AI is a corporation, duly organized and existing and
in good standing under the laws of the state of Arizona, without limit as to the
duration of its existence, EMD is a corporation, duly organized and existing and
in good standing under the laws of the state of Texas, without limit as to the
duration of its existence, SOI is a corporation, duly organized and existing and
in good standing under the laws of the state of Arizona, without limit as to the
duration of its existence; each Borrower is authorized and in good standing to
do business in the state of its incorporation; each Borrower has the appropriate
powers and adequate authority, rights and franchises to own its property and to
carry on its business as now conducted, and is duly qualified and in good
standing in each state in which the character of the properties owned by it
therein or the conduct of its business makes such qualification necessary; and
Borrower has the power and adequate authority to make and carry out this
Agreement. Borrower has no investment in any other business entity unless
specified in writing to Bank except as defined in Section 5.04.
2.02 Agreement Authorized. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of ATI's charter/articles of incorporation, by-laws, AI's
charter/articles of incorporation, by-laws, EMD's charter/articles of
incorporation, by-laws, or similar document as the case may be, SOI's
charter/articles of incorporation, by-laws, EMD's charter/articles of
incorporation, by-laws, or similar document as the case may be and this
Agreement is the valid, binding and legally enforceable obligation of Borrowers
in accordance with its terms; subject only to bankruptcy, insolvency or similar
laws affecting creditors rights generally.
2.03 No Conflict. The execution, delivery and performance of this Agreement and
the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 Litigation. Except as disclosed in writing to bank by Borrower, there is no
litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 Financial Condition. The consolidated and consolidating balance sheet of
Borrower as of September 30, 2000, and the related profit and loss statement for
the three (3) month period ended as of that date, a copy of which has heretofore
been delivered to Bank by Borrower, and all other statements and data submitted
in writing by Borrower to Bank in connection with this request for credit are
true and correct, and said balance sheet truly presents the financial condition
of Borrower as of the date thereof, and has been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date there have been no material adverse changes in the financial
condition or business of Borrower other than the sale of its CDSI operations.
Borrower has no knowledge of any liabilities, contingent or otherwise, at such
date not reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
2.06 Title to Assets. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
5.03 hereof.
2.07 Tax Status. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
2.08 Trademarks, Patents. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 Regulation U. None of the proceeds of any Loan shall be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the minimum funding standards of Section 302 of ERISA,
and no Reportable Event or Prohibited Transaction as defined in ERISA has
occurred with respect to any such plan.
3. CONDITIONS PRECEDENT TO LOAN.
Prior to Bank being obligated to make any Loan pursuant to this
Agreement, Bank must receive all of the following, each of which must be in
form and substance satisfactory to Bank:
3.01 Promissory Note(s). Original, executed promissory note(s).
3.02 Security Agreement. Original, executed security agreement(s) covering
the personal property collateral securing the Loan(s).
3.03 Financing Statement. Financing statement(s) executed by Borrower and
each grantor of a security interest.
3.04 Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant to that Agreement to Provide Insurance executed by
Borrower, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
3.05 Organizational Documents. Copies of the charter/articles of
incorporation, operating agreement, or similar document as the case may be, of
the Borrower.
3.06 Authorizations. Certified copies of all action taken by the Borrower
and each Guarantor and each grantor of a security interest to authorize the
execution, delivery and performance of the Loan Documents.
3.07 Good Standing . Good standing certificates from the appropriate
secretary of state of the state in which the Borrower is organized and in each
state in which it is required to be qualified to do business.
3.08 Agreement. This Agreement executed by the Borrower.
3.09 Acquisition Financing. Prior to any acquisition all the provisions of
Section 5.03 shall be complied with.
3.10. Guaranty. A Commercial Guaranty executed by ATI in favor of the Bank,
guaranteeing the loans of the Bank to the other Borrowers.
3.13 Additional Documents. Such other documents as Bank may reasonably deem
necessary.
4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to extend credit to
Borrower it will, unless Bank shall otherwise consent in writing:
4.01 Rights and Facilities. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 Use of Proceeds. Use the proceeds of the Loans only for purposes
specified in Section 1 of this Agreement.
4.03 Insurance. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment, and as required by that Agreement to Provide Insurance executed by
Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.
4.04 Taxes and Other Liabilities. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings in
such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 Records and Reports. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times and
upon reasonable notice during normal business hours; and furnish Bank:
(a) Monthly Financial Statement. As soon as available, and in any event within
thirty (30) days after the close of each month, a consolidated balance sheet,
profit and loss statement and reconciliation of Borrower's capital balance
accounts as of the close of such period and covering operations for the portion
of Borrower's fiscal year ending on the last day of such period, all in
reasonable detail and reasonably acceptable to Bank, in accordance with
generally accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower.
(b) Annual Financial Statement. As soon as available, and in any event within
ninety (90) days after and as of the close of each fiscal year of Borrower, a
consolidated report of audit of Company, all in reasonable detail, prepared on
an unqualified basis by an independent certified public accountant selected by
Borrower and reasonably acceptable to Bank, in accordance with generally
accepted accounting principles on a basis consistently maintained by Borrower
and certified by an appropriate officer of Borrower;
(c) Quarterly Financial Statement. As soon as available, and in any event
within forty-five (45) days after the close of each fiscal quarter, a
consolidated balance sheet, profit and loss statement and reconciliation of
Borrower's capital balance accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day of
such period, all in reasonable detail and reasonably acceptable to Bank, in
accordance with generally accepted accounting principles on a basis consistently
maintained by Borrower and certified by an appropriate officer of Borrower.
(d) Officer's Certificate. Within thirty (30) days after the end of each fiscal
quarter and fiscal year of Borrower, a certificate from the President or Chief
Financial Officer of Borrower, stating that Borrower has performed and observed
each and every covenant contained in this Agreement to be performed by it and
that no event has occurred and no condition then exists which constitutes an
event of default hereunder or would constitute such an event of default upon the
lapse of time or upon the giving of notice and the lapse of time specified
herein; or, if any such event has occurred or any such condition exists,
specifying the nature thereof, in the form of exhibit 4.05 (c) attached hereto;
(e) Audit Reports. Promptly after the receipt thereof by Borrower, copies of
any detailed audit reports submitted to Borrower by independent accountants in
connection with each annual or interim work on the accounts of Borrower made by
such accountants;
(f) Stockholder, Security and Exchange Commission Statements and Reports.
Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower or any subsidiary shall send to its
members or stockholders as appropriate, if any, and copies of all reports which
Borrower or any subsidiary may file with the Securities and Exchange Commission.
(g) Accounts Receivable And Accounts Payable Agings; Inventory Activity. Within
thirty (30) days from each month-end, provided however forty-five (45) days from
each fiscal quarter end, deliver to Bank a detailed accounts receivable aging
reconciled to the general ledger of Borrower, a detailed accounts payable aging
reconciled to the Borrower's general ledger of Borrower. All the foregoing will
be in a form and with such detail as Bank may request from time to time.
(h) Borrowing Base Certificate. Within thirty (30) days from each month end,
provided however forty-five (45) days from each fiscal quarter end, deliver to
Bank a detailed Borrowing Base Certificate in the form of exhibit 4.05 (g)
stating availability under the Borrowing Base as of the end of each monthly
period.
(i) Other Information. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
4.06 Tangible Net Worth. As to ATI only, maintain at all times a consolidated
Tangible Net Worth (defined as stockholder's equity less any value for goodwill,
trademarks, patents, copyrights, leaseholds, organization expense and other
similar intangible items, and any amounts due from stockholders, officers and
affiliates) plus Subordinated Debt, meaning debt subordinated to the obligations
of Borrower to Bank, in form and substance satisfactory to Bank, of not less
than Six Million Dollars ($6,000,000);
4.07 Debt to Tangible Net Worth. As to ATI only, maintain at all times a
consolidated ratio of total liabilities to Tangible Net Worth (defined as
stockholder's equity less any value for goodwill, trademarks, patents,
copyrights, leaseholds, organization expense and other similar intangible items,
and any amounts due from stockholders, officers and affiliates) plus
Subordinated Debt, meaning debt subordinated to the obligations of Borrower to
Bank, in form and substance satisfactory to Bank, of not greater than .50:1.0.
4.08 ERISA. Cause all defined benefit pension plans, as defined in ERISA, of
Borrower to, at all times, meet the minimum funding standards of Section 302 of
ERISA, and ensure that no Reportable Event or Prohibited Transaction, as defined
in ERISA, will occur with respect to any such plan.
4.09 Laws. At all times comply with, or cause to be complied with, all laws,
statues, rules, regulations, orders and directions of any governmental authority
having jurisdiction over Borrower or Borrower's business.
4.10 GAAP. Compliance with all financial covenants shall be calculated based on
generally accepted accounting principles applied on a consistent basis as
maintained by Borrower.
4.11 Operating Accounts. Maintain all primary accounts and banking relationship
with the Bank. Maintain, or cause to be maintained, on deposit with Bank,
non-interest bearing demand deposit balances sufficient to compensate Bank for
all services provided by Bank. Balances shall be calculated after reduction for
the reserve requirement of the Federal Reserve Board and uncollected funds. Any
deficiencies shall be charged directly to the Borrower on a monthly basis.
4.12 Notices. Promptly notify Bank in writing of (i) the occurrence of any Event
of Default hereunder or any event which upon notice and lapse of time would be
an Event of Default; (ii) all litigation; any substantial dispute which may
exist between Borrower and any governmental regulatory body or law enforcement
authority; any change in Borrower's name or principal place of business; or any
other matter which has resulted or might result in a material adverse change in
Borrower's financial condition or operations.
4.13 Audits. Permit representatives of Bank to conduct audits of Borrower's
books and records relating to the Accounts, Inventory and other Collateral and
make extracts therefrom, with results satisfactory to Bank, provided that Bank
shall use its best efforts to not interfere with the conduct of Borrower's
business, and to the extent possible to arrange for verification of the Accounts
directly with the account debtors obligated thereon or otherwise, all under
reasonable procedures acceptable to Bank and at Borrower's sole expense.
4.15 Covenants Relating to Collateral. In addition to any covenants in any
Loan Document relating to any Collateral the Borrower agrees:
(a) To execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors obligated
on the Accounts, notice of Bank's interest in the Collateral.
(b) To promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower relative
to the Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of the
Collateral or the rights and remedies of Bank in respect thereto.
(c) That Bank may, upon the occurrence of an Event of Default hereunder, at any
time, without prior notice to Borrower, collect the Accounts proceeds and may
give notice of assignment to any and all account debtors, and Borrower does
hereby make, constitute and appoint Bank its irrevocable, true and lawful
attorney with power to receive, open and dispose of all mail addressed to
Borrower, to endorse the name of Borrower upon any checks or other evidences of
payment that may come into the possession of Bank upon the Accounts; to endorse
the name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with respect
thereto; and to do any and all things necessary and proper to carry out the
purpose herein contemplated.
(d) In the event any unpaid balance of Borrower's Loans shall exceed the maximum
amount of outstanding Loans to which the Borrower is entitled under Section 1
hereof, Borrower shall pay to Bank for credit to the Note the amount of such
excess.
(e) To do all acts necessary to maintain, preserve, and protect the Inventory,
keep all Inventory in good condition and repair and not to cause any waste or
unusual or unreasonable depreciation thereof.
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 Management. Make any change in its executive management which would result
in the duties of Bob Kauffman or John Carlson being reduced from their present
duties.
5.02 Outside Indebtedness. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than Loans from the Bank except
obligations now existing as shown in the financial statement dated September 30,
2000, excluding those obligations being refinanced by Bank, or sell or transfer,
either with or without recourse, any accounts or notes receivable or any moneys
due or to become due.
5.03 Liens and Encumbrances. Create, incur, permit to exist, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned or hereafter acquired by it, other than liens for taxes not delinquent and
liens in Bank's favor and other than liens agreed to in writing by Bank; and
other than liens subordinated to the liens of the bank in form and substance
satisfactory to the Bank.
5.04 Loans, Investments, Secondary Liabilities. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business as now conducted other than inter-company advances between the
Borrowers, or make any investment in the securities of any person or other
entity other than the United States Government, provided however that Borrower
may hold preferred stock, or upon its conversion to common stock, received as
consideration for the sale of its mines; or guarantee or otherwise become liable
upon the obligation of any person or other entity, except by endorsement of
negotiable instruments for deposit or collection in the ordinary and normal
course of its business.
5.05 Acquisition of Business. Purchase or otherwise acquire the assets or
business of any other entity provided however that only ATI may acquire the
assets or business of another entity whereby cash consideration of such a
purchase totals less than $200,000.00 and the following conditions are complied
with:
a. Borrower must provide Bank a certificate signed by the Chief
Financial Officer of Borrower, in form and substance
satisfactory to Bank, showing that the proposed acquisition
will not cause the occurrence of an Event of Default under
this Agreement when giving effect to the operations of the
target company.
b. The certificate required in a. above must be in the form of a
compliance certificate complying with Section 4.05 (c) herein,
and evidence compliance with all financial covenant
requirements of this Agreement sited in Sections 4.6, 4.7,
4.8, and 4.9, all calculated based on a proforma consolidation
of Borrower's and target company's financial statements as of
the most recent fiscal quarter ended. Such proforma financial
statements shall include a statement of profit and loss,
balance sheet and statement of cash flows in form and
substance satisfactory to Bank.
c. All carry back notes must be subordinated to the obligations of
Borrower to Bank in form and substance satisfactory to Bank.
d. All target companies acquired by any Borrower shall become Borrower to
this Agreement within sixty (60) days of the acquisition of the target.
If ATI wants to obtain the written consent to acquire another business or entity
in excess of $200,000 cash consideration, ATI must provide all of the
requirements as stated above in paragraphs a, b, c, and d to the Bank, in form
and substance satisfactory to Bank, and receive written approval from Bank to
enter into such transaction.
5.06 Sale of Business; Merger or Consolidation. Except for the sale of Fry Guy
assets, liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary and normal course of its
business as now conducted; or sell, lease, assign, or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted, including without
limitation the selling of any property or other asset accompanied by the leasing
back of the same, or sale any core asset of AI, EMD or SOI.
5.07 Dividends/Distributions. Declare or pay any cash dividend or make any other
distribution on any of its capital stock now outstanding or hereafter issued,
except for inter-company distributions between the Borrowers.
5.08 Subordinated Liabilities. Make any payments on any Borrower's obligation
subordinated to the obligations to Bank, other than in accordance with the
provisions of any subordination agreement executed by the Bank and the
subordinated debt holder.
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
6.01 Failure to Pay. Failure to pay any installment of principal or of interest
on any indebtedness of Borrower to Bank within, ten (10) days of its due date.
6.02 Breach of Covenant. Failure of Borrower to perform any other term or
condition of this Agreement or any Loan Document binding upon Borrower.
6.03 Breach of Warranty. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any respect.
6.04 Insolvency; Receiver or Trustee. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
6.05 Judgments, Attachments. Any money judgment in excess of $50,000, writ or
warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of ten (10) days or in any event later than five (5) days prior to
the date of any proposed sale thereunder.
6.06 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 Revocation of Guarantee or Subordination Agreement. Any guarantee or
subordination agreement required hereunder is breached or becomes ineffective;
or any Guarantor or subordination creditor disavows or attempts to revoke or
terminate such guarantee or subordination agreement.
6.08 Cessation of Business. Borrower shall voluntarily suspend its business.
6.09 Adverse Change. Any change which, in the opinion of Bank, is materially
adverse to the financial condition of Borrower or any Guarantor; or should Bank,
for any reason, believe that the prospect of Borrower's payment or performance
hereunder or under any other agreement or instrument with Bank be impaired.
6.10 Other Defaults. Borrower, or any Guarantor of Borrower's obligations to
Bank, shall commit or do or fail to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
6.11 Advances. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 Failure or Indulgence Not Waiver. No failure or delay on the part of Bank
or any holder of notes issued hereunder, in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note (s) issued in connection with
a Loan that Bank may make hereunder, are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
7.02 Counterparts; Entire Agreement. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and amends and restates any prior agreements, written or oral, with respect
thereto.
7.03 Attorney's Fees. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of notice at the rate applicable to
the Loan, reasonable attorneys' fees and all costs and expenses paid or incurred
by Bank in collecting or compromising the Loan after the occurrence of an Event
of Default, whether or not suit is filed. If suit is brought to enforce any
provision of this Agreement, the prevailing party shall be entitled to recover
its reasonable attorneys' fees and court costs in addition to any other remedy
or recovery awarded by the court.
7.04 Additional Remedies. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 Inurement. The benefits of this Agreement shall inure to the successors
and assigns of Bank and the permitted successors and assigns of Borrower.
7.06 Applicable Law. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the state of California, to the jurisdiction of whose
courts the parties hereby agree to submit.
7.07 Offset. In addition to and not in limitation of all rights of offset that
Bank or other holder of the Loan may have under applicable law, Bank or other
holder of any note issued hereunder shall, upon the occurrence of any Event of
Default or any event which with the passage of time or notice would constitute
such an Event of Default, have the right to appropriate and apply to the payment
of the Loan any and all balances, credits, deposits, accounts or monies of
Borrower then or thereafter with Bank or other holder, within ten (10) days
after the Event of Default, and notice of the occurrence of any Event of Default
by Bank to Borrower.
7.08 Severability. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 Time of the Essence. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
7.10 Accounting. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 Reference Provision.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP ss.170.6. The referee shall (a) be requested to set the matter
for hearing within sixty (60) days after the date of selection of the referee
and (b) try any and all issues of law or fact and report a statement of decision
upon them, if possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and judgment shall
be entered pursuant to CCP ss.644 in any court in the state of California having
jurisdiction. Any party may apply for a reference proceeding at any time after
thirty (30) days following notice to any other party of the nature of the
controversy, dispute or claim, by filing a petition for a hearing and/or trial.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and request for production or inspection of documents shall be responded
to within ten (10) days after service. All disputes relating to discovery which
cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue temporary
and/or provisional remedies, as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee. The
party making such a request shall have the obligation to arrange for and pay for
the court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for appointment of
a referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the California
Arbitration Act, ss.1280 through ss.1294.2 of the CCP as amended from time to
time. The limitations with respect to discovery as set forth hereinabove shall
apply to any such arbitration proceeding.
7.12 This Agreement may be modified only by a writing signed by all parties
hereto.
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK Alanco Technologies, Inc.
("Bank") ("ATI")
By: /s/ Clifford A. Payson By: /s/ Robert R. Kauffman
---------------------- ----------------------
Its: Vice President Its: Chairman, CEO
-------------- -------------
SanOne, Inc. Arraid, Inc.
("SOI") ("AI")
By: /s/ Robert R. Kauffman By: /s/ Robert R. Kauffman
---------------------- ----------------------
Its: Chairman, CEO Its: Chairman, CEO
------------- -------------
Excel/Meridian Data Inc.
("EMD")
By: /s/ Robert R. Kauffman
----------------------
Its: Chairman, CEO
-------------
Exhibit B
IMPERIAL BANK
One Arizona Center, 400 East Van Buren, Suite 900, Phoenix, Arizona 85004.
602 417-1100 Fax 602 261-7881 800 525-4913
September 18, 2001
Robert R. Kauffman, Chairman
ALANCO TECHNOLOGIES, INC.,
ARRAID, INC.,
EXCEL/MERIDIAN DATA, INC.,
AND SANONE, INC.
15900 North 78th St. Suite 101
Scottsdale, AZ 85260
Dear Robert,
This letter shall serve as a formal waiver and modification to the Credit Terms
and Conditions (the "Agreement") dated December 27, 2000 by and between ALANCO
TECHNOLOGIES, INC., ARRAID, INC., EXCEL/MERIDIAN DATA, INC., AND SANONE, INC.
(the Borrower") and Imperial Bank (the "Lender"). Lender agrees to waive and
modify the Credit Terms and Conditions as follows:
1. Section 4.06 (Tangible Net Worth) is waived for the period ending 6/30/01.
2. Section 4.07 (Debt to Tangible Net Worth) is waived for the period ending
6/30/01.
3. Section 4.06 (Tangible Net Worth) is hereby deleted and restated in its
entirety as follows:
Tangible Net Worth: As to consolidated ATI only, maintain at all times
a consolidated Tangible Net Worth (defined as stockholder's equity less any
value for goodwill, trademarks, patents, copyrights, leaseholds,
organization expense and other similar intangible items and any amounts due
from stockholders, officers, and affiliates) plus Subordinated Debt, meaning
debt subordinated to the obligations of Borrower to Bank, in form and
substance satisfactory to Bank, of not less than Four Million and Four
Hundred Thousand Dollars ($4,400,000) as of September 30, 2001; increasing
to Five Million and Five Hundred Thousand Dollars ($5,500,000) as of
November 30, 2001.
4. Section 4.07 (Debt to Tangible Net Worth) is hereby deleted and restated in
its entirety as follows:
Debt to Tangible Net Worth: As to ATI only, maintain at all times a
consolidated ratio of total liabilities to Tangible Net Worth (defined as
stockholder's equity less any value for goodwill, trademarks, patents,
copyrights, leaseholds, organization expense and other similar intangible
items, and any amounts due from stockholders, officers, and affiliates) plus
Subordinated Debt, meaning debt subordinated to the obligation of Borrower
to Bank, in form and substance satisfactory to Bank, of not greater than
.75:1.0.
Imperial Bank is willing to consent to the above waivers and modifications
subject to the following conditions:
- Borrower represents that all representations and warranties made and given
by Borrower in the Loan Documents are true and correct.
- Borrower represents that, other than the waivers made by this letter, no
Default or Event of Default has occurred;
- Borrower reaffirms all of its obligations under the Loan Documents and
acknowledges that it has no claims, offsets or defenses with respect to the
payment of sums due under the Loan Documents or related documents;
- Borrower hereby releases and discharges Bank and its affiliates from and
against any and all demands, claims and causes of action of any type or
nature, at law and/or in equity, that Borrower now has resulting from any
action or omission by Lender prior to the date of this letter;
- Borrower acknowledges that, with the sole exception of the waivers and
modifications granted by this letter, the Loan Documents shall each remain
unaffected by this letter and shall remain in full force and effect;
- Borrower acknowledges that the waivers and modifications granted by this
letter relates solely to the above existing section of the agreement.
Borrower acknowledges that, except as provided herein, Lender does not
waive any existing Event of Default or any Default or Event of Default
hereafter occurring, or become obligated to waive any condition or
obligation in any agreement between Borrower and Lender.
This waiver and modification letter shall become binding upon its execution by
Bank and Borrower and upon submission of signed documentation. Borrower's
execution of this waiver and modification letter shall constitute agreement with
the conditions listed above.
Sincerely,
Cliff Payson
Vice President
I accept the modifications granted herein subject to the terms and conditions of
this letter,
Date: 9/21/01
SanOne, Inc. ("SOI")
By: /s/ Robert R. Kauffman
Robert R. Kauffman
Its: Chairman
Excel/Meridian Data Inc. ("EMD")
By: /s/ Robert R. Kauffman
Robert R. Kauffman
Its: Chairman
Alanco Technologies, Inc. ("ATI")
By: /s/ Robert R. Kauffman
Robert R. Kauffman
Its: President & CEO
Arraid, Inc. ("AI")
By: /s/ Robert R. Kauffman
Robert R. Kauffman
Its: Chairman