LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into as of April 10, 1998
by and between Wells Fargo Bank, National Association ("Lender") and Titan
Motorcycle Co. of America, a Nevada corporation ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement. Any accounting term used herein unless otherwise
defined or set forth in this Agreement shall have the meanings customarily given
to such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment of or goods sold or leased for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time establish and revise in good faith
reducing the amount of Revolving Loans which would otherwise be available to
Borrower under the lending formula(s) provided for herein: (a) to reflect
events, conditions, contingencies or risks which, as determined by Lender in
good faith, do or may affect either (i) the Collateral or its value, (ii) the
assets, business or prospects of Borrower or any Obligor, or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof), or (b) to reflect Lender's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect, or (c) in respect
of any state of facts which Lender determines in good faith constitutes an Event
of Default or may, with notice or passage of time or both, constitute an Event
of Default. As of the date of this Agreement, Lender is establishing an
Availability Reserve of 1% against Eligible Accounts by reason of possible
warranty claims against Borrower, and an Availability Reserve in the amount of
$800,000 against Eligible Inventory until a perpetual inventory system
satisfactory to Lender is put in place by Borrower.
1.3 "Cash Collateral Account" shall have the meaning set forth in SECTION
6.1 hereof.
1.4 "Collateral" shall mean all the property in which Borrower or an
Obligor grants or is required to grant to Lender a security interest or lien, as
described in SECTION 5 hereof.
1.5 "Eligible Accounts" shall mean Accounts created by Borrower which are
and continue to be acceptable to Lender based on the criteria set forth below.
In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and BONA FIDE sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of Borrower's business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
(b) such Accounts are not unpaid more than ninety (90) days after the
date of the original invoice therefor, or, if such accounts are financed by
Transamerica under the Manufacturer's/Distributor's Finance Agreement (One Step)
dated April 25, 1997 (the "TMFC Agreement"), thirty (30) days after the date of
the original invoice therefor;
(c) such Accounts comply with the terms and conditions applicable
thereto contained in the Security Agreement executed in connection therewith;
(d) such Accounts do not arise from sales on consignment, guaranteed
sale, sale and return, sale on approval, or other terms under which payment by
the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect to
such Accounts is located in the United States of America, or, at Lender's
option, if: (1) the account debtor has delivered to Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) the account debtor
resides in a province of Canada which recognizes Lender's perfection and
enforcement rights as to Accounts by reason of the filing of a UCC-1 in the
state of Borrower's chief executive office, or (iv) such Account is financed by
Transamerica under the TMFC Agreement, so long as such agreement provides that
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Borrower has no obligation to repurchase the underlying inventory if it has not
been repossessed by Transamerica and is not deliverable to Borrower in the
United States free and clear of any liens and encumbrances; or (v) such Account
is otherwise acceptable in all respects to Lender (subject to such lending
formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and hold
invoices or retainage invoices;
(g) the account debtor with respect to such Accounts has not asserted
a counterclaim, defense or dispute and does not have, and does not engage in
transactions which may give rise to, any right of setoff against such Accounts;
(h) there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Accounts or reduce the amount
payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer, employee or agent of
the account debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise. Titan of Las Vegas,
Titan of Los Angeles and Paragon Custom shall be deemed to be affiliates of
Borrower until such time as Transamerica agrees, in a writing satisfactory to
Lender, not to require Borrower to repurchase inventory previously sold to such
entities;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State or any political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State or any political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended, or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(1) there are no proceedings or actions which are threatened or
pending against any account debtor with respect to such Accounts from such
account debtor which might result in any material adverse change in any such
account debtor's financial condition;
(m) such Accounts of a single account debtor or its affiliates do not
constitute more than twenty (20%) of all otherwise Eligible Accounts (but the
portion of the Accounts not in excess of such percentage may be deemed Eligible
Accounts);
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(n) such Accounts are not owed by any account debtor who has Accounts
ineligible under paragraph (b) and which constitute more than twenty-five (25%)
percent of the total Accounts from such account debtor;
(o) such Accounts are owed by Titan of Oregon or other account debtors
who are dealers in motorized vehicles which have been approved and financed by
Transamerica under the TMFC Agreement; and
(p) such Accounts are owed by account debtors deemed creditworthy at
all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.6 "Eligible Inventory" shall mean Inventory owned by Borrower which is
and remains acceptable to Lender for lending purposes and is located at one of
the addresses set forth in Schedule I to this Agreement; provided however, that
if any such location is owned by a party other than Borrower, Lender shall have
obtained from the owner thereof an agreement relative to Lender's rights with
respect to such Inventory, in form and content satisfactory to Lender; and
provided further that in no event however shall Eligible Inventory include: (a)
inventory subject to a security interest or lien in favor of any person other
than Lender, except those permitted in this Agreement; and (b) inventory which
is not subject to the first priority, valid and perfected security interest of
Lender. General criteria for Eligible Inventory may be established and revised
from time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.7 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.8 "Event of Default" shall mean the occurrence or existence of any event
or condition described in Section 10.1 hereof.
1.9 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of SECTION 8.10 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
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1.10 "General Intangibles" shall mean general intangibles (including, but
not limited to, tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment).
1.11 "Information Certificate" shall mean the Information Certificate of
Borrower constituting EXHIBIT A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Loan Documents and the financing arrangements provided for herein.
1.12 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.13 "Line of Credit" shall mean a revolving line of credit under which
Lender agrees to make Revolving Loans, subject to the terms and conditions of
this Agreement.
1.14 "Line of Credit Note" shall have the meaning set forth in Section 2.1
hereof.
1.15 "Loan Documents" shall mean, collectively, this Agreement and all
notes, guarantees, security agreements, subordination agreements, and other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Borrower or any Obligor in connection with this Agreement,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.16 "Maximum Amount" shall mean the amount of $5,000,000.00.
1.20 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.21 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Line of Credit or who is the owner
of any property which is security for the Line of Credit, or any of them, other
than Borrower. If Borrower is a partnership, each general partner is an Obligor.
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1.22 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.23 "Revolving Loans" shall mean advances made by Lender to Borrower on a
revolving basis under the Line of Credit, as set forth in Section 2.1 hereof.
1.24 "Rights to Payment" shall mean all Accounts, General Intangibles,
contract rights, chattel paper, documents, instruments, letters of credit,
bankers acceptances and guaranties, and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, and shall include without limitation, (a) rights
and remedies under or relating to guaranties, contracts of suretyship, letters
of credit and credit and other insurance related to the Collateral, (b) rights
of stoppage in transit, replevin, repossession, reclamation and other rights and
remedies of an unpaid vendor, lienor or secured party, (c) goods described in
invoices, documents, contracts or instruments with respect to, or otherwise
representing or evidencing, Accounts or other Collateral, including without
limitation, returned, repossessed and reclaimed goods, and (d) deposits by and
property of account debtors or other persons securing the obligations of account
debtors, monies, securities, credit balances, deposits, deposit accounts and
other property of Borrower now or hereafter held or received by or in transit to
Lender or any of its affiliates or at any other depository or other institution
from or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise.
1.25 "Tangible Net Worth" shall mean, at any time, the aggregate of total
stockholders' equity less any intangible assets.
1.26 "Transamerica" means Transamerica Commercial Finance Corporation.
1.27 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a standard cost basis in
accordance with GAAP, or (b) market value.
1.28 "Working Amount" shall mean the average daily principal balance of the
outstanding Revolving Loans while this Agreement is in effect.
1.29 "Working Capital" shall mean, at any time, total current assets less
total current liabilities.
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SECTION 2. CREDIT FACILITIES
2.1 LINE OF CREDIT
(a) LENDING FORMULA. Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans under a line of credit
(the "Line of Credit") from time to time in amounts requested by Borrower up to
an aggregate outstanding principal amount equal to the lesser of: (i) the
Maximum Amount; or (ii) the sum of:
(A) eighty five percent (85%) of the Net Amount of Eligible
Accounts so long as the dilution of Accounts, as described below, is 5% or
less, and eighty percent (80%) if such dilution is greater than 5%); PLUS
(B) the sum of (1) seventy percent (70%) of the Value of Eligible
Inventory consisting of finished goods, other than apparel, (2) fifty
percent (50%) of the Value of Eligible Inventory consisting of raw
materials, other than apparel, (3) the lesser of (y) fifty percent (50%) of
the Value of Eligible Inventory consisting of work-in-process, other than
apparel, and (z) $1,500,000.00, for the fiscal year ending December 31,
1998, and $2,000,000.00 for each fiscal year thereafter, and (4) thirty
percent (30%) of the Value of Eligible Inventory consisting of finished
goods apparel; LESS
(C) any Availability Reserves.
(b) REDUCTION OF LENDING FORMULA. Lender may, in its discretion, from
time to time, upon not less than five (5) days prior notice to Borrower, (i)
reduce the lending formula with respect to Eligible Accounts to the extent that
Lender determines in good faith that: (A) the dilution with respect to the
Accounts for any period (based on the ratio of (1) the aggregate amount of
reductions in Accounts other than as a result of payments in cash to (2) the
aggregate amount of total sales) has increased in any material respect or may be
reasonably anticipated to increase in any material respect above historical
levels, or (B) the general creditworthiness of account debtors has declined; or
(ii) reduce the lending formula with respect to Eligible Inventory to the extent
that Lender determines that: (A) the number of days of the turnover of the
Inventory for any period has adversely changed in any material respect, or (B)
the liquidation value of the Eligible Inventory, or any category thereof, has
decreased, or (C) the nature and quality of the Inventory has deteriorated. In
determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves. In the event that the effect of any reserves established
by Lender subsequent to the date of this Agreement results in an effective
advance rate which is less than seventy five percent (75%) of the effective
advance rate determined on the basis of existing availability and reserves
already established as of the date of this Agreement, then Borrower shall have
the right to terminate this Agreement without payment of the early termination
fee described in paragraph 11.1(c) hereof.
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(c) OVERADVANCE. In the event that the outstanding amount of any
component of the Revolving Loans exceed the amounts available under the lending
formulas or the Maximum Amount, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
(d) LINE OF CREDIT NOTE. Borrower's obligation to repay Revolving
Loans made under the Line of Credit shall be evidenced by a promissory note
executed by Borrower, substantially in the form of Exhibit B hereto (the "Line
of Credit Note")
2.2 AVAILABILITY RESERVES. All Revolving Loans otherwise available to
Borrower pursuant to the lending formula(s) or sublimits, and subject to the
Maximum Amount and other applicable limits hereunder shall be subject to
Lender's continuing right to establish and revise Availability Reserves.
2.3 SUPPORT AGREEMENT. Frank Keery shall execute a Support Agreement in
favor of Bank, in form and content acceptable to Bank and Frank Keery.
2.4 SUBORDINATION OF DEBT. All obligations of Borrower to Oxford
International shall be subordinated in right of repayment to all obligations of
Borrower to Lender, as evidenced by and subject to the terms of subordination
agreements in form and substance satisfactory to Lender.
SECTION 3. INTEREST AND FEES
3.1 INTEREST. The outstanding principal balance of Revolving Loans shall
bear interest at the rate of interest set forth in the Line of Credit Note.
3.2 CLOSING FEE. Borrower shall pay to Lender as a closing fee the amount
of $7,500.00, which shall be fully earned as of and payable on the date hereof.
3.4 UNUSED LINE FEE. Borrower shall pay to Lender monthly an unused line
fee for the Line of Credit equal to a rate per annum of one quarter percent
(0.25%) of the amount by which the Maximum Amount exceeds the average daily
principal balance of the outstanding Revolving Loans during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Revolving Loans are outstanding, which fee shall
be payable on the first day of each month in arrears.
3.5 COMPUTATION AND PAYMENT. Interest (and fees computed on a per annum
basis) shall be computed on the basis of a 360-day year, actual days elapsed.
Interest shall be payable at times and place set forth in the Line of Credit
Note.
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SECTION 4. CONDITIONS PRECEDENT
4.1. INITIAL CREDIT. The obligation of Lender to extend any credit
contemplated by this Agreement is subject to the fulfillment to Lender's
satisfaction of all of the following conditions:
(a) APPROVAL OF LENDER COUNSEL. All legal matters incidental to the
extension of credit by Lender shall be satisfactory to counsel of Lender.
(b) DOCUMENTATION. Lender shall have received, in form and substance
satisfactory to Lender, each of the following, duly executed:
(i) This Agreement
(ii) The Line of Credit Note
(iii) Corporate Borrowing Resolution
(iv) UCC-1 Financing Statement(s)
(v) Security Agreement(s)
(vi) Lock Box Agreement
(vii) Support Agreement
(viii) The subordination agreement required by Section 2.4 hereof.
(ix) Agreement with Transamerica.
(x) Subordination Agreement from Ed Tucker Distributor, Inc.
(xi) Such other documents as Lender may require under any other
Section of this Agreement.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Lender, in the financial condition or business of
Borrower or any Obligor, nor any material decline, as determined by Lender, in
the market value of any collateral required hereunder or a substantial or
material portion of the assets of Borrower or any Obligor.
(d) INSURANCE. Borrower shall have delivered to Lender evidence of
insurance coverage on all property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Lender, and where required by Lender,
with loss payable endorsements in favor of Lender.
(e) APPRAISALS. Lender shall have obtained, at Borrower's cost, an
appraisal of Inventory, issued by an appraiser acceptable to Lender and in form,
substance and reflecting values satisfactory to Lender, in its discretion.
(f) SECURITY INTERESTS. Lender shall have received evidence, in form
and substance satisfactory to Lender, that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Line of Credit or the
liability of any Obligor in respect thereof, subject only to the security
interests and liens permitted herein or in the other Loan Documents.
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(g) FIELD REVIEW. Lender shall have completed a field review of the
Records and such other information with respect to the Collateral as Lender may
require to determine the amount of Revolving Loans available to Borrower, the
results of which shall be satisfactory to Lender.
(h) OTHER DOCUMENTS. Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Loan Documents, including without limitation, acknowledgments by
lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral.
(i) AVAILABILITY. Borrower shall have a minimum of $500,000.00 of
availability for Revolving Loans in addition to the amount paid or to be paid to
Borrower's prior lender to retire Borrower's line of credit with such prior
lender and bringing all other obligations to a current status satisfactory to
Lender.
(j) LIFE INSURANCE. Borrower shall have collaterally assigned to
Lender its life insurance policies on Frank Keery and Patrick Keery.
(k) TAKE-OVER AUDIT. Lender shall have performed and be satisfied with
a "take-over" audit.
4.2. SUBSEQUENT CREDIT. The obligation of Lender to make each extension of
credit requested by Borrower hereunder shall be subject to the fulfillment to
Lender's satisfaction of each of the following conditions:
(a) COMPLIANCE. The representations and warranties contained herein
and each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Lender
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist. No
action seeking the dissolution or liquidation of Borrower has been approved by
the directors or shareholders of Borrower. There shall not exist or occur any
event or condition which Lender in good faith believes impairs, or is
substantially likely to impair, the prospect of payment or performance by
Borrower of its obligations under any of the Loan Documents.
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(b) DOCUMENTATION. Lender shall have received all additional documents
which may be required in connection with such extension of credit.
SECTION 5. GRANT OF SECURITY INTEREST
As security for all indebtedness of Borrower to Lenders pursuant to this
Agreement, Borrower grants to Lender security interests of first priority in the
following property and interests in property, whether now owned or hereafter
acquired or existing, and wherever located: all Rights to Payment, Inventory,
Equipment and Records, and all products and proceeds of any of the foregoing, in
any form, including without limitation, insurance proceeds and all claims
against third parties for loss or damage to or destruction of any or all of the
foregoing.
All of the foregoing shall be evidenced by and subject to the terms of such
documents as Lender shall reasonably require, all in form and substance
satisfactory to Lender. Borrower shall reimburse Lender, immediately upon
demand, for all costs and expenses incurred by Lender in connection with any of
the foregoing security, including without limitation filing and recording fees
and costs of appraisals and audits; provided, however, with respect to
collateral audits required by Lender, Borrower's responsibility for the costs
and expenses with respect thereto shall in no event exceed (i) $5,000 in
connection with each such audit, (ii) $20,000 in connection with no more than
four (4) audits conducted in the first twelve months of this Agreement, and
(iii) (A) $10,000 in connection with no more than two (2) audits conducted in
each twelve month period thereafter, if no Event of Default has occurred during
such subsequent twelve month period, or (B) if an Event of Default has so
occurred, $20,000 in connection with no more than four (4) such audits conducted
in such subsequent twelve month period. Nothing contained in the immediately
preceding sentence shall limit Lender's rights to conduct more frequent audits
at its own cost and expense or the terms of this Agreement applicable if an
Event of Default shall have occurred and be continuing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 CASH COLLATERAL ACCOUNT.
(a) CASH COLLATERAL ACCOUNT. Borrower shall, at Borrower's expense and
in the manner requested by Lender from time to time, direct that remittances and
all other collections and proceeds of Accounts and other Collateral shall be
deposited into a lock box account maintained in Lender's name. In connection
therewith, Borrower shall execute such lockbox agreement as Lender shall
require. Borrower shall maintain with Lender, and Borrower hereby grants to
Lender a security interest in, a non--interest bearing deposit account over
which Borrower shall have no control ("Cash Collateral Account") and into which
the proceeds of all Borrower's Rights to Payment shall be deposited immediately
upon their receipt.
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(b) CALCULATIONS/CLEARANCE CHARGE. For purposes of calculating the
amount of the Revolving Loans available to Borrower, such payments will be
applied (conditional upon final collection) to the Line of Credit on the
business day of receipt by the Commercial Finance Division of interbranch
advices of deposit, if such advices are received within sufficient time (in
accordance with Lender's usual and customary practices as in effect from time to
time) to credit Borrower's loan account on such day, and if not, then on the
next business day. Lender shall be entitled to charge Borrower for one (1)
business day of 'clearance' at the interest rate then applicable to the Line of
Credit on all proceeds of Rights to Payment deposited into the Cash Collateral
Account, whether or not such proceeds are applied to reduce the outstanding
principal balance of the Line of Credit. This clearance charge is acknowledged
to constitute an integral part of the pricing of the Line of Credit, and shall
apply whether or not the amount of proceeds deposited exceeds the outstanding
principal balance of the Line of Credit. Notwithstanding the foregoing, Borrower
shall not be liable for clearance charges to the extent that a significant
positive balance in the Cash Collateral Account resulting from the deposit of
funds representing proceeds of equity or subordinated debt injections and not
proceeds of normal operations continues beyond a period of fifteen (15) days.
(c) IMMEDIATE DEPOSIT. Borrower and all of its affiliates,
subsidiaries, shareholders, directors, employees or agents shall, acting as
trustee for Lender, receive, as the property of Lender, any monies, checks,
notes, drafts, or any other payment relating to and/or proceeds of Accounts or
other Collateral which come into their possession or under their control and
immediately upon receipt thereof, shall deposit or cause the same to be
deposited in the Cash Collateral Account, or remit the same or cause the same to
be remitted, in kind, to Lender. In no event shall the same be commingled with
Borrower's own funds. Notwithstanding the foregoing or anything in the other
Loan Documents to the contrary (i) Borrower may open and maintain one or more
bank accounts outside the United States (collectively "Foreign Accounts") into
which Borrower may deposit the proceeds of cash sales of inventory that occur
outside the United States, and (ii) pay costs and expenses attributable to such
sales directly from the Foreign Account. Borrower shall take all actions
reasonably requested by Lender to ensure the perfection and first priority of
Lender's security interest in such proceeds of foreign sales and in such Foreign
Accounts and shall deliver to Lender copies of all monthly bank statements of
the Foreign Accounts and copies of all documents evidencing costs and expenses
attributable to foreign sales. In the event and at such time that Lender
determines that balances in such Foreign Accounts are sufficiently high to
warrant depositing funds therefrom directly into the Cash Collateral Account,
Borrower shall engage in appropriate foreign exchange transactions and arrange
for proceeds of such foreign sales to be so deposited into the Cash Collateral
Account.
6.2 STATEMENTS. Lender shall render to Borrower each month a statement
setting forth the balance in Borrower's loan account(s) maintained by Lender for
Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, Costs and expenses. Each such statement shall be subject to
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subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower and Lender as an account stated except to the extent that Lender
receives a written notice from Borrower of any specific exceptions of Borrower
thereto or Lender sends a correcting notice within sixty (60) days after the
date such statement has been mailed by the Lender. Until such time as Lender
shall have rendered to Borrower a written statement as provided above, the
balance in Borrower's loan account(s) shall be presumptive evidence of the
amounts due and owing to Lender by Borrower.
6.3 PAYMENTS. All amounts due under any of the Loan Documents shall be
payable to the Cash Collateral Account as provided in Section 6.1 hereof or such
other place as Lender may designate from time to time. Lender may apply payments
received or collected from Borrower or for the account of Borrower (including,
without limitation, the monetary proceeds of collections or of realization upon
any Collateral) to the Line of Credit, whether or not then due, in such order
and manner as Lender determines. At Lender's option, all principal, interest,
fees, costs, expenses and other charges provided for in this Agreement or the
other Loan Documents may be charged directly to the loan account(s) of Borrower.
Borrower shall make all payments due Lender free and clear of, and without
deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of Borrower's obligations
to Lender under this Agreement, Lender is required to surrender or return such
payment or proceeds to any person or entity for any reason, then the obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable to
pay to Lender, and does hereby indemnify and hold Lender harmless for the amount
of any payments or proceeds surrendered or returned. This Section 6.3 shall
remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section 6.3 shall survive
the payment of Borrower's obligations under the Loan Documents and the
termination of this Agreement.
6.4 USE OF PROCEEDS. Borrower shall use the initial proceeds of the
Revolving Loans provided by Lender to Borrower hereunder only for: * (a)
payments to each of the persons listed in the disbursement order furnished by
Borrower to Lender on or about the date hereof; and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents. All other Revolving Loans made to
Borrower pursuant to the provisions hereof shall be used by Borrower only for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms of this Agreement. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for the any other purpose which might cause any of the Revolving
Loans to be considered a "purpose credit" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System, as amended.
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SECTION 7. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Lender,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to
Lender subject to this Agreement.
7.1 LEGAL STATUS. Borrower is a corporation duly organized and existing and
in good standing under the laws of the State of Nevada, and is qualified or
licensed to do business, and is in good standing as a foreign corporation, if
applicable, in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed could have a
material adverse effect on Borrower.
7.2 AUTHORIZATION AND VALIDITY. The Loan Documents have been duly
authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
7.3 NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
7.4 NO CLAIMS. There are no pending, or to the best of Borrower's knowledge
threatened, actions, claims, investigations, suits or proceedings before any
governmental authority, arbitrator, court or administrative agency which may
adversely affect the financial condition or operation of Borrower other than
those disclosed by Borrower to Lender in the Information Certificate.
7.5 CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower
dated February 28, 1998, heretofore delivered by Borrower to Lender is complete
and correct and presents fairly the financial condition of Borrower on an
interim basis as of such date; discloses all liabilities of Borrower that are
required to be reflected or reserved against under GAAP, whether liquidated or
unliquidated, fixed or contingent; and has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged or granted
a security interest in or encumbered any of its assets or properties except as
disclosed by Borrower to Lender in writing in the Information Certificate or as
permitted by this Agreement.
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7.6 INCOME TAX RETURNS. Except as set forth in the Information Certificate,
Borrower has no knowledge of any pending assessments or adjustments of its
income tax payable with respect to any year.
7.7 NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this Agreement to any other obligation of Borrower.
7.8 PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess,
all permits, memberships, franchises, contracts and licenses required and rights
to all trademarks, trade names, if any, patents, and fictitious names necessary
to enable it to conduct the business in which it is now engaged in compliance
with applicable law.
7.9 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
7.10 OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Lender in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable Federal or state environmental, hazardous waste,
health and safety statutes and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, the Federal Toxic Substances Control Act and the California Health and
Safety Code, as any of the same may be amended, modified or supplemented from
time to time. None of the operations of Borrower is the subject of any Federal
or state investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or hazardous
waste or substance into the environment. Borrower has no material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
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SECTION 8. AFFIRMATIVE COVENANTS
Borrower covenants that so long as Lender remains committed to extend
credit to Borrower pursuant to the terms of this Agreement or any liabilities
(whether direct or contingent, liquidated or unliquidated) of Borrower to Lender
under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of Borrower subject hereto, Borrower shall:
8.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon demand by Bank, the amount
by which the outstanding principal balance of Revolving Loans at any time
exceeds any limitation applicable thereto.
8.2 RECORDS AND PREMISES. Maintain proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to Collateral and the business of Borrower in accordance with GAAP.
From time to time as requested by Lender, at the cost and expense of Borrower
(except as otherwise expressly provided by this Agreement), allow Lender or its
designee complete access to all of Borrower's premises during normal business
hours and after notice to Borrower, or at any time and without notice to
Borrower if an Event of Default exists or has occurred and is continuing, for
the purposes of inspecting, verifying and auditing the Collateral and all of
Borrower's books and records, including, without limitation, the Records, and
promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and allow Lender during normal business hours
to use such of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing, and if an Event of Default exists or has
occurred and is continuing, for the collection of Accounts and realization of
other Collateral.
8.3 COLLATERAL REPORTING. Borrower shall provide Lender with the following
documents in a form satisfactory to Lender:
(a) on a weekly basis, or, at any time borrowing availability
hereunder is less than $750,000 or if an Event of Default has occurred and is
continuing, on a daily basis, a schedule of Accounts, including without
limitation, daily sales, credit and adjustment journals and cash receipts;
(b) on or before the first business day of each week for each
immediately preceding week and of each month for each immediately preceding
month (or more frequently as Lender may request), a borrowing base certificate,
and, on or before the first business day of each week for each immediately
preceding week until a perpetual inventory system satisfactory to Lender is in
place, results of a weekly physical inventory count of finished goods;
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(c) on or before the 15th day after and as of the end of each month,
(or more frequently as Lender may request but not more frequently than weekly),
(i) perpetual inventory reports, when a perpetual inventory system satisfactory
to Lender is in place (ii) inventory reports by category and (iii) agings of
accounts payable and accounts receivable;
(d) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower; provided, however, that with respect to
shipments involving aggregate amounts greater than $75,000 to any one dealer,
copies of invoices and shipping documents shall be accumulated and sent weekly
to Lender on or before the first business day of each week;
(e) upon Lender's request, Borrower shall, at Lender's expense, no
more than once in any twelve (12) month period, but at Borrower's expense and at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Collateral in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely;
(f) such other reports as to the Collateral as Lender shall reasonably
request from time to time.
Notwithstanding the foregoing, Lender may request more frequent reporting in
each circumstance described above at any time after the occurrence and during
the continuation of any Event of Default.
If any of Borrower's records of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
8.4 FINANCIAL STATEMENTS. Provide to Lender all of the following, in form
and detail satisfactory to Lender:
(a) not later than 90 days after and as of the end of each fiscal
year, a draft of the audited financial statement of Borrower, and not later than
120 days after and as of the end of each fiscal year, a final audited financial
statement of Borrower, prepared by independent certified public accountants
acceptable to Lender, to include balance sheet, income statement, statement of
cash flows, and footnotes, if any;
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(b) not later than 30 days after and as of the end of each month, a
financial statement of Borrower, prepared by Borrower, to include balance sheet,
income statement and statement of cash flows, and, if Borrower becomes subject
to S.E.C. filing requirements, not later than 30 days after filing with the
S.E.C., copies of all 10Q and 10K reports filed;
(c) contemporaneously with each annual and monthly financial statement
of Borrower required hereby, a certificate of the president or chief financial
officer of Borrower that the financial statements delivered pursuant thereto are
accurate and that there exists no Event of Default nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default; and
(e) as soon as practicable and in any event by the last day of each
fiscal year of Borrower, (1) a plan and financial forecast for Borrower's next
succeeding fiscal year including, without limitation, a forecasted balance
sheet, statement of income and statement of cash flows for each month of such
fiscal year, and (2) forecasted balance sheets, statements of income and
statements of cash flows for the second succeeding fiscal year; and as soon as
practicable, all material amendments, updates and revisions, if any, to the
information provided pursuant to this paragraph; and
(f) from time to time such other information as Lender may reasonably
request, which may include, without limitation, budgets, forecasts, projections
and other information respecting the Collateral and the business of Borrower.
8.5 COMPLIANCE. Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; conduct its business in an orderly and regular manner; and comply with
the provisions of all documents pursuant to which Borrower is organized and/or
which govern Borrower's continued existence and with the requirements of all
laws, rules, regulations and orders of any governmental authority applicable to
Borrower or its business.
8.6 INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to Borrower's,
including but not limited to fire, extended coverage, public liability, property
damage and workers' compensation, carried with companies and in amounts
satisfactory to Lender, and deliver to Lender from time to time at Lender's
request schedules setting forth all insurance then in effect. So long as no
Event of Default has occurred and is then continuing, Lender shall allow
Borrower to apply insurance proceeds received to repair, rebuilding or
restoration of Collateral, provided that: (a) an independent expert acceptable
to Lender and engaged by Borrower certifies to Lender that such repair,
rebuilding or restoration can be substantially completed within 180 days of the
casualty event and in no event later than one month before the maturity date of
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the Line of Credit Note and that the insurance proceeds, together with other
funds deposited by Borrower for such purpose, will be sufficient to effect such
repair, rebuilding or restoration; (b) Borrower, at its expense, shall promptly
prepare and submit to Lender all plans and specifications necessary for the
restoration and repair of the damaged Collateral, together with evidence
acceptable to Lander setting forth the total expenditure needed for the
restoration and repair; (c) the plans and specifications and all other aspects
of the proposed restoration and repair shall be subject to Lender's approval in
the exercise of its reasonable discretion; (d) Borrower shall first expend, or
deposit into an escrow account, any difference between the total cost of repair,
rebuilding and restoration and the amount of insurance proceeds; (e) Borrower
shall commence restoration and repair of the damaged. Collateral only after
Lender shall have notified Borrower in writing that the required safeguards,
proceeds and assignments described herein are in place and that the plans and
specifications and all other respects of the proposed restoration have been
approved by Lender, and Borrower shall thereafter proceed diligently with the
restoration and repair until completed; (f) all insurance proceeds shall be
deposited into an escrow account with an escrow agent acceptable to Lender in
its sole discretion, and disbursements shall be made from the escrow account for
the restoration and repair in accordance with a disbursement schedule approved
by Lender; and (g) all funds held in such escrow account shall be fully
available for disbursement to Lender on and after the occurrence of any Event of
Default. The Collateral as rebuilt or restored shall be of at least equal value
and substantially identical character as prior to the damage or destruction. The
application or release by Lender of any insurance proceeds shall not cure or
waive any default or notice of default under the Loan Documents or invalidate
any act done pursuant to the notice. If an Event of Default has occurred, Lender
may apply any insurance proceeds received by Lender at any time to payment of
the Borrower's Obligations to Lender under this Agreement, whether or not then
due, in any order and in such manner as Lender may determine, or Lender may hold
such proceeds as cash collateral for such Obligations.
8.7 FACILITIES. Keep all Borrower's properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that Borrower's
properties shall be fully and efficiently preserved and maintained.
8.8 TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation, Federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Lender's satisfaction, for eventual payment thereof in
the event Borrower is obligated to make such payment.
8.9 LITIGATION. Promptly give notice in writing to Lender of any litigation
pending or threatened in writing against Borrower with a claim in excess of
$75,000.
8.10 FINANCIAL CONDITION. Maintain Borrower's financial condition, measured
on a quarterly basis, as follows:
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(a) Working Capital not at any time less than $2,000,000.
(b) Tangible Net Worth not at any time less than $3,600,000 for the
fiscal quarters ending June 30, 1998 and September 30, 1998, and $4,000,000
thereafter.
(c) Capital expenditures, inclusive of capitalized lease expenditures,
not greater than $500,000 in any fiscal year.
8.11 NOTICE TO LENDER. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Lender
in reasonable detail of: (a) the occurrence of any Event of Default, or any
condition, event or act which with the giving of notice or the passage of time
or both would constitute such an Event of Default; (b) the occurrence and nature
of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan; and (c) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any loss through liability or property damage, or through fire, theft or any
other cause affecting Borrower's property. Provide not less than thirty (30)
days prior written notice to Lender of any change in the name or the
organizational structure of Borrower.
8.12 FURTHER ASSURANCES. At the request of Lender at any time and from time
to time, duly execute and deliver, or cause to be duly executed and delivered,
such further agreements, documents and instruments, and do or cause to be done
such further acts as may be necessary or proper to evidence, perfect, maintain
and enforce the security interests and the priority thereof in the Collateral
and to otherwise effectuate the provisions or purposes of this Agreement or any
of the other Loan Documents, at Borrower's expense. Lender may at any time and
from time to time request a certificate from an officer of Borrower representing
that all conditions precedent to the making of Revolving Loans contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Revolving Loans until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute
and file one or more UCC financing statements signed only by Lender.
8.13 YEAR 2000. Perform all acts reasonably necessary to (a) ensure that
Borrower and any business in which Borrower holds a substantial interest becomes
Year 2000 Compliant in a timely manner, (b) encourage all of its customers,
suppliers and vendors that are material to Borrower's business to become Year
2000 Compliant, (c) ascertain from such customers, suppliers and vendors their
preparedness to become Year 2000 Compliant in a timely manner and (c) ensure
that Borrower's business shall not be materially and adversely affected by any
lack of preparedness by such customers, suppliers and vendors. Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all of Borrower's systems and adopting a detailed plan, with itemized budget,
for the remediation, monitoring and testing of such systems. As used herein,
"Year 2000 Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, equipment, goods or systems utilized by or material to the
20
business operations or financial condition of such entity, will properly perform
date sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Lender such certifications or other
evidence of Borrower's compliance with the terms hereof as Lender may from time
to time require.
8.14 PERPETUAL INVENTORY SYSTEM. Implement, by no later than July 1, 1998,
a fully functional perpetual inventory system satisfactory to Lender.
SECTION 9. NEGATIVE COVENANTS
Borrower further covenants that so long as Lender remains committed to
Borrower pursuant to the terms of this Agreement or any liabilities (whether
direct or contingent, liquidated or unliquidated) of Borrower to Lender under
any of the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not without the Lender's
prior written consent:
9.1 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except the liabilities of Borrower to Lender and any other
liabilities of Borrower existing as of, and disclosed to Lender prior to, the
date hereof in the Information Certificate, and except for preferred stock
offerings and subordinated debt subject to subordination agreements in favor of,
and in form and content acceptable to, Lender.
9.2 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate
with any corporation or other entity in any transaction in which Borrower shall
not be the surviving entity or that involves amounts greater than $500,000.00;
make any substantial change in the conduct or nature of Borrower's business;
acquire all or substantially all of the assets of any corporation or other
entity in any transaction involving amounts greater than $500,000.00; nor sell,
lease, transfer or otherwise dispose of all or a substantial or material part of
its assets except in the ordinary course of business. Lender's consent to any
exceptions to this Section 9.2 shall not be unreasonably withheld.
9.3 GUARANTIES. Guarantee or become liable in any way as surety, endorser
(other than as endorser of negotiable instruments for deposit or collection in
the ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate any assets of Borrower as security for, any liabilities or
obligations of any other person or entity, except as disclosed in the
Information Certificate plus, from and after the date hereof, in an additional
aggregate amount not to exceed $100,000.00.
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9.4 LOANS, ADVANCES. INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except advances to employees in the
ordinary course of business not to exceed $100,000.00 outstanding at any time.
9.5 DIVIDENDS. DISTRIBUTIONS. Declare or pay any dividend or distribution,
either in cash or any property other than stock, on Borrower's stock now or
hereafter outstanding; nor redeem, retire, repurchase or otherwise acquire any
shares of any class of Borrower's stock now or hereafter outstanding. Lender's
consent to any exceptions to this Section 9.5 shall not be unreasonably
withheld.
9.6 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security
interest in, or lien upon, any of its assets of any kind, now owned or hereafter
acquired, except any of the foregoing in favor of Lender and except as set forth
in the Information Certificate. Lender's consent to any further exceptions under
this Section 9.6 shall not be unreasonably withheld.
9.7 NEW COLLATERAL LOCATION. Open any new location unless Borrower (a)
gives Lender thirty (30) days prior written notice of the intended opening of
any such new location, and (b) executes and delivers, or causes to be executed
and delivered, to Lender such agreements, documents, and instruments as Lender
may deem reasonably necessary or desirable to protect its interests in the
Collateral at such location, including without limitation, UCC-1 financing
statements.
SECTION 10. EVENTS OF DEFAULT
10.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate (including the Information
Certificate) furnished to Lender in connection with, or any representation or
warranty made by Borrower or any other party under this Agreement or any other
Loan Document shall prove to be incorrect, false or misleading in any material
respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained in this Agreement (other than
those described in paragraphs 10.1(a) and 10.1(b)), and if such default is by
its nature curable, such default is not cured within twenty (20) days after the
occurrence thereof.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which Borrower or any Obligor
22
has incurred any debt or other liability to any person or entity, including
Lender, and, if the debt or other liability is owed to a party other than
Lender, the amount thereof exceeds $75,000.00.
(e) Any default in the payment or performance of any obligation, or
any defined event of default, under any of the Loan Documents other than this
Agreement.
(f) The filing of a notice of judgment lien against Borrower or any
Obligor; or the recording of any abstract of judgment against Borrower or any
Obligor in any county in which Borrower or such Obligor has an interest in real
property; or the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of Borrower or any Obligor;
or the entry of a judgment against Borrower or any Obligor; and with respect to
any of the foregoing, the amount in dispute is in excess of $75,000.00.
(g) Borrower or any Obligor shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors; Borrower or any Obligor shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Reform Act,
Title 11 of the United States Code, as amended or recodified from time to time
("Bankruptcy Code"), or under any state or federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against Borrower or any Obligor, or Borrower or any
Obligor shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or Borrower or any Obligor
shall be adjudicated a bankrupt, or an order for relief shall be entered by any
court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
(h) The dissolution or liquidation of Borrower.
(i) Frank Keery shall cease to be a voting member and the chairman of
the board of directors of Borrower.
(j) Any Obligor revokes or terminates its guarantee, endorsement or
other agreement in favor of Lender. Any creditor of Borrower which has executed
a subordination in favor of Lender revokes or terminates such subordination.
(k) The indictment of Borrower or any Obligor under any criminal
statute, or commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of Borrower or
such Obligor.
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(1) Any member of Borrower's Senior Management shall cease, for any
reason, to be employed by Borrower on a full-time basis. Senior Management
means Frank Keery.
10.2 REMEDIES. If an Event of Default shall occur, (a) any indebtedness of
Borrower under any of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Lender's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by Borrower; (b) the obligation, if any, of
Lender to permit further borrowings hereunder shall immediately cease and
terminate; and (c) Lender shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any credit
accommodation from Lender subject hereto and to exercise any or all of the
rights of a beneficiary or secured party pursuant to applicable law. All rights,
powers and remedies of Lender in connection with each of the Loan Documents may
be exercised at any time by Lender and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.
SECTION 11. TERM OF AGREEMENT AND MISCELLANEOUS
11.1 TERM.
(a) MATURITY DATE. This Agreement and the other Loan Documents shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date two (2) years
from the date hereof. Upon the date of termination of the Loan Documents,
Borrower shall pay to Lender, in full, all outstanding and unpaid obligations
under this Agreement and the other Loan Documents and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
attorneys' fees and legal expenses, in connection with any contingent
obligations, including issued and outstanding checks or other payments
provisionally credited to the obligations and/or as to which Lender has not yet
received final and indefeasible payment. Interest shall be due until and
including the next business day, if the amounts so paid by Borrower to the bank
account designated by Lender are received in such bank account later than 12:00
noon, California time.
(b) CONTINUING OBLIGATIONS. No termination of this Agreement or the
other Loan Documents shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other Loan
Documents until all Borrower's obligations under this Agreement and the other
Loan Documents have been fully and finally discharged and paid, and Lender's
continuing security interest in the Collateral and the rights and remedies of
Lender hereunder, under the other Loan Documents and applicable law, shall
remain in effect until all such obligations have been fully and finally
discharged and paid.
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(c) EARLY TERMINATION FEE. If for any reason (other than as set forth
in paragraph 2.1(c) and in paragraph 11.1(d)) this Agreement is terminated by
Borrower action prior to the end of the then current term of this Agreement, in
view of the impracticality and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination fee in the
amount set forth below if such termination is effective in the period indicated:
AMOUNT PERIOD
------ ------
(i) 2% of the Working Amount Date hereof to and including first
anniversary date.
(ii) 1% of the Working Amount First anniversary date hereof to
but not including second anniversary
date.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing.
(d) NO EARLY TERMINATION FEE. No early termination fee shall be
payable if a group or division of Wells Fargo Bank (other than the workout
group), or an affiliate of Wells Fargo Bank extends credit to Borrower, which
credit refinances and/or replaces in full the credit facilities granted under
this Agreement.
11.2 NO WAIVER. No delay, failure or discontinuance of Lender in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Lender
of any breach of or default under any of the Loan Documents must be in writing
and shall be effective only to the extent set forth in such writing.
11.3 NOTICES. All notices, requests and demands which any party is required
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to each party at the following address:
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BORROWER: Titan Motorcycle Co.
2222 West Peoria Avenue,
Phoenix, AZ 85029
Attention (to either or both of)
Frank Keery and/or
Robert Lobban
LENDER: WellsCredit
Wells Fargo Bank
100 W. Washington, Suite 100
Phoenix, AZ 85003
Attention: Tom Stoltz, Portfolio Manager
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery or overnight delivery service,
upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or
three (3) days after deposit in the U.S. mail, first class and postage prepaid;
(c) if sent by telecopy, upon actual receipt by either Frank Keery or Robert
Lobban (or any successor of such officers)
11.4 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all payments, advances, changes,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Lender's in-house counsel>, incurred by
Lender in connection with Ca) the negotiation and preparation of this Agreement
and each of the other Loan Documents, in an amount not to exceed $15,000.00,
Lender's continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge for Lender's examiners in the field and
office at Lender's Commercial Finance Division's rate in effect from time to
time, (c) the enforcement of Lender's rights and/or the collection of any
amounts which become due to Lender under any of the Loan Documents, and Cd) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
11.5 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding on and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without the prior written consent of
Lender. Lender reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
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benefits under each of the Loan Documents to other lending or financial
institutions for purposes of regulatory compliance and portfolio management. In
connection therewith, Lender may disclose all documents and information which
Lender now has or may hereafter acquire relating to any credit extended by
Lender to Borrower, Borrower or its business, any Obligor or the business of any
Obligor, or any Collateral required hereunder, to any assignee or participant
who shall agree to maintain the confidentiality of such documents and
information.
11.6 ENTIRE AGREEMENT, AMENDMENT. This Agreement and each other of the Loan
Documents constitute the entire agreement between Borrower and Lender with
respect to any extension of credit by Lender subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only by a
written instrument executed by each party hereto.
11.7 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other of the Loan Documents to which it
is not a party.
11.8 TIME. Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.
11.9 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
11.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, except to the extent that
Lender has greater rights or remedies under Federal law, whether as a national
bank or otherwise, in which case such choice of California law shall not be
deemed to deprive Lender of such rights and remedies as may be available under
Federal law.
11.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS.
11.12 ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
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claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-- help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA') or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self--help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to Compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
28
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (1) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (1) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance, with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
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a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
TITAN MOTORCYCLE CO. NATIONAL ASSOCIATION
By: /s/ Francis S. Keery By: /s/ [illegible]
-------------------------------- ---------------------------------
Title: Chief Executive Officer Title: Vice President
----------------------------- ------------------------------
By:
--------------------------------
Title:
-----------------------------
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