EXHIBIT 10.13
BUSINESS LOAN AGREEMENT
This Agreement dated as of July 14, 1997 is between Bank of America
National Trust and Savings Association (the "Bank") and Prolong Super
Lubricants, Inc. (the "Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS.
1.1 Line of Credit Amount.
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(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Four Million Dollars ($4,000,000).
(b) This is a revolving line of credit providing for cash
advances. During the availability period, the Borrower may repay principal
amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of advances under the line of credit to exceed the Commitment.
1.2 Availability Period. The line of credit is available between the
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date of this Agreement and July 31, 1999 (the "Expiration Date") unless the
Borrower is in default.
1.3 Interest Rate.
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(a) Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced
from time to time by the Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is set by the Bank based on various factors, including
the Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank may
price loans to its customers at, above, or below the Reference Rate. Any change
in the Reference Rate shall take effect at the opening of business on the day
specified in the public announcement of a change in the Bank's Reference Rate.
1.4 Repayment Terms.
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(a) The Borrower will pay interest on July 31, 1997, and then
monthly thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit no later than
the Expiration Date.
(c) Any interest period for an optional interest rate (as
described below) shall expire no later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on
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the Bank's Reference Rate, the Borrower may elect the optional interest rates
listed below during interest periods agreed to by the Bank and the Borrower.
The optional interest rates shall be subject to the terms and conditions
described later in this Agreement. Any principal amount bearing interest at an
optional rate under this Agreement is referred to as a Apportions The following
optional interest rate is available:
(a) the LIBOR Rate plus two and one quarter (2.25) percentage
points during the availability period.
1.6 LIBOR Rate. The election of LIBOR Rates shall be subject to the
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following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in
effect will be one, two, three, four, five, six, seven, eight, nine, ten,
eleven, or twelve months. The first day of the interest period must be a day
other than a Saturday or a Sunday on which the Bank is open for business in
California, New York and London and dealing in offshore dollars (a LABOR Banking
Days). The last day of the interest period and the actual number of days during
the interest period will be determined by the Bank using the practices of the
London interbank market.
(b) Each LIBOR Rate Portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(c) The LABOR Rate means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 percent. (All amounts in
the calculation will be determined by the Bank as of the first day of the
interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
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(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the interest
rate at which the Bank's London Branch, London, Great
Britain, would offer U.S. dollar deposits for the
applicable interest period to other major banks in the
London inter-bank market at approximately 11:00 a.m.
London time two (2) London Banking Days before the
commencement of the interest period. A London Banking
Day. is a day on which the Bank's London Branch is open
for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve
System for Eurocunency Liabilities, as defined in
Federal Reserve Board Regulation D, rounded upward to
the nearest 1/100 of one percent. The percentage will
be expressed as a decimal, and will include, but
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not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no
later than 12:00 noon San Francisco time on the LIBOR Banking Day preceding the
day on which the London Inter-Bank Offered Rate will be set, as specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any
principal amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Any portion of the principal balance already bearing interest at
the LIBOR Rate will not be converted to a different rate during its interest
period.
(g) Each prepayment of a LIBOR Rate Portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as described below.
A "prepayment" is a payment of an amount on a date earlier than the scheduled
payment date for such amount as required by this Agreement. The prepayment fee
shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable
during the interest period on the amount prepaid had it
not been prepaid, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
domestic certificate of deposit market, the eurodollar
deposit market, or other appropriate money market
selected by the Bank, for a period starting on the date
on which it was prepaid and ending on the last day of
the interest period for such portion (or the scheduled
payment date for the amount prepaid, if earlier).
(h) The Bank will have no obligation to accept an election for a LIBOR
Rate Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of a LIBOR Rate
Portion are not available in the London interbank
market; or
(ii) the LIBOR Rate does not accurately reflect the cost of
a LIBOR Rate Portion.
2. FEES AND EXPENSES.
2.1 Unused Commitment Fee. The Borrower agrees to pay a fee on any
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difference between the Commitment and the amount of credit it actually uses,
determined by the weighted average loan balance maintained during the specified
period. The fee will be calculated at .25% per year. This fee is due on
September 30, 1997, and quarterly thereafter until July 31, 1999.
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2.2 Reimbursement Costs.
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(a) The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(b) The Borrower agrees to reimburse the Bank for the cost of
periodic audits and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require.
3. PERSONAL PROPERTY COLLATERAL. The Borrower's obligations to the Bank
under this Agreement will be secured by personal property the Borrower now owns
or will own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing).. All personal property collateral securing any
other present or Future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery and equipment.
(b) Inventory.
(c) Receivables.
4. DISBURSEMENTS, PAYMENTS AND COSTS.
4.1 Telephone and Telefax Authorization.
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(a) The Bank may honor telephone or telefax instructors for
advances or repayments or for the designation of optional interest rates given
by any one of the individuals authorized to sign loan agreements on behalf of
the Borrower, or any other individual designated by any one of such authorized
signers.
(b) Advances will be deposited in and repayments will be
withdrawn from the Borrower's account number #07604-16528, or such other of the
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Borrower's accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax instructions it
reasonably believes are made by any individual authorized by the Borrower to
give such instructions. This indemnity and excuse will survive this Agreement's
termination.
4.2 Direct Debit. (Pre-Billing). The Borrower agrees that the Bank
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will debit the Borrower's deposit account number #07604-16528, or such other of
the Borrower's accounts with the
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Bank as designated in writing by the Borrower (the "Designated Account") on the
date each payment of principal and interest and any fees from the Borrower
becomes due (the "Due Date"). Approximately 10 days prior to each Due Date, the
Bank will mail to the Borrower a statement of the amounts that are expected to
be due on that Due Date, based on current information (the "Billed Amounts").
The Bank will debit the Designated Account for the Billed Amount, regardless of
the actual amount due on that date (the "Accrued Amount"). If the Billed Amount
debited to the Designated Account differs from the Accrued Amount, the
discrepancy will be added or subtracted from the amount due on the next due
date. Regardless of any such discrepancy, interest will continue to accrue based
on the actual amount of principal outstanding without compounding. The Bank will
not pay the Borrower interest on any overpayment. If there are insufficient
funds in the Designated Account on the date the Bank enters any debit authorized
by this Agreement, the debit will be reversed.
4.3 Banking Days. Unless otherwise provided in this Agreement, a
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banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California. All payments and disbursements which would be due
on a day which is not a banking day will be due on the next banking day. All
payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
4.4 Additional Costs. The Borrower will pay the Bank, on demand, for
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the Bank's costs or losses arising from any statute or regulation, or any
request or requirement of a regulatory agency which is applicable to all
national banks or a class of all national banks. The costs and losses will be
allocated to the loan in a manner determined by the Bank, using any reasonable
method. The costs include the following: (a) any reserve or deposit
requirements; and (b) any capital requirements relating to the Bank's assets and
commitments for credit.
4.5 Interest Calculation. Except as otherwise stated in this
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Agreement, all interest and fees, H any, will be Computed on the basis of a 360-
day year and the actual number of days elapsed. This results in more interest
or a higher fee than if a Monday year is used. Installments of principal which
are not paid when due under this Agreement shall continue to bear interest until
paid.
4.6 Default Rate. Upon the occurrence and during the continuation of
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any default under this Agreement, principal amounts outstanding under this
Agreement will at the option of the Bank bear interest at a rate which is three
(3.00) percentage points higher than the rate of interest otherwise provided
under this Agreement. This will not constitute a waiver of any default.
4.7 Interest Compounding. At the Bank's sole option in each
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instance, any interest, fees or costs which are not paid when due under this
Agreement shall bear interest from the due date at the Bank's Reference Rate
plus three (3.00) percentage points. This may result in compounding of
interest.
5. CONDITIONS. The Bank must receive any documents and other items it may
reasonably require, including but not limited to the following items' in form
and content acceptable to the Bank, before it is required to extend any credit
to the Borrower under this Agreement.
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5.1 Authorizations. Evidence that the execution, delivery and
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performance by the Borrower and each guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly authorized.
5.2 Governing Documents. A copy of the Borrower's articles of
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incorporation.
5.3 Security Agreements. Signed original security agreements,
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assignments, financing statements and fixture flings (together with collateral
in which the Bank requires a possessory security interest), and deeds of trust
which the Bank requires.
5.4 Evidence of Priority. Evidence that security interests and liens
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in favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
5.5 Guaranty. A guaranty signed by Prolong International Corporation
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in the amount of Four Million Dollars ($4,000,000).
6. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this
Agreement, and until the Bank is repaid in full, the Borrower makes the
following representations and warranties. Each request for an extension of
credit constitutes a renewed representation:
6.1 Organization of Borrower. The Borrower is a corporation duly
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formed and existing under the laws of the state where organized.
6.2 Authorization. This Agreement has been duly authorized and is
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enforceable without conflict with any laws or any other obligation of the
Borrower.
6.3 Good Standing. In each state in which the Borrower does
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business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
6.4 Lawsuits. There is no lawsuit, tax claim or other dispute
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pending or threatened against the Borrower, which, if lost, would impair the
Borrower's financial condition or ability to repay the loan, except as have been
disclosed in writing to the Bank.
6.5 Permits, Franchises. The Borrower possesses all permits,
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memberships, franchises, contracts and licenses required and all trademark
rights, brace name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.
6.6 Location of Borrower. The Borrower's place of business (or, if
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the Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
7. COVENANTS. The Borrower agrees, so long as credit is available under
this Agreement and until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of the credit only for
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working capital purposes.
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7.2 Financial Information. To provide the following financial
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information and statements in form and content acceptable to the Bank, and such
additional information as requested by the Bank from time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be audited (with
an unqualified opinion) by a certified public accountant ("CPA") acceptable to
the Bank. The statements shall be prepared on a consolidated and consolidating
basis.
(b) Within 45 days of the period's end, the Borrower's quarterly
financial statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated and consolidating basis.
(c) Upon the Bank's request, statements showing an aging of the
Borrower's receivables.
(d) Upon the Bank's request, a statement showing an aging of
accounts payable.
(e) Upon the Bank's request, an inventory listing, which shall include
a description of the inventory, its location and cost, and such other
information as the Bank may require.
(f) Borrower's annual projections for the forthcoming fiscal year
by March 31st of each year.
7.3 Financial Covenants. To maintain the following financial
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covenants on a consolidated basis:
(a) Quick Ratio. A ratio of quick assets to current liabilities
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of at least 1.50:1.0.
"Quick assets" means cash, short-term cash investments, net trade
receivables and marketable securities not classified as long-term
investments. "Current liabilities" shall include (a) all
obligations classified as current liabilities under generally
accepted accounting principles, plus (b) all principal amounts
outstanding under revolving lines of credit, whether classified as
current or long-term, which are not already included under (a)
above.
(b) Tangible Net Worth. Tangible net worth equal to at least the
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amounts indicated for each period specified below:
Period Amount
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For the quarter ending
September 30, 1997 through
December 30, 1997 $7,250,000
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For the quarter ending
December 31, 1997 and
thereafter $8,000,000
"Tangible net worth" means the gross book value of the Borrower's
assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount
and expense, capitalized or deferred research and development
costs, deferred marketing expenses, deferred receivables, and
other like intangibles, and monies due from affiliates, officers,
directors, employees, or shareholders, of the Borrower) plus
subordinated debt less total liabilities, including but not
limited to accrued and deferred income taxes, and any reserves
against assets.
(c) Total Liabilities to Tangible Net Worth Ratio. A ratio of total
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liabilities not subordinated to tangible net worth not exceeding 1:00:1.0.
"Total liabilities not subordinated". means the sum of
current liabilities plus long term liabilities, excluding
subordinated debt.
(d) Profitability. A positive net income after taxes, interest and
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extraordinary items for each annual accounting period.
(e) Limitation on Losses. Not to incur a net loss after taxes,
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interest and extraordinary items in any two consecutive quarterly accounting
periods.
7.4 Other Debts. Not to have outstanding or incur any direct or
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contingent Me Bank), or become liable for the liabilities of others without the
Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual course
of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Liabilities and lines of credit in existence on the date of
this Agreement disclosed in writing to the Bank.
(e) Additional debts which do not exceed a total principal amount of
Three Hundred Thousand Dollars ($300,000) outstanding at any one time.
7.5 Other Liens. Not to create, assume, or allow any security
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interest or lien (including judicial liens) on property the Borrower now or
later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank.
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(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank.
(d) Additional purchase money security interests in personal
property acquired after the date of this Agreement, if the total principal
amount of debts secured by such liens does not exceed Three Hundred Thousand
Dollars ($300,000) at any one time.
7.6 Capital Expenditures. Not to spend or incur obligations
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(including the total amount of any capital leases) for more than Three Hundred
Thousand Dollars ($300,000) in any single fiscal year to acquire fixed or
capital assets.
7.7 Notices to Bank. To promptly notify the Bank in writing of:
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(a) any lawsuit over One Hundred Thousand Dollars (S100,000)
against the Borrower or any guarantor (or any trustor).
(b) any substantial dispute between the Borrower or any guarantor
(or any trustor) and any government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's or any
guarantor's (or any trustor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
(e) any change in the Borrower's name, legal structure, place of
business, or chief executive office if the Borrower has more than one place of
business.
7.8 Audits. To allow the Bank and its agents to inspect the
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Borrower's properties and examine, audit, and make copies of books and records
at any reasonable time. If any of the Borrower's properties, books or records
are in the possession of a third party, the Borrower authorizes that third party
to permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records. The Bank has no duty to inspect the Borrower's
properties or to examine, audit, appraise or copy books and records and the Bank
shall not incur any obligation or liability by reason of not making any such
inspection or inquiry. In the event that the Bank inspects the Borrower's
properties or examines, audits, appraises or copies books and records, the Bank
will be acting solely for the purposes of protecting the Bank's security and
preserving the Bank's rights under this Agreement. Neither the Borrower nor any
other party is entitled to rely on any inspection or other inquiry by the Bank.
The Bank owes no duty of care to protect the Borrower or any other party
against, or to inform the Borrower or any other party of, any adverse condition
that may be observed as affecting the Borrower's properties or premises, or the
Borrower's business. The Bank may in its discretion disclose to the Borrower or
any other party any findings made as a result of, or in connection with, any
inspection of the Borrower's properties.
7.9 Compliance win Laws. To comply with the laws (including any
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fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's business.
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7.10 Perfection of Liens. To help the Bank perfect and protect Its
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security Interests for related costs it incurs to protect its security interests
and liens, and reimburse it for related costs it incurs to protect its security
interests and liens
7.11 Insurance.
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(a) To maintain an risk property damage insurance policies
covering the tangible property comprising the collateral. Each insurance policy
must be acceptable to the Bank and include a lender's loss payable endorsement
in favor of the Bank.
(b) To maintain insurance as is usual for the Borrower's
business.
(c) Upon the request of the Bank, to deliver to the Bank a copy
of each insurance policy, or, if permitted by the Bank, a certificate of
insurance listing all insurance in force.
7.12 Additional Negative Covenants. Not to, without the Banks
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written consent:
(a) engage in any business activities substantially different
from the Borrower's present business;
(b) liquidate or dissolve the Borrower's business;
(c) enter into any consolidation, merger, or other combination,
or become a partner in a partnership, a member of a joint venture, or a member
of a limited liability company;
(d) sell, assign, lease, transfer or otherwise dispose of any
assets for less than fair market value, or enter into any agreement to do so.
(e) sell, assign, lease, transfer or otherwise dispose of all or
a substantial part of the Borrower's business or the Borrower's assets;
(f) enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(g) acquire or purchase a business or its assets;
(h) voluntarily suspend its business for more than one day
(except for weekends and state or federal holidays).
8. HAZARDOUS WASTE INDEMNIFICATION. The Borrower will indemnify and hold
harmless the Bank from any loss or liability directly or indirectly arising out
of the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a hazardous substance. This
indemnity will apply whether the hazardous substance is on, under or about the
Borrower's property or operations or property leased to the Borrower. The
indemnity includes but is not limited to attorneys' fees (including the
reasonable estimate of the allocated cost of in-house counsel and staff). The
indemnity extends to the Bank, its parent, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
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(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas. This indemnity will survive repayment of the Borrower's
obligations to the Bank.
9. DEFAULT. If any of the following events occurs, the Bank may do one or
more of the following: declare the Borrower in default, stop making any
additional credit available to the Borrower, and require the Borrower to repay
its entire debt immediately and without prior notice.. If a bankruptcy petition
is filed with respect to the Borrower, the entire debt outstanding under this
Agreement will automatically become due immediately.
9.1 Failure to Pay. The Borrower fails to make a payment under this
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Agreement when due.
9.2 Lien Priority. The Bank fails to have an enforceable first lien
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(except for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this Agreement (or any
guaranty).
9.3 False Information. The Borrower or any guarantor (or any
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trustor) has given the Bank false or misleading information or representations.
9.4 Bankruptcy and Receivers. The Borrower or any guarantor (or any
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trustor) or any general partner of the Borrower files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower or any guarantor (or any
trustor) or any general partner of the Borrower or the Borrower or any guarantor
(or any trustor) or any general partner of the Borrower makes a general
assignment for the benefit of creditors; or a receiver or similar official is
appointed for the Borrower's or any guarantor's (or any trustors) business, or
the business is terminated or any guarantor is liquidated or dissolved.
9.5 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or
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more trade creditors against the Borrower or any guarantor (or any trustor) in
an aggregate amount of One Hundred Thousand Dollars ($100,000) or more in excess
of any insurance coverage.
9.6 Judgments. Any judgments or arbitration awards are entered
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against the Borrower or any guarantor (or any trustor), or the Borrower or any
guarantor (or any trustor) enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of One Hundred Thousand
Dollars ($100,000) or more in excess of any insurance coverage.
9.7 Government Action. Any government authority takes action that
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the Bank believes materially adversely affects the Borrower's or any guarantor's
(or any trustor's) financial condition or ability to repay.
9.8 Material Adverse Change. A material adverse change occurs in the
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Borrower's or any guarantor's (or any trustor's) business condition (financial
or otherwise), operations, properties or prospects, or ability to repay the
credit.
9.9 Cross-default. Any default occurs under any agreement in
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connection with any credit the Borrower or any guarantor (or any trustor) or any
of the Borrower's related entices or
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affiliates has obtained from anyone else or which the Borrower or any guarantor
(or any trustor) or any of the Borrower's related entices or affiliates has
guaranteed.
9.10 Default Under Related Documents. Any guaranty, security
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agreement or other document required by this Agreement is violated or no longer
in effect.
9.11 Other Bank Agreements. The Borrower or any guarantor (or any
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trustor) fails to meet the conditions of, or fails to perform any obligation
under any other agreement the Borrower or any guarantor (or any trustor) has
with the Bank or any affiliate of the Bank.
9.12 Other Breach Under Agreement. The Borrower fails to meet the
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conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article.. This includes any
failure or anticipated failure by the Borrower to comply with any financial
covenants set forth in this Agreement, whether such failure is evidenced by
financial statements delivered to the Bank or is otherwise known to the Borrower
or the Bank.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS.
10.1 GAAP. Except as otherwise stated in this Agreement, all
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financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied.
10.2 California Law. This Agreement is governed by California law.
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10.3 Successors and Assigns. This Agreement is binding on the
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Borrower's and the Bank's successors and assignees. The Borrower agrees that it
may not assign this Agreement without the Bank's prior consent.
10.4 Arbitration.
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(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including
claims for injury to persons, property or business
interests (tort).
(b) At the request of the Borrower or the Bank, any such controversies
or claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Agreement provides that it is governed by California law.
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(c) Arbitration proceedings will be administered by the American
Arbitration Association rules of arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators well have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators we have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. If both parties do not
consent to arbitration, the controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a
panel of referees) selected under the auspices of the
American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored
proceedings;
(ii) The designated referee (or the panel of referees) will
be appointed by a court as provided in California Code
of Civil Procedure Section 638 and the following
related sections;
(iii) The referee (or the presiding referee of the panel)
will be an active attorney or a refired judge; and
(iv) The award that results from the decision of the referee
(or the panes will be entered as a judgment in the
court that appointed the referee, in accordance with
the provisions of California Code of Civil Procedure
Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
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(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute a
waiver of the right of the Borrower or the Bank, including the suing party, to
submit the controversy or claim to arbitration if the other party contests the
lawsuit. However, if the controversy or claim arises from or relates to an
obligation to the Bank which is secured by real property located in California
at the time of the proposed submission to arbitration, this right is limited
according to the provision above requiring the consent of both the Borrower and
the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under the deed
of trust or mortgage, or to proceed by judicial foreclosure.
10.5 Severability; Waivers. If any part of this Agreement is not
---------------------
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
10.6 Attorneys' Fees. The Borrower shall reimburse the Bank for any
---------------
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this
paragraph "attorneys' fees" includes the allocated costs of the Bank's in-house
counsel.
10.7 One Agreement. This Agreement and any related security or other
-------------
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the
Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between the Bank
and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete
and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
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10.8 Indemnification. The Borrower will indemnify and hold the Bank
---------------
harmless from any loss, liability, damages, judgments, and costs of any kind
relating to or arising directly or indirectly out of
(a) this Agreement or any document required hereunder,
(b) any credit extended or committed by the Bank to the Borrower
hereunder, and
(c) any litigation or proceeding related to or arising out of
this Agreement, any such document, or any such credit.
This indemnity includes but is not limited to attorneys' fees (including the
allocated cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will survive repayment of
the Borrower's obligations to the Bank. All sums due to the Bank hereunder
shall be obligations of the Borrower, due and payable immediately without
demand.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National Trust and Savings
Association Prolong Super Lubricants, Inc.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------------ -------------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President Title: President
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Secretary
Address where notices to Bank are to be sent: Address where notices to Borrower are to be sent:
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
15
Security Agreement
(Receivables, Inventory and Equipment)
1. THE SECURITY. The undersigned Prolong Super Lubricants, Inc. ("Borrower")
hereby assigns and grants to Bank of America National Trust and Savings
Association ("Bank") a security interest in the following described property
("Collateral"):
A. All of the following, whether now owned or hereafter acquired by
Borrower: accounts, contract rights, chattel paper, instruments and
deposit accounts.
B. All inventory now owned or hereafter acquired by Borrower.
C. All machinery, furniture, futures and other equipment of every type
now owned or hereafter acquired by Borrower (including, but not
limited to, the equipment described in the attached Equipment
Description, if any).
D. All negotiable and nonnegotiable documents of title now owned or
hereafter acquired by Borrower covering any of the above-described
property.
E. All rights under contracts of insurance now owned or hereafter
acquired by Borrower covering any of the above-described property.
F. All proceeds, product, rents and profits now owned or hereafter
acquired by Borrower of any of the above-described property.
G. All books and records now owned or hereafter acquired by Borrower
pertaining to any of the above-described property, including but not
limited to any computer-readable memory and any computer hardware or
software necessary to process such memory ("Books and Records").
2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness
of Borrower to Bank. For the purposes of this Agreement, "Indebtedness" means
all loans and advances made by Bank to Borrower and all other obligations and
liabilities of Borrower to Bank, whether now existing or hereafter incurred or
created, whether voluntary or involuntary, whether due or not due, whether
absolute or contingent, or whether incurred directly or acquired by Bank by
assignment or otherwise. Unless Borrower shall have otherwise agreed in
writing, Indebtedness, for the purposes of this Agreement, shall not include
"consumer credit" subject to the disclosure requirements of the Federal Truth in
Lending Act or any regulations promulgated thereunder.
3. BORROWER'S COVENANTS. Borrower covenants and warrants that unless
compliance is waived by Bank in writing:
A. Borrower will properly preserve the Collateral; defend the Collateral
against any adverse claims and demands; and keep accurate Books and
Records.
B. Borrower has notified Bank in writing of, and will notify Bank in
writing prior to any change in, the locations of (i) Borrower's place
of business or Borrower's chief executive office if Borrower has more
than one place of business, and (ii) any Collateral, including the
Books and Records.
C. Borrower will notify Bank in writing prior to any change in Borrower's
name, identity or business structure.
D. Borrower will maintain and keep in force insurance covering Collateral
designated by Bank against fire and extended coverages. Such
insurance shall require losses to be paid on a replacement cost basis,
be issued by insurance companies acceptable to Bank and include a loss
payable endorsement in favor of Bank in a form acceptable to Bank.
E. Borrower has not granted and will not grant any security interest in
any of the Collateral except to Bank, and will keep the Collateral
free of all liens, claims, security interests and encumbrances of any
kind or nature except the security interest of Bank.
F. Borrower will not sell, lease, agree to sell or lease, or otherwise
dispose of, or remove from Borrower's place of business (i) any
inventory except in the ordinary course of business as heretofore
conducted by Borrower, or (ii) any other Collateral except with the
prior written consent of Bank.
G. Borrower will promptly notify Bank in writing of any event which
affects the value of the Collateral, the ability of Borrower or Bank
to dispose of the Collateral, or the rights and remedies of Bank in
relation thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any marketing
order, arrangement or procedure affecting the Collateral, whether
governmental or otherwise.
H. If any Collateral is or becomes the subject of any registration
certificate or negotiable document of title, including any warehouse
receipt or ▇▇▇▇ of lading, Borrower shall immediately deliver such
document to Bank.
I. Borrower will not attach any Collateral to any real property or
fixture in a manner which might cause such Collateral to become a part
thereof unless Borrower first obtains the written consent of any
owner, holder of any lien on the real property or fixture, or other
person having an interest in such property to the removal by Bank of
the Collateral from such real property or fixture. Such written
consent shall be in form and substance acceptable to Bank and shall
provide that Bank has no liability to such owner, holder of any lien,
or any other person.
J. Until Bank exercises its rights to make collection, Borrower will
diligently collect all Collateral.
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4. ADDITIONAL OPTIONAL REQUIREMENTS. Borrower agrees that Bank may at its
option at any time, whether or not) Borrower is in default:
A. Require Borrower to segregate all collections and proceeds of the
Collateral so that they are capable of identification and deliver
daily such collections and proceeds to Bank in kind.
B. Require Borrower to deliver to Bank (i) copies of or extracts from the
Books and Records, and (ii) information on any contracts or other
matters affecting the Collateral.
C. Examine the Collateral, including the Books and Records, and make
copies of or extracts from the Books and Records, and for such
purposes enter at any reasonable time upon the property where any
Collateral or any Books and Records are located.
D. Require Borrower to deliver to Bank any instruments or chattel paper.
E. Require Borrower to obtain Bank's prior written consent to any sale,
lease, agreement to sell or lease, or other disposition of any
inventory.
F. Notify any account debtors, any buyers of the Collateral, or any other
persons of Bank's interest in the Collateral.
G. Require Borrower to direct all account debtors to forward all payments
and proceeds of the Collateral to a post office box under Bank's
exclusive control.
H. Demand and collect any payments and proceeds of the Collateral. In
connection therewith Borrower irrevocably authorizes Bank to endorse
or sign Borrower's name on all checks, drafts, collections, receipts
and other documents, and to take possession of and open the mail
addressed to Borrower and remove therefrom any payments and proceeds
of the Collateral.
5. DEFAULTS. Any one or more of the following shall be a default hereunder:
A. Borrower fails to pay any Indebtedness when due.
B. Borrower breaches any term, provision, warranty or representation
under this Agreement, or under any other obligation of Borrower to
Bank.
C. Any custodian, receiver or trustee is appointed to take possession,
custody or control of all or a substantial portion of the property of
Borrower or of any guarantor of any Indebtedness.
D. Borrower or any guarantor of any Indebtedness becomes insolvent, or is
generally not paying or admits in writing its inability to pay its
debts as they become due, fails in business, makes a general
assignment for the benefit of creditors, dies or commences any case,
proceeding or other action under any bankruptcy or other law for the
relief of, or relating to, debtors.
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E. Any case, proceeding or other action is commenced against Borrower or
any guarantor of any Indebtedness under any bankruptcy or other law
for the relief of, or relating to, debtors.
F. Any involuntary lien of any kind or character attaches to any
Collateral.
G. Any financial statements, certificates, schedules or other information
now or hereafter furnished by Borrower to Bank proves false or
incorrect in any material respect.
6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default Bank may do any
one or more of the following:
A. Declare any Indebtedness immediately due and payable, without notice
or demand.
B. Enforce the security interest given hereunder pursuant to the Uniform
Commercial Code and any other applicable law.
C. Enforce the security interest of Bank in any deposit account of
Borrower maintained with Bank by applying such account to the
Indebtedness.
D. Require Borrower to assemble the Collateral, including the Books and
Records, and make them available to Bank at a place designated by
Bank.
E. Enter upon the property where any Collateral, including any Books and
Records, are located and take possession of such Collateral and such
Books and Records, and use such property (including any buildings and
facilities) and any of Borrower's equipment, if Bank deems such use
necessary or advisable in order to take possession of, hold, preserve,
process, assemble, prepare for sale or lease, market for sale or
lease, sell or lease, or otherwise dispose of, any Collateral.
▇. ▇▇▇▇▇ extensions and compromise or settle claims with respect to the
Collateral for less than face value, all without prior notice to
Borrower.
G. Use or transfer any of Borrower's rights and interests in any
Intellectual Property now owned or hereafter acquired by Borrower, if
Bank deems such use or transfer necessary or advisable in order to
take possession of, hold, preserve, process, assemble, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral. Borrower agrees that any such use or
transfer shall be without any additional consideration to Borrower.
As used in this paragraph, "Intellectual Property" includes, but is
not limited to, all trade secrets, computer software, service marks,
trademarks, trade names, trade styles, copyrights, patents,
applications for any of the foregoing, customer lists, working
drawings, instructional manuals, and rights in processes for technical
manufacturing, packaging and labeling, in which Borrower has any right
or interest, whether by ownership, license, contract or otherwise.
H. Have a receiver appointed by any court of competent jurisdiction to
take possession of the Collateral.
4
I. Take such measures as Bank may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, and Borrower hereby irrevocably
constitutes and appoints Bank as Borrower's attorney-in-fact to
perform all acts and execute all documents in connection therewith.
7. MISCELLANEOUS.
A. Any waiver, express or implied, of any provision hereunder and any
delay or failure by Bank to enforce any provision shall not preclude
Bank from enforcing any such provision thereafter.
B. Borrower shall, at the request of Bank, execute such other agreements,
documents, instruments, or financing statements in connection with
this Agreement as Bank may reasonably deem necessary.
C. All notes, security agreements, subordination agreements and other
documents executed by Borrower or furnished to Bank in connection with
this Agreement must be in form and substance satisfactory to Bank.
D. This Agreement shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which the
parties hereto submit.
E. All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Any
single or partial exercise of any right or remedy shall not preclude
the further exercise thereof or the exercise of any other right or
remedy.
F. All terms not defined herein are used as set forth in the Uniform
Commercial Code.
G. In the event of any action by Bank to enforce this Agreement or to
protect the security interest of Bank in the Collateral, or to take
possession of, hold, preserve, process, assemble, insure, prepare for
sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, Borrower agrees to pay immediately the
costs and expenses thereof, together with reasonable attorney's fees
and allocated costs for in-house legal services.
H. Any Borrower who is married agrees that such Borrower's separate
property shall be liable for payment of the Indebtedness if such
Borrower is personally liable for the Indebtedness.
5
Date: July 14, ▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ Borrower
National Trust and Savings Association Prolong Super Lubricants, Inc.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------- ------------------------------
By: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Secretary
6