EXHIBIT 10.10
LOAN AGREEMENT
THIS AGREEMENT, made as of the _____ day of _____________, 1998, by
and between EXCELSIOR-▇▇▇▇▇▇▇▇▇ MOTORCYCLE MANUFACTURING COMPANY, a
Minnesota corporation ("Borrower") whose address is ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and DAKOTA BANK, a state banking association, with
its main banking office located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ("Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend a Five Million
Dollar ($5,000,000.00) multi-advance working capital loan to Borrower
("Loan") to provide: operating capital for the build up of Borrower's
inventory and accounts receivable; capital for the purchase of manufacturing
equipment; and cash for the payment of loan origination costs;
WHEREAS, the initial term of the Loan will require interest only
payments for a period not to exceed eighteen months. During such initial
period, advances will be drawn by Borrower up to a multi-advance limit of
$5,000,000.00. Once the Loan proceeds have been fully drawn or at eighteen
months, whichever is sooner, the Loan will be fully amortized over sixty
months.
WHEREAS, the Bank is willing and prepared to extend the Loan to the
Borrower, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. GENERAL. Subject to and upon the terms, covenants and
conditions hereinafter set forth, the Bank hereby agrees to make Loan
advances to the Borrower two times monthly up to and including July 1, 2000
("Draw Expiration Date"), or until the occurrence of any Event of Default (as
hereinafter defined), whichever first occurs. The sum total of requests
shall not exceed the sum of Five Million Dollars ($5,000,000.00). The
obligation of the Bank to make Loan advances under this Section 1 to the
Borrower up to an aggregate principal amount at any one time outstanding
equal to the Loan is hereinafter referred to as the "Multi-Advance
Commitment". Commencing on the Draw Expiration Date the sum total of all
Loan advances made to Borrower shall be fully repaid by Borrower in equal
monthly installments over sixty months. Monthly payments may be recalculated
from time to time by Bank to prevent negative amortization of the remaining
Loan balance.
2. PROMISSORY NOTE. The obligation of the Borrower to repay the
Loan shall be evidenced by that certain Promissory Note ("Note") of even date
herewith executed by the Borrower. Reference is hereby made to the Note for
the terms thereof relating to maturity, repayment schedule, interest rate and
other matters governing the repayment of the Loan. Notwithstanding any
provision of the Note, however, interest shall be payable at the variable
rate
1
EXHIBIT 10.10
provided for therein (Prime Rate of interest published by the Wall Street
Journal - Midwest Edition plus one-half percent) only on such portion of the
Loan proceeds as actually have been disbursed hereunder pursuant to Section 1
hereof and remain unpaid.
3. MANNER OF BORROWING UNDER LOAN. Each time the Borrower
desires to obtain a loan pursuant to the Multi-Advance Commitment, the
Borrower shall request such loan in writing (i) by the Chief Financial
Officer of the Borrower; or (ii) by any person designated as the Borrower's
agent by resolution of the Borrower's Board of Directors delivered to the
Bank. Each such request must specify the date of the requested advance and
the amount thereof and shall include evidence (in the form of a certificate
with supporting documentation reasonably acceptable to Bank) of discounted
collateral values as more specifically described herein. The sum of all
outstanding Loan advances shall be limited to the aggregate of:
A. Eighty percent (80%) of Eligible Receivables (defined as accounts
receivable of Borrower less than ninety days old, exclusive of
foreign receivables and inter-company receivables and receivables
pledged to or financed by another lender);
B. Eighty percent (80%) of Eligible Equipment (defined as the book
value on any new or used equipment including tooling equipment of
Borrower which is unencumbered by any lien creditor and which is
pledged to the Bank); and
C. Seventy percent (70%) of Eligible Inventory (defined as raw
materials, work-in-process, parts and finished goods valued at
Borrower's cost as reported in Borrower's financial statements).
4. LOAN DOCUMENTS/COLLATERAL. As a condition precedent to the
establishment of the Multi-Advance Commitment of the Bank and the agreement
of the Bank to make and disburse the Loan, Borrower and Bank acknowledge that
the following agreements and documents have been executed and/or delivered to
the Bank:
A. SECURITY AGREEMENT. A duly executed Security Agreement
("Security Agreement") pursuant to which the Bank has been
granted a valid and perfected security interest in and to the
following assets of Borrower: accounts receivable; inventories
and unencumbered fixed assets of Borrower as described on Exhibit
"A" (hereinafter the "Collateral").
B. UCC-1 FINANCING STATEMENTS. UCC-1 Financing Statements to be
filed at the Minnesota Secretary of State and, under certain
circumstances, the ▇▇▇▇▇ County, Minnesota Recorder's Office.
C. GUARANTY. The Guaranty of the U. S. Department of Agriculture
under the Rural Development Business and Industry Loan Guaranty
Program, in form and content reasonably acceptable to Bank,
guarantying payment of eighty percent (80%) of the Loan when due,
of the Borrower's obligations ("Guaranty").
2
EXHIBIT 10.10
D. CERTIFICATE OF GOOD STANDING. Certificate of Good Standing
issued by the Minnesota Secretary of State dated within seven
days of the date of this Agreement.
E. CORPORATE RESOLUTION. A Resolution of Borrower authorizing
certain officers of Borrower to execute the Borrower Documents.
F. OPINION OF BORROWER'S COUNSEL. A legal opinion executed by
Borrower's Attorney, in form and content acceptable to Bank
relating to Borrower's corporate existence, authority to execute
the Borrower Documents, the enforceability of the Borrower
Documents, and whether the Borrower Documents violate any
obligation of Borrower.
G. TAX LIEN AND UCC SEARCHES. Updated tax lien and UCC searches
covering Borrower.
This Agreement, the Note and the documents referenced in this Section
are sometimes hereinafter collectively referred to as the "Borrower
Documents".
5. REPRESENTATIONS. In order to induce the Bank to make Loan
advances hereunder, the Borrower hereby warrants and represents to the Bank
as follows:
A. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation
duly organized and validly existing in the State of Minnesota,
and is fully qualified to do business and is in good standing in
the State of Minnesota, and has all requisite power and authority
to carry on its business as now conducted and as presently
proposed to be conducted.
B. CORPORATE AUTHORITY. The Borrower has full power and authority
to execute and deliver the Borrower Documents and to incur and
perform obligations set forth in this Agreement and in the
Borrower Documents; the execution, delivery and performance by
the Borrower of the Borrower Documents and any and all other
documents and transactions contemplated hereby or thereby, has
been duly authorized by all necessary corporate action, will not
violate any provision of law, the Articles of Incorporation or
Bylaws of the Borrower, or any obligation of Borrower to any
third party.
C. ENFORCEABILITY. The Borrower Documents each constitute the
legal, valid and binding obligations of the Borrower enforceable
in accordance with their respective terms.
D. FINANCIAL CONDITION. The audited financial statements of the
Borrower dated as of January 3, 1998, and heretofore furnished to
the Bank are complete and correct in all respects and fairly
represent the financial condition of the Borrower at the dates of
such statements and the results of its operations for the period
ended on
3
EXHIBIT 10.10
said date, and have been prepared in accordance with generally
accepted accounting principles, consistently applied.
E. LITIGATION. There is no action, suit or proceeding pending or
threatened against or affecting the Borrower which, if adversely
determined, would have a material adverse effect on the condition
(financial or otherwise), business, properties or assets of the
Borrower, except as otherwise reported.
F. TAXES. The Borrower has filed all tax returns required to be
filed and either paid all taxes shown thereon to be due,
including interest and penalties, which are not being contested
in good faith and by appropriate proceedings, or provided
adequate reserves for payment thereof, and none of them have any
information or knowledge of any objections to or claims for
additional taxes in respect of federal income or excess profits
tax returns for prior years.
G. TITLES, ETC. The Borrower has good title to the Collateral free
and clear of all mortgages, liens and encumbrances, and except
such liens and encumbrances as may from time to time be consented
to in writing by the Bank (hereinafter collectively referred to
as "Permitted Interests").
6. COVENANTS OF THE BORROWER: On and after the date hereof and
until the payment in full of the Loan evidenced by the Note and the
performance of all other obligations of the Borrower hereunder, and so long
as any portion of the Multi-Advance Commitment of the Bank remains in full
force and effect, the Borrower agrees that, unless the Bank shall otherwise
consent in writing:
A. FINANCIAL STATEMENTS; OTHER INFORMATION. The Borrower shall
deliver to the Bank
(1) as soon as available and in any event within forty-five
days after the end of each fiscal quarter of the
Borrower, unaudited consolidated balance sheets of the
Borrower as of the end of such period and related
statements of operations of the Borrower for such
period and for the year to date, all in reasonable
detail and stating in comparative form the figures for
the corresponding period in the previous year;
(2) as soon as available and in any event within ninety days
of Borrower's fiscal year, Annual Audited Fiscal Year
End Financial Statements of the Borrower prepared in
accordance with generally accepted accounting
principles, consistently applied;
(3) All SEC filings/press releases relating Borrower's
business operations within seven days of filing or
release as the case may be;
4
EXHIBIT 10.10
(4) Annual budget/projections of Borrower, as internally
generated, for Borrower's next fiscal year by the end
of Borrower's current fiscal year; and
(5) such other information respecting the financial
condition and results of operations of the Borrower
as the Bank may from time to time reasonably request.
B. TAXES AND CLAIMS. The Borrower shall pay and discharge all
taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any of its assets
or properties, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a
lien or charge upon the property or assets of the Borrower.
C. INSURANCE. The Borrower shall maintain insurance coverage with
responsible insurance companies licensed to do business in the
State of Minnesota in such amounts against such risks as is
requested by the Bank or as required by law, including, without
limitation, property, comprehensive general public liability,
product liability and business interruption insurance, and
worker's compensation or similar insurance. The Borrower shall
furnish, to the Bank, upon written request, full information and
written evidence as to the insurance maintained by the Borrower.
D. LITIGATION. The Borrower shall promptly give to the Bank notice
in writing of all litigation and of all proceedings by or before
any court or governmental or regulatory agency affecting the
Borrower, except litigation or proceedings which, if adversely
determined, would not materially affect the financial condition
or business of the Borrower.
E. LIENS. The Borrower will not create, incur, assume or suffer to
exist any mortgage, deed of trust, pledge, lien, security
interest, or other charge or encumbrance on any of its assets
covered by the Bank's security interest without the prior written
consent of the Bank, other then liens in existence prior to the
date of this Agreement and purchase money security interest liens
arising pursuant to Section 6K hereof.
F. SALE OF ASSETS. The Borrower will not sell, lease, assign,
transfer or otherwise dispose of all or a substantial part of its
assets to any other person or entity other than in the ordinary
course of business; PROVIDED, HOWEVER, that Borrower may sell
accounts receivable to an accounts receivable financier, in
accordance with the term of an agreement with such financier,
which such terms and conditions have been disclosed to and
approved by the Bank.
5
EXHIBIT 10.10
G. ACCESS. The Borrower shall grant to the Bank and the USDA access
to the Borrower's premises at any reasonable time in order to
inspect the Collateral and the Borrower's property and business.
H. TRANSFER OF COLLATERAL. The Borrower shall not sell, dispose of,
lease, mortgage, assign, sublet or transfer any of its right,
title or interest in or the Collateral without the prior written
consent of the Bank, except that the Borrower may dispose of worn
out or obsolete equipment, may sell and replace any item of
Collateral with equipment of a like kind and grade, may sell
accounts receivables to an accounts receivable financier and the
Borrower may sell Collateral consisting of inventory in the
ordinary course of Borrower's business.
I. USE OF PROCEEDS. Sums advanced to the Borrower under the Loan
shall only be used to provide operating capital for the build up
of inventory, accounts receivable, for the purchase of
manufacturing equipment, and for costs related to obtaining this
loan.
J. MAINTENANCE OF TANGIBLE NET WORTH. Borrower shall maintain a
Tangible Net Worth equal to at least twenty percent (20%) of
Total Assets for the term of this Agreement. "Total Assets"
shall mean the sum of all assets of Borrower as reported on
Borrower's financial statements. "Tangible Net Worth" shall mean
the difference between total tangible assets and total
liabilities as reported on a financial statement prepared in
accordance with this Agreement.
K. ADDITIONAL DEBT LIMITATIONS. During the term of this Agreement,
Borrower and Borrower's subsidiaries shall not incur any
additional debt and shall not assume liabilities or obligations
of any entity or person without the written consent of the Bank.
Notwithstanding the foregoing, the Borrower may incur the
following debt:
(1) this loan;
(2) debt existing as of the date of this Loan Agreement;
(3) debt incurred by Borrower to refinance or exchange
existing debt of Borrower;
(4) debt incurred by Borrower or any subsidiary of Borrower
in connection with providing customer or dealer
financing for the purchase of Borrower's product;
(5) other debt of Borrower provided that in its fiscal year
1999 and fiscal years subsequent thereto, Borrower
maintains a debt service coverage ratio at least 1.25.
Debt service coverage ratio shall be calculated by
dividing the sum of net income after tax, plus
depreciation, amortization and
6
EXHIBIT 10.10
interest expense by the sum of interest and total
current maturities of long-term debt and capital
leases; and
(6) purchase money security interest debt in an amount not
to exceed $250,000.00 per fiscal year.
L. DIVIDEND PAYMENTS TO SHAREHOLDERS. This Agreement contains no
restriction on dividend payments to shareholders of Borrower.
M. LIMITATION ON COMPENSATION OF OFFICERS. This Agreement does not
limit the compensation of officers of Borrower.
N. CURRENT RATIO. The minimum current ratio maintained at all times
shall be 1.0 to 1. Minimum current ratio shall be determined by
dividing current assets by current liabilities.
O. MAXIMUM DEBT TO NET WORTH RATIO. The maximum debt to net worth
ratio shall not exceed 4 to 1. The debt to net worth ratio is
determined by dividing total liabilities by tangible net worth.
P. SUBSEQUENT AMENDMENT RELATING TO ENVIRONMENTAL IMPACTS. This
Agreement shall be subject to subsequent amendment as required by
the USDA to establish obligations upon Borrower to avoid or
reduce adverse environmental impact resulting from the
construction of Borrower's facility or from the business
operations of Borrower.
7. EVENTS OF DEFAULT; REMEDIES. Any one or more of the following
events shall constitute an Event of Default:
A. the Borrower shall fail to pay, when due, any amounts required to
be paid by the Borrower under any of the Borrower Documents, or
any other indebtedness of the Borrower to the Bank for a period
of ten (10) days after written notice to Borrower specifying such
default and requesting that it be remedied within such time
period;
B. the Borrower shall be in default in the performance of any
covenant, condition, obligation or agreement under any other
document or instrument heretofore or hereafter executed and
delivered to the Bank and such default is not cured within the
period, if any, allowed by such documents for the cure thereof;
C. the Borrower shall fail to observe or perform any of the
covenants, conditions, obligations or agreements to be observed
or performed by it under this Agreement, the Borrower Documents
or any of the documents related hereto for a period of thirty
(30) days after written notice to Borrower, specifying such
default and requesting that it be remedied within such time
period (other than defaults
7
EXHIBIT 10.10
which can be cured by a money payment) provided that such party
is proceeding with reasonable diligence to remedy the same;
D. the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or
future state or federal bankruptcy act or under any similar
federal or state law, or shall be adjudicated as bankrupt or
insolvent, or shall make a general assignment for the benefit of
its creditors, or shall be unable to pay its debts generally as
they become due; or if a petition or answer proposing the
adjudication of the Borrower as bankrupt or its/their
reorganization under any present or future state or federal
bankruptcy act or any similar federal or state law shall be filed
in any court and such petition or answer shall not be discharged
or denied within thirty (30) days after the filing thereof; or if
a receiver, trustee or liquidator of the Borrower or of all or
substantially all of the assets of the Borrower, Borrower be
appointed in any proceeding brought against the Borrower and
shall not be discharged within thirty (30) days of each
appointment; or if the Borrower shall consent to or acquiesce in
such appointment;
E. the Borrower shall be or become insolvent (whether in the equity
or bankruptcy sense);
F. any representation or warranty made by the Borrower or the
Guarantor in this Agreement, the Borrower Documents or the
Guaranty or the documents related hereto shall prove to be untrue
or misleading in any material respect, or any statement,
certificate or report furnished hereunder or under any of the
foregoing documents by or on behalf of any such party shall prove
to be untrue or misleading in any material respect on the date
when the facts set forth and recited therein are stated or
certified;
G. the Borrower shall liquidate, wind up, dissolve, merge, terminate
or suspend its business operations, or sell all or substantially
all of its assets, without the prior written consent of the Bank;
H. the Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due or notice of any state
or federal tax lien shall be filed or issued;
I. any property of the Borrower shall be garnished, levied upon, or
attached in any proceeding and such garnishment or attachment
shall remain undischarged for a period of thirty days during
which execution has not effectively stayed;
J. except as permitted herein, the Borrower shall sell, transfer,
assign or otherwise dispose of all or any part of or any interest
in any property subject to any security agreement securing the
Note, or agree to any of the foregoing, without the prior written
consent of the Bank; or
8
EXHIBIT 10.10
K. any change in the condition of the Borrower which, in the
reasonable opinion of the Bank, materially increases its risk
with respect to the Borrower Documents or the Guaranty, or any
documents or agreements related hereto or thereto, or the Bank
otherwise in good ▇▇▇▇▇ ▇▇▇▇▇ itself insecure for any reason with
respect to the payment of the Note.
Upon the occurrence and continuation of an Event of Default, any one or more
of the following remedial steps may be taken by the Bank:
(1) Bank may, after the expiration of applicable cure
periods following written notice by Bank, declare
all or part of the principal balance of the Note
plus accrued interest thereon to be immediately due
and payable, whereupon the same shall become immediately
due and payable by the Borrower;
(2) the Bank may take whatever action at law or in equity
as may appear necessary or appropriate to collect the
amounts then due and thereafter to become due under the
Note, this Agreement and the documents related hereto;
(3) the Bank may take whatever action in law or in equity
as may appear necessary or appropriate to collect any
other amounts then due and thereafter to become due under
this Agreement and the documents related hereto and to
enforce performance and observance of any obligation,
agreement, or covenant of the Borrower thereunder; and
(4) the Bank may take whatever action in law or in equity
as may appear necessary or appropriate to enforce its
rights with respect to the collateral securing the Note.
8. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by mail, postage prepaid, first class, certified or
registered mail, return receipt requested, to the following address or such
other address of which a party subsequently may give notice to all the other
parties (provided, however, that notices to the Bank shall not be effective
until received by the Bank):
IF TO BANK: Dakota Bank
ATTENTION: ▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
IF TO THE BORROWER: Excelsior-▇▇▇▇▇▇▇▇▇
Motorcycle Manufacturing Company
9
EXHIBIT 10.10
ATTENTION: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
SENIOR VICE PRESIDENT OF FINANCE
AND ADMINISTRATION
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
9. MISCELLANEOUS.
A. WAIVERS, ETC. No failure on the part of the Bank to exercise,
and no delay in exercising, any right or remedy hereunder or
under applicable law or any document or agreement related hereto
shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right or remedy preclude any other
or further exercise thereof or the exercise of any other right or
remedy. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
B. EXPENSES. The Borrower shall reimburse the Bank for any and all
costs and expenses, including, without limitation, attorneys'
fees, paid or incurred by either the Bank in connection with the
preparation of the enforcement by the Bank during the term hereof
of thereafter or any of the rights or remedies of the Bank under
any of the foregoing documents, instruments or agreements of
under applicable law, whether or not suit is filed with respect
thereto.
C. AMENDMENTS, ETC. The Borrower Documents may not be amended or
modified except by written instruments signed by the Bank and the
Borrower.
D. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Bank and their respective
successors and assigns; provided, however, that the Borrower may
not transfer or assign its rights to borrow hereunder without the
prior written consent of the Bank.
E. ACCOUNTING. Unless otherwise expressly provided herein, or
unless the Bank otherwise consents in writing, all accounting
terms used herein which are not expressly defined in this
Agreement shall have the meanings respectively given to them in
accordance with generally accepted accounting principles and
audited financial statements and reports furnished to the Bank
hereunder shall be prepared, and all computations and
determinations pursuant hereto shall be made, in accordance with
generally accepted accounting principles and practices, applied
on a basis not materially inconsistent with that applied in
preparing the respective financial statements referred to in
Sections 5D hereof.
F. GOVERNING LAW. Except as otherwise expressly provided therein,
the Borrower Documents, and all other agreements related hereto,
shall be construed in accordance with and governed by the laws of
the State of Minnesota.
10
EXHIBIT 10.10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
DAKOTA BANK EXCELSIOR-▇▇▇▇▇▇▇▇▇
MOTORCYCLE MANUFACTURING COMPANY
By: By:
---------------------------------- -----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Its Executive Vice President Its Senior Vice President of
Finance and Administration and
Chief Financial Officer
11
EXHIBIT 10.10
EXHIBIT "A"
TO
LOAN AGREEMENT
COLLATERAL
(a) All accounts receivable, contract rights and rights to payment in money
or in kind for goods sold or leased or for services rendered; all
returned or repossessed goods arising from or relating to any account,
contract rights, or rights to payment; and any rights of Borrower as an
unpaid seller of goods or services, which may now exist or which are
hereafter acquired, together with all proceeds and products of the
foregoing;
(b) All inventory (goods, merchandise, and other personal property) which
are held for sale, lease or otherwise in connection with Borrower's
operations, or furnished or to be furnished under any contract of
service or are raw materials, work-in-process, supplies, or materials
used or consumed in Borrower's operations, and any right of Borrower as
an unpaid seller of goods or services; and
(c) All equipment, machinery and other fixed assets of Borrower pledged by
Borrower to Bank pursuant to the terms of the Security Agreement.
12