BUSINESS LOAN AGREEMENT (ASSET BASED)
Principal Loan Date Maturity Loan No Call/Coll Account Officer Initials
$6,000,000.00 08-15-2003 09-01-2004 92018206 636AW /s/AW
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length limitations.
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Borrower: I/OMAGIC CORPORATION(TIN: ▇▇-▇▇▇▇▇▇▇) Lender: UNITED NATIONAL BANK
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇.
MONTEREY PARK, CA 91754
(▇▇▇)▇▇▇-▇▇▇▇
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THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated August 15, 2003, is made and
executed between I/OMAGIC CORPORATION ("Borrower") and UNITED NATIONAL BANK
("Lender") on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a commercial loan or
loans or other financial accommodations, including those which may be described
on any exhibit or schedule attached to this Agreement ("Loan"). ▇▇▇▇▇▇▇▇
understands and agrees that: (A) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements as
set forth In this Agreement; (B) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to ▇▇▇▇▇▇'s sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of August 15, 2003, and shall
continue in full force and effect until such time as all of Borrower's Loans in
favor of Lender have been paid in full, including principal, interest, costs,
expenses, attorneys' fees, and other fees and charges, or until September 1,
2004.
LINE OF CREDIT. ▇▇▇▇▇▇ agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:
Conditions Precedent to Each Advance. ▇▇▇▇▇▇'s obligation to make any Advance to
or for the account of Borrower under this Agreement is
subject to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in form
and substance satisfactory to Lender:
(1) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by Borrower to
Lender.
(2) Lender shall have received such opinions of counsel, supplemental opinions,
and documents as ▇▇▇▇▇▇ may request.
(3) The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force and
effect.
(4) All guaranties required by Lender for the credit facility(ies) shall have
been executed by each Guarantor, delivered to Lender, and be in full force and
effect.
(5) Lender, at its option and for its sole benefit, shall have conducted an
audit of ▇▇▇▇▇▇▇▇'s Accounts, books, records, and operations, and Lender shall
be satisfied as to their condition.
(6) Borrower shall have paid to Lender all fees, costs, and expenses specified
in this Agreement and the Related Documents as are then due and payable.
(7) There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for in the
paragraph below titled "Compliance Certificate."
Making Loan Advances. Advances under this credit facility, as well as directions
for payment from ▇▇▇▇▇▇▇▇'s accounts, may be requested orally or in writing by
authorized persons. Lender may, but need not, require that all oral requests be
confirmed in writing. Each Advance shall be conclusively deemed to have been
made at the request of and for the benefit of Borrower (1) when credited to any
deposit account of Borrower maintained with Lender or (2) when advanced in
accordance with the instructions of an authorized person. Lender, at its option,
may set a cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of the
outstanding Advances shall exceed the applicable Borrowing Base, Borrower within
5 days upon written or oral notice from Lender, shall pay to Lender an amount
equal to the difference between the outstanding principal balance of the
Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all other applicable
fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other
debits and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of ▇▇▇▇▇▇▇▇'s
account, which statements shall be considered to be correct and conclusively
binding on Borrower unless Borrower notifies Lender to the contrary within
thirty (30) days after ▇▇▇▇▇▇▇▇'s receipt of any such statement which Borrower
deems to be incorrect.
COLLATERAL. To secure payment of the Primary Credit Facility and performance of
all other Loan, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require. Lender's Security Interests in the Collateral
shall be continuing liens and shall include the proceeds and products of the
Collateral, including without limitation the proceeds of any insurance. With
respect to the Collateral, ▇▇▇▇▇▇▇▇ agrees and represents and warrants to
▇▇▇▇▇▇:
Perfection of Security Interests. ▇▇▇▇▇▇▇▇ agrees to execute financing
statements and all documents perfecting ▇▇▇▇▇▇'s Security Interest and to take
whatever other actions are requested by ▇▇▇▇▇▇ to perfect and continue ▇▇▇▇▇▇'s
Security Interests in the Collateral. Upon request of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ will
deliver to Lender any and all of the documents evidencing or constituting the
Collateral, and Borrower will note ▇▇▇▇▇▇'s interest upon any and all chattel
paper and instruments if not delivered to Lender for possession by ▇▇▇▇▇▇.
Contemporaneous with the execution of this Agreement, ▇▇▇▇▇▇▇▇ will execute one
or more UCC financing statements and any similar statements as may be required
by applicable law, and, ender will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower hereby
appoints ▇▇▇▇▇▇ as its irrevocable attorney-in-fact for the purpose of executing
any documents necessary to perfect or to continue any Security Interest. ▇▇▇▇▇▇
may at any time, and without further authorization from Borrower. file a carbon,
photograph, facsimile, or other reproduction of any financing statement for use
as a financing statement. Borrower will reimburse Lender for all reasonable
expenses for the perfection, termination, and the continuation of the perfection
of ▇▇▇▇▇▇'s security interest in the Collateral. Borrower promptly will notify
Lender before any change in ▇▇▇▇▇▇▇▇'s name including any change to the assumed
business names of ▇▇▇▇▇▇▇▇. Borrower also promptly will notify Lender before any
change in Borrower's Social Security Number or Employer Identification Number.
▇▇▇▇▇▇▇▇ further agrees to notify ▇▇▇▇▇▇ in writing prior to any change in
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 2
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address or location of Borrower's principal governance office or should Borrower
merge or consolidate with any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or ▇▇▇▇▇▇'s representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, ▇▇▇▇▇▇▇▇ agrees to
keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings. Records related to Accounts (Receivables) are or will be located at
Corporate Offices. The above is an accurate and complete list of all locations
at which Borrower keeps or maintains business records concerning ▇▇▇▇▇▇▇▇'s
collateral.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of Accounts
and schedules of Eligible Accounts in form and substance satisfactory to the
Lender. Thereafter supplemental schedules shall be delivered according to the
following schedule: With respect to Eligible Accounts, schedules shall be
delivered as follow:
REPORTING REQUIREMENT
1) BORROWING BASE CERTIFICATE BASED ON THE MOST CURRENT ACCOUNT RECEIVALBE AGING
REPORT TO BE SUBMITTED PRIOR TO FIRST DRAWDON.
2) SUBMISSION OF MONTH-END ACCOUNT RECEIVABLE AND AGING REPORT WITH DETAILED
BREAKDOWN PER CUSTOMER CERTIFIED AS TRUE AND CORRECT BY AN AUTHORIZED SIGNER OF
THE BORROWER. EACH MONTH-END REPORT WILL BE FORWARDED BY THE 15th DAYS AFTER THE
END OF THE PERIOD.
3) SUBMISSION OF MONTH-END INVENTORY AND AGING REPORT WITH DETAILED BREAKDOWN
PER CUSTOMER CERTIFIED AS TRUE AND CORRECT BY AN AUTHORIZED SIGNER OF THE
BORROWER. EACH MONTH-END REPORT WILL BE FORWARED BY THE 15TH DAYS AFTER THE END
OF THE PERIOD.
4) SUBMISSION OF MONTH-END ACCOUNT PAYABLE AND AGING REPORT WITH DETAILED
BREAKDOWN PER CUSTOMER CERTIFIED AS TRUE AND CORRECT BY AN AUTHORIZED SIGNER OF
THE BORROWER. EACH MONTH-END REPORT WILL BE FORWARDED BY THE 15TH DAYS AFTER THE
END OF THE PERIOD.
5) MONTHLY BORROWING BASE CERTIFICATE TO BE SUBMITTED WITHIN 15 DAYS AFTER THE
END OF THE PERIOD. 6) QUARTERLY 10-Q AUDITED REPORT TO BE SUBMITTED NO LATER
THAN 60 DAYS AFTER EACH QUARTER END.
Representations and Warranties Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (1) Each
Account represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible Account;
(2) All Account information listed on schedules delivered to Lender will be true
and correct, subject to immaterial variance; and (3) Lender, its assigns, or
agents shall have the right at any reasonable time and at Borrower's expense to
inspect, examine, and audit ▇▇▇▇▇▇▇▇'s records and to confirm with Account
Debtors the accuracy of such Accounts.
Notification Basis. ▇▇▇▇▇▇▇▇ agrees and understands that this Loan shall be on a
notification basis pursuant to which Lender shall directly collect and receive
all proceeds and payments from the Accounts in which ▇▇▇▇▇▇ has a security
interest. In order to facilitate the foregoing, ▇▇▇▇▇▇▇▇ agrees to deliver to
▇▇▇▇▇▇, upon demand, any and all of ▇▇▇▇▇▇▇▇'s records, ledger sheets, payment
cards, and other documentation, in the form requested by ▇▇▇▇▇▇, with regard to
the Accounts. ▇▇▇▇▇▇▇▇ further agrees that ▇▇▇▇▇▇ shall have the right to notify
each Account Debtor, pay such proceeds and payments directly to Lender, and to
do any and all other things as Lender may deem to be necessary and appropriate,
within its sole discretion, to carry out the terms and intent of this Agreement.
Lender shall have the further right, where appropriate and within ▇▇▇▇▇▇'s sole
discretion, to file suit, either in its own name or in the name of Borrower, to
collect any and all such Accounts. ▇▇▇▇▇▇▇▇ further agrees that ▇▇▇▇▇▇ may take
such other actions, either in ▇▇▇▇▇▇▇▇'s name or ▇▇▇▇▇▇'s name, as Lender may
deem appropriate within its sole judgment, with regard to collection and payment
of the Accounts, without affecting the liability of Borrower under this
Agreement or on the Indebtedness.
Remittance Account. ▇▇▇▇▇▇▇▇ agrees that ▇▇▇▇▇▇ may at any time require Borrower
to institute procedures whereby the payments and other proceeds of the Accounts
shall be paid by the Account Debtors under a remittance account or lock box
arrangement with ▇▇▇▇▇▇, or ▇▇▇▇▇▇'s agent, or with one or more financial
institutions designated by Lender. Borrower further agrees that, if no Event of
Default exists under this Agreement, any and all of such funds received under
such a remittance account or lock box arrangement shall, at ▇▇▇▇▇▇'s sole
election and discretion, either be (1) paid or turned over to Borrower; (2)
deposited into one or more accounts for the benefit of Borrower (which deposit
accounts shall be subject to a security assignment in favor of Lender); (3)
deposited into one or more accounts for the joint benefit of Borrower and Lender
(which deposit accounts shall likewise be subject to a security assignment in
favor of ▇▇▇▇▇▇); (4) paid or turned over to Lender to be applied to the
Indebtedness in such order and priority as Lender may determine within its sole
discretion; or (5) any combination of the foregoing as Lender shall determine
from time to time. ▇▇▇▇▇▇▇▇ further agrees that, should one or more Events of
Default exist, any and all funds received under such a remittance account or
lock box arrangement shall be paid or turned over to Lender to be applied to the
Indebtedness, again in such order and priority as Lender may determine within
its sole discretion.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to ▇▇▇▇▇▇'s satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the
Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests in the Collateral; (3) financing statements and all other documents
perfecting Lender's Security Interests; (4) evidence of insurance as required
below; (5) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents. In
addition, Borrower shall have provided such other resolutions, authorizations,
documents and instruments as Lender or its counsel, may require.
Fees and Expenses Under This Agreement. Borrower shall have paid to Lender all
fees, costs, and expenses specified in this Agreement and the Related Documents
as are then due and payable
Representations and Warranties. The representations and warranties set forth in
this Agreement, in the Related Documents, and in any document or certificate
delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times
shall be, duly organized, validly existing, and in good standing under and by
virtue of the laws of the State of Nevada. Borrower is duly authorized to
transact business in all other states in which ▇▇▇▇▇▇▇▇ is doing
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 3
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business, having obtained all necessary filings, governmental licenses and
approvals for each state in which Borrower is doing business. Specifically,
Borrower is, and at all times shall be, duly qualified as a foreign corporation
in all states in which the failure to so qualify would have a material adverse
effect on its business or financial condition. Borrower has the full power and
authority to own its properties and to transact the business in which it is
presently engaged or presently proposes to engage. Borrower maintains its
principal office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇. Unless
Borrower has designated otherwise in writing, this is the principal office at
which Borrower keeps its books and records including its records concerning the
Collateral. Borrower will notify Lender prior to any change in the location of
▇▇▇▇▇▇▇▇'s state of organization or any change in Borrower's name. Borrower
shall do all things necessary to preserve and to keep in full force and effect
its existence, rights and privileges, and shall comply with all regulations,
rules, ordinances, statutes, orders and decrees of any governmental or
quasi-governmental authority or court applicable to Borrower and ▇▇▇▇▇▇▇▇'s
business activities.
ASSUMED BUSINESS NAMES. ▇▇▇▇▇▇▇▇ has filed or recorded all documents or filings
required by law relating to all assumed business names used by ▇▇▇▇▇▇▇▇.
Excluding the name of ▇▇▇▇▇▇▇▇, the following is a complete list of all assumed
business names under which Borrower does business: NONE.
AUTHORIZATION. Borrower's execution, delivery, and performance of this Agreement
and all the Related Documents have been duly authorized by all necessary action
by Borrower and do not conflict with, result in a violation of, or constitute a
default under (1) any provision of Borrower's articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding upon
Borrower or (2) any law, governmental regulation, court decree, or order
applicable to Borrower or to Borrower's properties.
FINANCIAL INFORMATION. Each of ▇▇▇▇▇▇▇▇'s financial statements supplied to
▇▇▇▇▇▇ truly and completely disclosed ▇▇▇▇▇▇▇▇'s financial condition as of the
date of the statement, and there has been no material adverse change in
▇▇▇▇▇▇▇▇'s financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will constitute
legal, valid, and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously disclosed
in ▇▇▇▇▇▇▇▇'s financial statements or in writing to Lender and as accepted by
▇▇▇▇▇▇, and except for properly tax liens for taxes not presently due and
payable, Borrower owns and has good title to all of Borrower's properties free
and clear of all Security Interests, and has not executed any security documents
or financing statements relating to such properties. All of ▇▇▇▇▇▇▇▇'s
properties are titled in Borrower's legal name, and ▇▇▇▇▇▇▇▇ has not used or
filed a financing statement under any other name for at least the last five (5)
years.
HAZARDOUS SUBSTANCES. Except as disclosed to and acknowledged by ▇▇▇▇▇▇ in
writing, Borrower represents and warrants that: (1) During the period of
Borrower's ownership of Borrower's Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance by any person on, under, about or from any of
the Collateral. (2) Borrower has no knowledge of, or reason to believe that
there has been (a) any breach or violation of any Environmental Laws; (b) any
use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance on, under, about or from the
Collateral by any prior owners or occupants of any of the Collateral; or (c) any
actual or threatened litigation or claims of any kind by any person relating to
such matters. (3) Neither Borrower nor any tenant, contractor, agent or other
authorized user of any of the Collateral shall use, generate, manufacture,
store, treat, dispose of or release any Hazardous Substance on, under, about or
from any of the Collateral; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation all Environmental Laws. Borrower
authorizes Lender and its agents to enter upon the Collateral to make such
inspections and tests as Lender may deem appropriate to determine compliance of
the Collateral with this section of the Agreement. Any inspections or tests made
by Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1)
releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other costs
under any such laws, and (2) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the Collateral. The provisions of this section
of the Agreement, including the obligation to indemnify, shall survive the
payment of the Indebtedness and the termination, expiration or satisfaction of
this Agreement and shall not be affected by ▇▇▇▇▇▇'s acquisition of any interest
in any of the Collateral, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may materially
adversely affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by ▇▇▇▇▇▇ in writing.
TAXES. To the best of ▇▇▇▇▇▇▇▇'s knowledge, all of ▇▇▇▇▇▇▇▇'s tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary
course of business and for which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
▇▇▇▇▇▇▇▇ has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to ▇▇▇▇▇▇'s
Security Interests and rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements (if any), and
all Related Documents are binding upon the signers thereof, as well as upon
their successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with ▇▇▇▇▇▇ that, so long
as this Agreement remains in effect, Borrower will:
NOTICES OF CLAIMS AND LITIGATION. Promptly inform ▇▇▇▇▇▇ in writing of (1) all
material adverse changes in Borrower's financial condition, and (2) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial condition
of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit ▇▇▇▇▇▇ to examine and audit ▇▇▇▇▇▇▇▇'s
books and records at all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with the following:
ANNUAL STATEMENTS. As soon as available, but in no event later than
one-hundred-twenty (120) days after the end of each fiscal year, ▇▇▇▇▇▇▇▇'s
balance sheet and income statement for the year ended, audited by a certified
public accountant satisfactory to Lender.
INTERIM STATEMENTS. As soon as available, but in no event later than sixty (60)
days after the end of each fiscal quarter, ▇▇▇▇▇▇▇▇'s balance sheet and profit
and loss statement for the period ended, audited by a certified public
accountant satisfactory to Lender.
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 4
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Additional Requirements. ▇▇▇▇▇▇▇▇'s Tax Return to be submitted annually within
30 days of filing but not later than nine months after each fiscal year end.
CONDITIONS PRECEDENT:
1) Account receivables due from Best Buy, Office Max, Office Depot, Radio Shack,
Tech Data, CompUSA and Circuit City shall be directly remitted to the lockbox
set up by UNB.
2) Borrower to provide UNB with copies of invoices bearing payment instruction
directing the said payments to UNB lockbox account.
3) Borrower must update and notify the Bank of any development regarding any
current and future material legal proceedings (for the claimed amount of over
$250,000) in which the Company is named the Defendant. If at anytime, in the
opinion of the Bank's legal counsel, an event is deemed to have material impact
on the outcome of the legal proceeding, the Bank has the option to take
appropriate actions regarding the subject facility, including but not limited to
freezing the facility.
4) Borrower shall not encumber, pledge, or hypothecate its assets without prior
written consent of the Bank.
5) No additional borrowing (excluding borrowings under vendor trade accounts
payable) without prior written consent of the Bank. 6) No change in key
management and major ownership structure of the corporation without prior
written consent of the Bank. 7) Annual field audit to be conducted at ▇▇▇▇▇▇▇▇'s
expense. First drawdown is subject to satisfactory field audit.
8) UNB reserves the rights to terminate, modify, and participate out to another
financial institution(s) of the subject facility. If subject facility is
participated out to another lender(s), the original terms and conditions under
signed agreement will continue to remain in effect (i.e., participating bank can
not alter the terms and conditions laid out by the Bank).
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as
▇▇▇▇▇▇ may request from time to time. Financial Covenants and Ratios. Comply
with the following covenants and ratios:
Working Capital Requirements. Borrower shall comply with the following working
capital ratio requirements:
Current Ratio. Maintain a Current Ratio in excess of 1.250 to 1.000. The term
"Current Ratio" means Borrower's total Current Assets
divided by Borrower's total Current Liabilities. This liquidity ratio should be
maintained at all times and may be evaluated at any time.
Quick Ratio. Maintain a Quick Ratio in excess of 1.000 to 1.000. The term "Quick
Ratio" means Borrower's Cash & Equivalent plus Borrower's net Trade Receivables
divided by Borrower's total Current Liabilities. This liquidity ratio should be
maintained at all times and may be evaluated at any time.
Minimum Income and Cash flow Requirements.
Tangible Net Worth Requirements. Maintain a minimum Tangible Net Worth of not
less than: $10,500,000.00. Other Net Worth requirements are as follows:
Debt/Effective Tangible Net Worth Ratio-Maintain this ratio not in excess of
2.00 to 1.00. The ratio "Debt/Effective Tangible Net Worth" means Borrower's
Total Liabilities devided by ▇▇▇▇▇▇▇▇'s Effective Tangible Net Worth. Effective
Tangible Net Worth means Tangible Net Worth plus any indebtedness which is
specifically subordinated to any debt owed to United National Bank. This ratio
will evaluated at any time.
Other Requirements.
1 Borrower has to be profitable in FYE 12/31/2003, based on Financial Statement
with unqualified CPA opinion.
2) Major Accounts credit rating and financial performance to be monitor on a
quarterly basis. Bank reserves the right to modify the (-; concentration ratio
on those accounts.
Except as provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies acceptable to Lender. Borrower, upon request of ▇▇▇▇▇▇, will deliver
to Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days prior written notice
to Lender. Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way by any act,
omission or default of Borrower or any other person. In connection with all
policies covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such lender's loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (1) the name of the
insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties
insured; (5) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (6) the
expiration date of the policy. In addition, upon request of Lender (however not
more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Proceeds. Use all Loan proceeds solely for ▇▇▇▇▇▇▇▇'s business operations,
unless specifically consented to the contrary by ▇▇▇▇▇▇ in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits.
Performance. Perform and comply, in a timely manner, with all terms, conditions,
and provisions set forth in this Agreement, in the Related Documents, and in all
other instruments and agreements between Borrower and Lender. Borrower shall
notify ▇▇▇▇▇▇ immediately in writing of any default in connection with any
agreement.
Operations. Maintain executive and, management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 5
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Environmental Studies. Promptly conduct and complete, at Borrower's expense, all
such investigations, studies, samplings and testings as may be requested by
Lender or any governmental authority relative to any substance, or any waste or
by-product of any substance defined as toxic or a hazardous substance under
applicable federal, state, or local law, rule, regulation, order or directive,
at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and
regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower's properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation, the
Americans With Disabilities Act. Borrower may contest in good faith any such
law, ordinance, or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Borrower has notified Lender in
writing prior to doing so and so long as, in ▇▇▇▇▇▇'s sole opinion, ▇▇▇▇▇▇'s
interests in the Collateral are not jeopardized. Lender may require Borrower to
post adequate security or a surety bond, reasonably satisfactory to Lender, to
protect ▇▇▇▇▇▇'s interest.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and ▇▇▇▇▇▇▇▇'s other
properties and to examine or audit ▇▇▇▇▇▇▇▇'s books, accounts, and records and
to make copies and memoranda of ▇▇▇▇▇▇▇▇'s books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of ▇▇▇▇▇▇, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
Compliance Certificates. Unless waived in writing by ▇▇▇▇▇▇, provide Lender at
least annually, with a certificate executed by ▇▇▇▇▇▇▇▇'s chief financial
officer, or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and correct
as of the date of the certificate and further certifying that, as of the date of
the certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects with
any and all Environmental Laws; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on Borrower's part or on the
part of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to perfect
all Security Interests.
▇▇▇▇▇▇'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect ▇▇▇▇▇▇'s interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral. Borrower will be
given 15 days to cure such delinquencies and/or pay for such expenditures. All
such expenditures incurred or paid by Note from the date incurred or paid by
▇▇▇▇▇▇ to the date of repayment by ▇▇▇▇▇▇▇▇. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal course
of business and indebtedness to Lender contemplated by this Agreement, create,
incur or assume indebtedness for borrowed money, including capital leases, (2)
sell, transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets (except as allowed as Permitted Liens), or
(3) sell with recourse any of Borrower's accounts, except to ▇▇▇▇▇▇.
Continuity of Operations. (1) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business or (3) pay any dividends on Borrower's stock (other
than dividends payable In Its stock), provided, however that notwithstanding the
foregoing: but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends if Borrower is a
"Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as
amended),.Borrower may pay cash dividends' on its stock to its shareholders from
time to time in amounts necessary to enable the shareholders to pay Income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and, state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of Borrower s
stock, or purchase or retire any of Borrower s outstanding shares or alter or
amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or.entity, (2) purchase,
create or acquire any interest in any other enterprise or entity, or (3) Incur
any obligation as surety or guarantor other than In the ordinary course of
business.
Agreements. Borrower will not enter into any agreement containing any provisions
which would be violated or breached by the performance of Borrower's obligations
under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement Lender shall
have no obligation to make Loan Advances or to disburse Loan proceeds If: (A)
Borrower or any Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or any Guarantor.
has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or
becomes insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (C) there occurs a material adverse change In Borrowers
financial condition, In the financial condition of any Guarantor, or In the
value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such Guarantor s guaranty of the
Loan or any other loan with Lender; or (E) Lender in good ▇▇▇▇▇ ▇▇▇▇▇ itself
insecure, even though no Event of Default shall have occurred.
DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement: Payment Default. ▇▇▇▇▇▇▇▇ fails to make any payment when due under
the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or to comply with or to perform any term,
obligation, covenant or condition contained In any other agreement
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 6
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between Lender and Borrower.
Default In Favor of Third Parties. Borrower or any Grantor defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's or any Grantor's property or Borrower's or
any Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
Insolvency. The dissolution or termination of ▇▇▇▇▇▇▇▇'s existence as a going
business, the insolvency of ▇▇▇▇▇▇▇▇, the appointment of a receiver for any part
of ▇▇▇▇▇▇▇▇'s property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any time
and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the Loan. This includes a garnishment of any of
▇▇▇▇▇▇▇▇'s accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by ▇▇▇▇▇▇▇▇ as
to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives ▇▇▇▇▇▇ written notice of
the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. In the event of a death, Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure any Event of Default.
Change In Ownership. Any change in ownership of twenty -five (25%) or more of
the common stock of Borrower, unless approved in writing by ▇▇▇▇▇▇
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or ▇▇▇▇▇▇ believes the prospect of payment or performance of the Loan
is impaired.
Insecurity. Lender in good faith believes itself insecure.
Right to Cure. If any default, other than a default on Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding three (3) months, it may be cured (and no
Event of Default will have occurred) if Borrower or Grantor, as the case may be,
after receiving written notice from Lender demanding cure of such default: (1)
cure the default within fifteen (15) days; or (2) if the cure requires more than
fifteen (15) days, immediately initiate steps which, ▇▇▇▇▇▇ deems in ▇▇▇▇▇▇'s
sole discretion to be reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Payment Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by ▇▇▇▇▇▇ to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect ▇▇▇▇▇▇'s
right to declare a default and to exercise its rights and remedies. If any Event
of Default, other than Payment Default, shall occur or in the event the borrower
is in violation of the covenants and the Bank decides to call the subject
facility, then the Borrower will be given six months to payoff the subject
facility, at 1/6 of the outstanding balance each month till termination. If
Borrower is able to secure another line of credit upon notification of
termination, the new line must be used to payoff Borrower's existing Facility
with Bank.
LOCKBOX ARRANGEMENT. The lockbox practice shall be governed by the Lockbox
Agreement entered into between the Borrower and the Bank which forms an integral
part of the documents for this Loan.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Expenses. If Lender institutes any suit or action to enforce any of the terms of
this Agreement, Lender shall be entitled to recover such sum as the court may
adjudge reasonable. Whether or not any court action is involved, and to the
extent not prohibited by law, all reasonable expenses Lender incurs that in
▇▇▇▇▇▇'s opinion are necessary at any time for the protection of its interest or
the enforcement of its rights shall become a part of the Loan payable on demand
and shall bear interest at the Note rate from the date of the expenditure until
repaid. Expenses covered by this paragraph include, without limitation, however
subject to any limits under applicable law, ▇▇▇▇▇▇'s expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services, to
the extent permitted by applicable law. ▇▇▇▇▇▇▇▇ also will pay any court costs,
in addition to all other sums provided by law.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Consent to loan Participation. ▇▇▇▇▇▇▇▇ agrees and consents to ▇▇▇▇▇▇'s sale or
transfer, whether now or later, of one or more participation interests in the
Loan to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to anyone or more purchasers, or
potential purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy Borrower may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. ▇▇▇▇▇▇▇▇ also agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such interests in the
Loan and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest and
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 7
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unconditionally agrees that either Lender or such purchaser may enforce
▇▇▇▇▇▇▇▇'s obligation under the Loan irrespective of the failure or insolvency
of any holder of any interest in the Loan. ▇▇▇▇▇▇▇▇ further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
▇▇▇▇▇▇.
Governing Law. This Agreement will be governed by, construed and enforced In
accordance with federal law and the laws of the State of California. This
Agreement has been accepted by ▇▇▇▇▇▇ in the State of California.
No Waiver by ▇▇▇▇▇▇. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by ▇▇▇▇▇▇. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by ▇▇▇▇▇▇ of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by ▇▇▇▇▇▇, nor any course of dealing between
▇▇▇▇▇▇ and Borrower, or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any of Borrower's or any Grantor's
obligations as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered, when actually received
by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the
United Slates mail, as first class, certified or registered mail postage
prepaid, directed to the addresses shown near the beginning of this Agreement.
Any party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose of the
notice is to change the party's address. For notice purposes, ▇▇▇▇▇▇▇▇ agrees to
keep ▇▇▇▇▇▇ informed at all times of ▇▇▇▇▇▇▇▇'s current address. Unless
otherwise provided or required by law, if there is more than one Borrower, any
notice given by Lender to any Borrower is deemed to be notice given to all
Borrowers.
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid, or unenforceable as to any circumstance, that
finding shall not make the offending provision illegal, invalid, or
unenforceable as to any other circumstance. If feasible, the offending provision
shall be considered modified so that it becomes legal, valid and enforceable. If
the offending provision cannot be so modified, it shall be considered deleted
from this Agreement. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Agreement shall not
affect the legality, validity or enforceability of any other provision of this
Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without limitation
any representation, warranty or covenant, the word "Borrower" as used in this
Agreement shall include all of Borrower's subsidiaries and affiliates.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower
contained in this Agreement or any Related Documents shall bind ▇▇▇▇▇▇▇▇'s
successors and assigns and shall inure to the benefit of Lender and its
successors and assigns. Borrower shall not, however, have the right to assign
▇▇▇▇▇▇▇▇'s rights under this Agreement or any interest therein, without the
prior written consent of Lender.
Survival of Representations and Warranties. ▇▇▇▇▇▇▇▇ understands and agrees that
in extending Loan Advances, ▇▇▇▇▇▇ is relying on all
representations, warranties, and covenants made by Borrower in this Agreement or
in any certificate or other instrument delivered by Borrower to Lender under
this Agreement or the Related Documents. Borrower further agrees that regardless
of any investigation made by ▇▇▇▇▇▇, all such representations, warranties and
covenants will survive the extension of Loan Advances and delivery to Lender of
the Related Documents, shall be continuing in nature, shall be deemed made and
redated by ▇▇▇▇▇▇▇▇ at the time each Loan Advance is made, and shall remain in
full force and effect until such time as Borrower's Indebtedness shall be paid
in full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
DEFINITIIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United Slates of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
Account. The word "Account" means a trade account, account receivable, other
receivable, or other right to payment for goods sold or services rendered owing
to Borrower (or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity obligated
upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower's behalf under the terms and conditions of this
Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement (Asset
Based), as this Business Loan Agreement (Asset Based) may be amended or modified
from time to time, together with all exhibits and schedules attached to this
Business Loan Agreement (Asset
Based) from time to time.
Borrower. The word "Borrower" means I/OMAGIC CORPORATION.
Borrowing Base. The words "Borrowing Base" mean 65% of eligible accounts
receivable. Eligible accounts receivable are defined as accounts other than:
1) Accounts over 90 days from invoice date;
2) Accounts derived from affiliates/related entitles, employees, contra
accounts, foreign accounts, federal government accounts (unless in compliance
with Assignment of Claim account), conditional sales, installment sales, and/or
consignment sales; 3) Cross aged accounts with over 50% of its combined invoices
outstanding over 90 days from date of invoice;
4) Accounts with concentration in excess of 15% of total account receivable
(except for up to 30% of total AIR for Best Buy and Office Max; and up to 20% of
total AIR for Office Depot and Circuit City.
Business Day. The words "Business Day" mean a day on which commercial banks are
open in the State of California.
Cash & Equivalent. The words "Cash & Equivalent" mean all of Borrower's cash,
marketable securities, and other near-cash items, excluding
sinking funds.
Collateral. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage,
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 8
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collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel
mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien, charge, lien or title retention
contract, lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law, contract, or
otherwise. The word Collateral also includes without limitation all collateral
described in the Collateral section of this Agreement.
Eligible Accounts. The words "Eligible Accounts" mean at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may borrow
shall exclude all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by ▇▇▇▇▇▇ in writing, Eligible Accounts do not include:
(1) Accounts with respect to which the Account Debtor is employee or agent of
Borrower.
(2) Accounts with respect to which the Account Debtor is a subsidiary of, or
affiliated with Borrower or its shareholders, officers, or directors. (3)
Accounts with respect to which goods are placed on consignment, guaranteed sale,
or other terms by reason of which the payment by
the Account Debtor may be conditional.
(4) Accounts with respect to which the Account Debtor is not a resident of the
United States, except to the extent such Accounts are supported by insurance,
bonds or other assurances satisfactory to Lender.
(5) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(6) Accounts which are subject to dispute, counterclaim, or setoff.
(7) Accounts with respect to which the goods have not been shipped or delivered,
or the services have not been rendered, to the Account Debtor.
(8) Accounts with respect to which Lender, in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor to
be unsatisfactory.
(9) Accounts of any Account Debtor who has filed or has had filed against it a
petition in bankruptcy or an application for relief under any provision of any
state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has
had appointed a trustee, custodian, or receiver or has become insolvent or fails
generally to pay its debts (including its payrolls) as such debts become due.
(10) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
ENVIRONMENTAL Laws. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. C'CERCLA"), the Superfund Amendments
and Reauthorization Act of 1986, Pub. L. No. 99-499 C'▇▇▇▇"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or federal laws, rules, or regulations
adopted pursuant thereto.
EVENT OF DEFAULT. The words "Event of Default" mean any of the events of default
set forth in this Agreement in the default section of this Agreement.
EXPIRATION DATE. The words "Expiration Date" mean the date of termination of
▇▇▇▇▇▇'s commitment to lend under this Agreement. GAAP. The word "GAAP" means
generally accepted accounting principles.
GRANTOR. The word "Grantor" means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest means I/OMAGIC
CORPORATION only.
GUARANTOR. The word "Guarantor" means I/OMAGIC CORPORATION only.
GUARANTY. The word "Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty Of all or part of the Note.
HAZARDOUS SUBSTANCES. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or infectious
characteristics, may cause or pose a present or potential hazard to human health
or the environment when improperly used, treated, stored, disposed of,
generated, manufactured, transported or otherwise handled. The words "Hazardous
Substances" are used in their very broadest sense and include without limitation
any and all hazardous or toxic substances, materials or waste as defined by or
listed under the Environmental Laws. The term "Hazardous Substances" also
includes, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos.
INDEBTEDNESS The word "Indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and
interest together with all other indebtedness and costs and expenses for which
Borrower is responsible under this Agreement or under any of the Related
Documents.
LENDER. The word "Lender" means UNITED NATIONAL BANK, its successors and
assigns.
LOAN. The word "Loan" means any and all loans and financial accommodations from
Lender to Borrower whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations described
herein or described on any exhibit or schedule attached to this Agreement from
time to time.
NOTE. The word "Note" means the Note executed by I/OMAGIC CORPORATION in the
principal amount of $6,000,000.00 dated August 15, 2003, together with all
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement.
PERMITTED LIENS. The words "Permitted Liens" mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes,
assessments, or similar charges either not yet due or being contested in good
faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other
like liens arising in the ordinary course of business and securing obligations
which are not yet delinquent; (4) purchase money liens or purchase money
security interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the date of
this Agreement or permitted TO be incurred under the paragraph of this Agreement
titled "Indebtedness and Liens"; (5) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the Lender in
writing; and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to the
net value of ▇▇▇▇▇▇▇▇'s assets.
PRIMARY CREDIT FACILITY. The words "Primary Credit Facility" mean the credit
facility described in the Line of Credit section of this Agreement.
Loan No: 92018206 BUSINESS LOAN AGREEMENT (ASSET BASED) Page 9
(Continued)
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agreements and documents, whether now or hereafter existing, executed in
connection with the Loan.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean, without limitation, any
and all types of collateral security, present and future, whether in the form of
a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever whether created by law, contract,
or otherwise.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets
excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total debt.
TRADE RECEIVABLES. The words "Trade Receivables" mean all of ▇▇▇▇▇▇▇▇'s accounts
from trade, net of allowance for doubtful accounts.
▇▇▇▇▇▇▇▇ ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) AND ▇▇▇▇▇▇▇▇ AGREES TO ITS TERMS. THIS BUSINESS LOAN
AGREEMENT (ASSET BASED) IS DATED AUGUST 15,2003.
BORROWER:
I/OMAGIC CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, President of I/OMAGIC CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chief Financial Officer of I/OMAGIC CORPORATION
LENDER:
UNITED NATIONAL BANK
By: /s/ ▇▇▇▇▇▇ ▇▇
Authorized Signer