Business Resources / Loan Agreement

LOAN AGREEMENT

RECITALS:

A. The Borrower wishes to borrow from the Bank the sum of $_____ upon a revolving credit basis to provide working capital for the operation of the Borrower's business.

B. The Bank is willing to make the requested loan to the Borrower upon the terms and conditions set forth in this Loan Agreement.

AGREEMENTS:

SECTION 1. DEFINITIONS

For purposes of this Agreement, the following terms shall have the following meanings:

1.1. Agreement. "Agreement" means this Loan Agreement.

1.2. Collateral Documents. "Collateral Documents" means the Financing Statements, Security Agreement, and Trust Deed, collectively.

1.3. Event of Default. "Event of Default" has the meaning set forth in Section 8 of this Agreement.

1.4. Financing Statements. "Financing Statements" means financing statements pursuant to the Uniform Commercial Code required to perfect the Bank's security interest under the Security Agreement.

1.5. Guaranty. "Guaranty" means the form of Guaranty attached as Exhibit E in which [Name of Guarantor], the sole shareholder of the Borrower, agrees to guaranty to the Bank the payment of all indebtedness and obligations of the Borrower to the Bank, including the Promissory Note.

1.6. Maximum Amount. "Maximum Amount" means $_____, which is the aggregate limit on the principal amount of the loan that the Bank is required to make to the Borrower under this Agreement.

1.7. Permitted Liens. "Permitted Liens" means those liens and encumbrances on the Real Property that are set forth in the attached Exhibit B.

1.8. Prime Rate. "Prime Rate" means the published prime rate of the Bank as announced from time to time by the Bank.

1.9. Promissory Note. "Promissory Note" means the form of promissory note that is attached to this Agreement as Exhibit A, which is to be executed by the Borrower and delivered to the Bank representing the Borrower's obligation to repay the loan to be made by the Bank to the Borrower under this Agreement.

1.10. Real Property. "Real Property" means the real property described on the attached Exhibit B.

1.11. Security Agreement. "Security Agreement" means the form of Security Agreement that is attached to this Agreement as Exhibit D, pursuant to which the Borrower will grant to the Bank a security interest in the Borrower's accounts receivable and other intangibles; inventory; machinery, equipment, furniture, and fixtures; and the proceeds of any of the foregoing, all as more fully described in the Security Agreement, to secure all indebtedness and obligations of the Borrower to the Bank, including the Promissory Note.

1.12. Security Agreement Collateral. The "Security Agreement Collateral" means the Borrower's accounts receivable and other intangibles; inventory; machinery, equipment, furniture, and fixtures; and the proceeds of any of the foregoing, all as more fully described in the Security Agreement.

1.13. Termination Date. The "Termination Date" shall be _________, 20__.

1.14. Trust Deed. "Trust Deed" means the form of Trust Deed that is attached to this Agreement as Exhibit C, pursuant to which the Borrower will grant to the Bank a security interest in the Real Property to secure all indebtedness and obligations of the Borrower to the Bank, including the Promissory Note.

SECTION 2. LOAN

2.1. Revolving Credit. During the term of this Agreement, the Bank shall loan to the Borrower, on a revolving credit basis, an amount not to exceed Maximum Amount.

2.2. Promissory Note. The loan shall be represented by and payable in accordance with the terms of the Promissory Note. The Promissory Note shall be dated as of the date of the first advance and shall provide that the Borrower is obligated to pay the aggregate amount advanced by the Bank to the Borrower under this Agreement together with interest from the date of each advance at a rate equal to _________ percentage points over the Prime Rate. The principal sum of the Promissory Note shall be due and payable in full on the Termination Date, and the interest shall be payable in quarterly installments on the first day of each of the months of April, July, October, and January following the date of the first advance. The rate of interest on the Promissory Note shall be adjusted with each increase or decrease in the Prime Rate, with such adjustment to be effective upon the date that the Bank announces publicly as the date of the change in the Prime Rate.

2.3. Advances. The first advance on the loan, in the amount of $_____ shall be made to the Borrower within 30 days of the date of this Agreement. The Bank shall make additional advances thereafter pursuant to the Borrower's written request, provided that the aggregate of the advances outstanding at any time shall not exceed the Maximum Amount and provided further that the Borrower shall not be in default under the terms of this Agreement at the time of making such request. Additional advances shall be in the minimum amount of $_____, and the Bank may require up to five days' written notice pursuant to the Borrower's request for an advance before making the advance. All advances shall be credited to the deposit account of the Borrower with the Bank.

2.4. Conditions Precedent. Each of the following shall be conditions precedent to the Bank's making of advances on the loan:

2.4.1. Loan Fee. Prior to the first Advance, the Borrower shall have paid the Bank a loan fee in the amount of $_____.

2.4.2. Promissory Note and Collateral Documents. Prior to the first advance, the Borrower shall have executed and delivered the Promissory Note and each of the Collateral Documents to the Bank.

2.4.3. Form U-1. Prior to the first advance, the Borrower shall have completed, executed, and delivered to the Bank a Federal Reserve Form U-1.

2.4.4. Guaranty. Prior to the first advance, [Name of the Borrower's Shareholder] shall have executed and delivered the Guaranty to the Bank.

2.4.5. Corporate Documents. Prior to the first advance, the Borrower shall have delivered to the Bank:

2.4.5.1. Articles of Incorporation. A copy of the Borrower's articles of incorporation, as amended, as currently on file with the Secretary of State of the State of _________, together with a certificate of such Secretary of State, dated as close as possible to the date of the first advance, to the effect that the Borrower is in good standing and that the articles of incorporation represent a true copy of the Borrower's articles of incorporation, as amended, as currently on file with such Secretary of State.

2.4.5.2. Bylaws. A copy of the bylaws of the Borrower, certified by the Secretary of the Borrower, as of the date of the first advance, to be a true copy of such bylaws as currently in effect.

2.4.6. Certificate. Prior to the first advance, the Borrower shall have delivered to the Bank a certificate, in a form reasonably satisfactory to the Bank, signed by the President and Secretary of the Borrower evidencing the adoption by the Board of Directors of the Borrower of a resolution authorizing the execution and delivery of this Agreement and the documents to be executed by the Borrower in connection with this Agreement and authorizing the performance by the Borrower of the obligations in the Promissory Note and the Collateral Documents.

2.4.7. Opinion Letter. Prior to the first advance, the Borrower shall have delivered to the Bank the written opinion of [Name of Law Firm], counsel for the Borrower, in a form reasonably satisfactory to the Bank, to the effect that:

2.4.7.1. Corporate Status. The Borrower is a corporation duly organized and validly existing and in good standing under the laws of the State of _________.

2.4.7.2. Corporate Authority. The Borrower has the corporate power to enter into and perform the Borrower's obligations under this Agreement, the Promissory Note, and the Collateral Documents, and, specifically but without limitation, the execution and delivery of the this Agreement, the Promissory Note, and the Collateral Documents and the performance by the Borrower of its obligations thereunder have been duly authorized by the Board of Directors of the Borrower.

2.4.7.3. Due Execution. This Agreement, the Promissory Note, and the Collateral Documents have been duly executed and delivered by the Borrower.

2.4.7.4. Binding Obligation. This Agreement, the Promissory Note, and the Collateral Documents constitute legal, valid, and binding obligations of the Borrower and will not violate, and are not prohibited by, the Articles of Incorporation or Bylaws of the Borrower and, to the best of the knowledge of such counsel, will not violate any agreement to which the Borrower is a party or by which it is bound and will not result in the creation or imposition of any lien, charge, or encumbrance upon any assets of Borrower other than under the Collateral Documents.

2.4.7.5. Legal Proceedings. To the knowledge of such counsel, there are no material legal or administrative proceedings pending or threatened against or affecting Borrower or the Real Property.

2.4.7.6. Required Approvals. To the knowledge of such counsel, no approval of or consent from any governmental authority, or any other person or entity, is required in connection with the execution by the Borrower of this Agreement, the Promissory Note, or the Collateral Documents.

2.4.7.7. Guaranty. The Guaranty has been duly executed and delivered by _________, who is the registered holder of all of the issued and outstanding stock of the Borrower.

2.4.8. Warranties and Representations. Each of the warranties and representations of the Borrower, as set forth in Section 5, shall be true in all material respects as of the date of each advance, as if made on that date.

SECTION 3. TERM

3.1. Term of Agreement. The term of this Agreement shall commence on the date of this Agreement and shall expire at 12 o'clock midnight on the Termination Date.

3.2. Extension of Term. The term of this Agreement may be extended by the Bank, at the Bank's sole discretion, for additional periods of one year each. If the Bank elects to extend the term of this Agreement, the Bank shall provide written notice of such extension to the Borrower within 60 days prior to the expiration of the initial term of this Agreement or any one-year additional term. If the Bank elects to extend the term of this Agreement, the Termination Date shall be the last day of the extended term, and appropriate documentation shall be prepared and signed by the Bank extending the date for the payment of the principal amount of the Promissory Note.

3.3. Termination. The term of this Agreement may be terminated at any time by either the Borrower or the Bank upon not less than 90 days' written notice to the other party. The termination of this Agreement by either party shall not change the Termination Date, which shall remain the same as the Termination Date that was in effect immediately prior to the termination.

3.4. Effect of Expiration or Termination. The expiration or termination of the term of this Agreement shall not affect the rights of the Bank with respect to advances made prior to the date of the expiration or termination. However, the Bank shall not be obligated to make additional advances after the expiration or termination of the term of this Agreement.

SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Bank as follows:

4.1. Due Organization. The Borrower is a corporation duly organized, legally existing, and in good standing under the laws of the state of _________ and is duly qualified as a foreign corporation in all jurisdictions in which it is required to be so qualified. The Borrower has no subsidiaries.

4.2. Corporate Authorization. The Borrower has the power to execute, deliver, and perform this Agreement, the Promissory Note, and the Collateral Documents and all corporate action necessary to authorize the execution, delivery, and performance of this Agreement, the Promissory Note, and the Collateral Documents has been taken.

4.3. Binding Agreements. This Agreement, the Promissory Note, and the Collateral Documents are, or when executed and delivered will be, the valid and binding obligations of the Borrower enforceable in accordance with their terms.

4.4. No Default. This Agreement, the Promissory Note, and the Collateral Documents do not violate any provisions of the Borrower's articles of incorporation or bylaws, or any contract, agreement, law, or regulation to which the Borrower or any of its properties is party or subject, and the same do not require the consent or approval of any regulatory authority or governmental body of the United States or of any state or subdivision thereof or of any other person and will not result in the creation or imposition of any lien or encumbrance on any of the assets of the Borrower, except the security interests in favor of the Bank created under the Collateral documents.

4.5. Title to Property. The Borrower has good and marketable title to all of its properties and assets, including specifically the Real Property and the Security Agreement Collateral, free and clear of all mortgages, liens, and encumbrances, other than Permitted Liens.

4.6. Financial Statements. The Borrower has furnished to the Bank a balance sheet and statements of income and cash flows for the Borrower of and for the fiscal year ended December 31, 20__, audited by and accompanied by the opinion of _________, independent public accountants. The Borrower has also furnished to the Bank an unaudited balance sheet and unaudited statements of income and cash flows fiscal quarter ended _________, 20__. Such balance sheets and statements of income and changes in the cash flow have been prepared in accordance with generally accepted accounting principles, consistently applied, and present fairly the financial condition and results of operations of the Borrower as of the dates and for the periods indicated (subject, where applicable, to normal year-end audit adjustments). Such balance sheets and the notes thereto disclose all material liabilities that are required by generally accepted accounting principles to be shown on financial statements or disclosed in the notes thereto. There are no other material liabilities, direct or contingent, of the Borrower, as of the dates of such financial statements or as of the date of this Agreement that are not disclosed in such financial statements. Since _________, 20__, there has been no material adverse change in the financial condition, business, operations, or prospects of the Borrower.

4.7. Litigation and Other Matters. As of the date of this Agreement, except as set forth on the attached Schedule 1, there is no litigation or any other action or proceeding of any nature pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower that involves the possibility of any judgment or liability involving a payment of $5,000 or more in excess of the amount covered by insurance, or that may adversely affect the business, financial position, or assets of the Borrower or its ability to carry on business as now conducted.

4.8. Compliance with Laws. The Borrower has substantially complied with all laws, regulations, ordinances, franchises, licenses, and orders applicable to the Borrower, its assets or its business as currently conducted. Specifically, but without limitation, the Borrower has filed all federal, state, and local tax returns and other reports required by law prior to the date of this Agreement, has paid all taxes, assessments, and other governmental charges that are due and payable prior to the date of this Agreement, and has no knowledge of any pending deficiency or additional assessment not reserved for on its financial statements.

4.9. Material Contracts. The attached Schedule 2 accurately lists all material contracts, licenses, and franchises relating to the business of the Borrower, copies of which will be delivered to the Bank upon request. All such contracts, licenses, and franchises are in full force and effect, no default has occurred thereunder, and the Borrower has not threatened and, to the Borrower's knowledge, the other parties thereto have not threatened, to terminate or cancel any such contract, license, or franchise.

4.10. Accuracy of Disclosure. Neither this Agreement nor any other document, certificate, opinion, or statement furnished to the Bank by or on behalf of the Borrower in connection with this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein not misleading. There is no fact known to the Borrower that materially and adversely affects, or will materially and adversely affect, the assets, business, operations, or condition, financial or otherwise, of the Borrower that has not been specifically set forth in this Agreement or otherwise disclosed by the Borrower to the Bank in writing.

SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES

All warranties and representations made in this Agreement shall survive until all obligations of the Borrower to the Bank created under this Agreement, the Promissory Note, or the Collateral Documents have been paid or otherwise satisfied in full.

SECTION 6. AFFIRMATIVE COVENANTS OF BORROWER

The Borrower covenants and agrees with the Bank that so long as the loan remains unpaid, the Borrower will comply with the following covenants:

6.1. Use of Loan Proceeds. The Borrower will use the proceeds of the loan only for acquiring or carrying on a business, profession, or business activity, acquiring real or personal property for investment, or carrying on an investment activity.

6.2. Financial Information. The Borrower will furnish to the Bank the following information regarding the business affairs and financial condition of the Borrower:

6.2.1. Annual Statements. As soon as available and in any event within 120 days after the end of each fiscal year of the Borrower following the full execution of this Agreement, balance sheets and statements of income and cash flows of the Borrower, commencing with the fiscal year 20__, certified by independent public accountants as fairly presenting the financial position, cash flows, and results of operations of the Borrower for such period.

6.2.2. Quarterly Statements. Within 45 days after the end of each fiscal quarter following the full execution of this Agreement, unaudited balance sheets and statements of income and cash flows showing the financial condition and results of operations and changes in financial position of the Borrower as of the end of each such quarter, certified by the chief financial officer of the Borrower as presenting fairly the financial position, cash flows, and results of operations of the Borrower.

6.2.3. Asset and Liability Schedule. Within 120 days after the end of each fiscal year of the Borrower following the full execution of this Agreement, a schedule of the Borrower's fixed assets and other major assets delineated by major asset category, indicating cost, accumulated depreciation, net depreciated value, and any mortgage, lien or encumbrance upon such property, the terms of repayment of any indebtedness secured by such mortgage, lien or encumbrance, and all other indebtedness of the Borrower and the name of any creditor to whom repayment is to be made.

6.2.4. Other Information, Inspection. Such other information as the Bank may reasonably request from time to time. In addition, the Borrower shall permit the Bank and its representatives to examine and inspect the books and records of the Borrower during regular business hours upon reasonable notice.

6.3. Financial Ratios. The Borrower will maintain:

6.3.1. Working Capital. Net Working Capital in the following minimum amounts during the following periods:

For purposes of this provision, Net Working Capital shall mean the amount by which the Borrower's current assets exceed its current liabilities, both as determined in accordance with generally accepted accounting principles, consistently applied.

6.3.2. Net Worth. Net Worth in the following minimum amounts during the following periods:

For purposes of this provision, Net Worth shall mean Shareholder's Equity, as determined in accordance with generally accepted accounting principles, consistently applied, less the sum of (a) the value of treasury stock as shown on the Borrower's balance sheet, (b) loans and advances to shareholders, directors, officers, or employees, (c) deferred expenses, and (d) patents, trademarks, trade names, and copyrights.

6.3.3. Liabilities to Net Worth Ratio. A ratio of liabilities to Net Worth of ______:______ at all times while the loan remains unpaid. For purposes of this provision, Net Worth shall mean the amount defined in Section 6.3.2.

6.3.4. Current Assets to Current Liabilities Ratio. A ratio of current assets to current liabilities, both determined in accordance with generally accepted accounting principles, consistently applied, of ______:______ at all times while the loan remains unpaid.

6.4. Taxes and Other Liens. The Borrower will comply with all statutes and governmental regulations and will pay all taxes, assessments, governmental charges, claims for labor, supplies, rent, and other obligations which if unpaid, might become a lien against the property of the Borrower except liabilities being contested in good faith and against which the Borrower will set up and maintain reserves in accordance with generally accepted accounting principles.

6.5. Maintenance. The Borrower will maintain its corporate existence and comply with all valid and applicable statutes, rules, and regulations, and the Borrower will maintain or cause to be maintained its properties in good and workable condition at all times and its material contracts, licenses, and franchises in full force.

6.6. Insurance. The Borrower will maintain the insurance coverage in the amounts, for the risks, and with the carriers listed on the attached Schedule 3. Upon the request of the Bank, the Borrower will furnish the Bank from time to time a summary of the insurance coverages of the Borrower in form and substance satisfactory to the Bank and copies of the applicable policies. The Borrower will promptly instruct its insurance carriers to name the Bank as the loss payee under the Borrower's insurance policies with such carrier and to provide 30 days' written minimum cancellation notice to the Bank.

6.7. Litigation and Other Notices. The Borrower shall give the Bank prompt written notice of the following:

6.7.1. Litigation. The filing or commencement of any action, suit, or proceeding against the Borrower, whether at law or in equity or by or before any court or any Federal, state, municipal, or other governmental agency or authority.

6.7.2. Default. Any Event of Default, specifying the nature and extent of the Event of Default and any action that the Borrower proposes to take with respect to such Event of Default.

6.7.3. Material Adverse Changes. Any development in the business or affairs of the Borrower that has resulted in or that is likely, in the reasonable judgment of the chief executive officer or chief financial officer of the Borrower, to result in a material adverse change in the business, assets, prospects, operations, or financial condition of the Borrower.

6.8. Further Assurances. The Borrower promptly will cure any defects in the execution and delivery of this Agreement, the Promissory Note, and the Collateral Documents, and will immediately execute and deliver to the Bank upon request any instrument required to accomplish or satisfy the Borrower's covenants and agreements under this Agreement, the Promissory Note, or the Collateral Documents.

SECTION 7. NEGATIVE COVENANTS OF BORROWER

The Borrower covenants and agrees with the Bank that so long as the loan remains unpaid and without the prior written consent of the Bank, the Borrower shall not:

7.1. Guarantees and Other Debts. The Borrower will not guarantee any obligation for borrowed money or purchase of personal or real property or capitalized lease obligations or incur, create, permit to exist, assume, guarantee, or in any manner become or be liable in respect of any indebtedness for borrowed money or purchase of personal or real property or capitalized lease obligations, except that the foregoing restrictions shall not apply to:

7.1.1. Open Account Indebtedness. Indebtedness on open account incurred in the ordinary course of business in connection with normal trade obligations.

7.1.2. Purchase Money Indebtedness. Purchase money indebtedness for personal or real property or capitalized lease obligations in an aggregate amount not exceeding $_____ at any time outstanding.

7.2. Dividends and Redemptions. The Borrower will not declare or pay any dividend or make any other distribution on account of its stock, or purchase, acquire, redeem, or retire any of its stock.

7.3. Issuance of Stock. The Borrower will not issue any stock or grant or issue any warrant, option, or right to acquire such stock or any security convertible into the stock of the Borrower.

7.4. Loans, Advances and Investments. The Borrower will not make loans or advances to, or make any investments in, any company, person, or entity except expense advances made to employees of the Borrower.

7.5. Mergers. The Borrower will not merge or consolidate with any corporation.

7.6. Encumbrances. The Borrower will not create, incur, assume, or permit to exist any mortgage, pledge, lien, or encumbrance on any of its properties or assets (now owned or hereafter acquired), nor acquire or agree to acquire property or assets under any conditional sale agreement or title retention contract except that the foregoing restrictions shall not apply to:

7.6.1. Liens Arising by Operation of Law. Liens of vendors, carriers, warehousemen, mechanics, laborers, and material men arising by law in the ordinary course of business of the Borrower for sums not yet due or being contested in good faith if a reserve required by generally accepted accounting principles shall have been made therefor.

7.6.2. Pledges and Deposits. Pledges or deposits in connection with or to secure workmen's compensation, unemployment insurance, pensions, or other employee benefits.

7.6.3. Permitted Indebtedness. Liens securing Permitted Indebtedness.

7.7. Lease Obligations. The Borrower will not pay an amount in any fiscal year for rents or other obligations under leases in an amount exceeding $_____.

7.8. Sale of Assets. The Borrower will not sell, transfer, or otherwise dispose of all or substantially all of its assets; or enter into any arrangement, directly or indirectly, with any person, firm, or corporation, where the Borrower shall sell or transfer any property, whether now owned or hereafter acquired, and whereby the Borrower shall then or thereafter rent or lease as lessee such property which the Borrower intends to use for substantially the same purpose or purposes as the property sold or transferred.

7.9. Management Compensation. The Borrower shall not increase the amount of cash compensation currently payable to its officers and management employees under existing employment agreements or otherwise, amend such agreements, or enter into new employment or other agreements with such officers or management employees.

7.10. Purchase of Securities on Margin. Directly or indirectly use the funds advanced under this Agreement to purchase, carry, or pay for "margin stocks" within the meaning of  Regulation U of the Board of Governors of the Federal Reserve System.

SECTION 8. DEFAULT

8.1. Events. Any of the following events shall constitute an Event of Default under this Agreement:

8.1.1. Promissory Note Payments. The Borrower shall fail to pay any installment of principal or interest due on the Promissory Note, or any fee or charge payable under this Agreement, within five days of the due date.

8.1.2. Other Failures. The Borrower shall fail to observe or perform any other obligation to be observed or performed under this Agreement or under any of the Collateral Documents, and this failure shall continue for 15 days after notice of the default is given to the Borrower by the Bank, or the Borrower notifies the Bank of the default in accordance with Section 6.7.2, whichever first occurs.

8.1.3. Other Indebtedness. Default shall be made in the payment when due, whether by acceleration or otherwise, of all or any part of any other indebtedness of the Borrower, including Permitted Indebtedness, or a non-payment default shall be made with respect to any other indebtedness of the Borrower (other than defaults that may reasonably be expected to be cured within any applicable grace period provided therefor) if the effect of any such default shall be to acceler