Exhibit 10.19
LOAN AGREEMENT
THIS AGREEMENT is made as of the 1st day of May,
2008, by and between ASSOCIATED BANK, NATIONAL ASSOCIATION, a
national banking association (“Bank”) and IMAGE SENSING
SYSTEMS, INC., a Minnesota corporation
(“Borrower”).
RECITALS:
i.
Borrower has requested that the Bank provide a
revolving line of credit not exceeding $5,000,000.00 and a term
loan in the amount of $3,000,000, as hereinafter
provided.
ii. Bank
is willing to agree to the foregoing request of the Borrower but
only on the terms and conditions set forth herein and in reliance
on the warranties and representations of the Borrower contained
herein.
AGREEMENTS:
NOW, THEREFORE, the parties hereto agree as
follows:
1. LINE OF
CREDIT. Bank agrees to extend to the Borrower a revolving line of
credit (the “Line of Credit”) on the terms and
conditions hereinafter set forth in this Agreement.
A. The sum of
(i) outstanding principal balance of the Line of Credit plus (ii)
the sum of the aggregate amount which may be drawn under all
letters of credit issued by the Bank for the account of Borrower
(the “Credits”) outstanding at any time plus the
aggregate amount of all outstanding drafts accepted by the Bank
pursuant to Credits so issued (such sum being the “Aggregate
Outstanding Line Amount”) shall never exceed the lesser of
(a) the sum of $5,000,000.00 and (b) at any time that the Aggregate
Outstanding Line Amount shall be greater than $2,000,0000.00 the
then applicable amount of the Borrowing Base. The Borrowing Base
determined at any time shall be an amount calculated at such time
as the sum of (i) 80% of the amount then owing Borrower on its
Qualified Accounts, (ii) 80% of the amount then owing Borrower on
its Qualified Royalties, and (iii) 50% of the par value of
Borrower’s Qualified Auction Rate Securities.
1.
The term “Qualified Account” shall mean
an account owing to the Borrower which meets the following
specifications:
a.
It arose from a bona fide sale of goods which have
been delivered or shipped to the account debtor and for which
Borrower has genuine invoices, shipping documents or
receipts.
b.
It is payable not more than 30 days from the date of
performance of delivery of the goods, and is not more than 90 days
past due.
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c.
It is genuine and enforceable against the account
debtor for the amount shown as owing in the statements furnished by
Borrower to Bank. It and the transaction out of which it arose
comply with all applicable laws and regulations. It is not subject
to any set-off, credit, allowance or adjustment, except discount
for prompt payment, nor has the account debtor returned the goods
or disputed its liability.
d.
Borrower has no notice or knowledge of anything
which might materially and adversely impair the credit standing of
the account debtor.
e.
Bank has not notified Borrower in writing that the
account or account debtor is unsatisfactory and stating the reasons
for such determination.
f.
It does not arise from sales to companies or
individuals affiliated with Borrower.
g.
It is not subject to any security interests other
than Bank’s security interest.
h.
Collection is enforceable in the United States of
America.
i.
It is not owing by an account debtor (i) whose
obligations on all its accounts payable to Borrower equal or exceed
$600,000.00 and (ii) 25% or more of whose accounts payable to
Borrower are more than 90 days past due.
2.
The term “Qualified Royalties” shall
mean the royalties owing to the Borrower by Econolite Control
Products, Inc. (“Econolite”) with respect to sales of
the Autoscope system and which meet the following
specifications:
a.
It arose pursuant to a written royalty agreement
between Borrower and Econolite.
b.
It is genuine and enforceable against Econolite for
the amount shown as owing in the statements furnished by Borrower
to Bank. It and the transaction out of which it arose comply with
all applicable laws and regulations. It is not subject to any
set-off, credit, allowance or adjustment, except discount for
prompt payment, nor has Econolite disputed its
liability.
c.
Payment of the amount shown as owing in the
statements furnished by Borrower to Bank is not more than 120 days
past due.
d.
Borrower has no notice or knowledge of anything
which might materially and adversely impair the credit standing of
Econolite.
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e.
It is not subject to any security interests other
than Bank’s security interest.
f.
Collection from Econolite is enforceable in the
United States of America.
3. The
term “Qualified Auction Rate Securities” shall mean
only those auction rate securities owned by Borrower as of the date
hereof and (i) which are maintained in securities accounts at UBS
Financial Services, Inc. or Credit Suisse Securities (USA) LLC,
(ii) which are rated at least AAA by a major national credit rating
company, and (iii) in which the Bank shall have a perfected first
security interest.
B. The interest
rate on the outstanding balance of the Line of Credit shall be an
annual rate equal to the greater of (i) 4.5% or (ii) sum of 2.75%
plus the one-month LIBOR Rate (as defined below). The initial
one-month LIBOR Rate shall be that one-month LIBOR Rate in effect
on the first business day of the month in which this Agreement is
dated. The one-month LIBOR Rate shall be reset on the first day of
each succeeding month thereafter (each a “Determination
Date”). The term "LIBOR Rate" means, the per annum rate in
the Money Rates column or section of The Wall Street Journal
(Midwest Edition) as the London Interbank Offered Rates (LIBOR) for
loans of one month maturities as of the first Business Day of each
month, and the LIBOR Rate shall change on the first Business Day of
each month. If The Wall Street Journal ceases publication of the
LIBOR Rate, the LIBOR Rate shall be determined by the Bank from
such other source as the Bank reasonably selects. If the LIBOR Rate
is not readily available to the Bank from another source, the Bank
shall have the right to choose a reasonably comparable index. If
The Wall Street Journal or the replacement source publishes: (1)
more than one LIBOR Rate, the higher or highest of the rates shall
apply; or (2) a retraction or correction of a previously published
LIBOR Rate, the LIBOR Rate reported in the retraction or correction
shall apply. The determination of the LIBOR Rate shall be made by
the Bank in its sole judgment and such determination shall be
binding and conclusive on Borrower.
1. Upon
the occurrence of and during the continuance of an Event of Default
(as defined herein) and after the Line Maturity Date (as defined
herein), interest on the Line of Credit shall be a rate which shall
be 3% plus the rate which would otherwise be in effect.
2. All
interest charged on the Line of Credit shall be calculated daily on
the basis of 1/360th of the applicable annual rates.
C. Advances under the Line of Credit shall be evidenced by a
promissory note in the maximum amount of the Line of Credit (the
“Master Note”). The Master Note shall be dated as of
the date of this Agreement and shall be due and payable in full on
or before May 1, 2011 (the “Line Maturity Date”). Prior
to the Line Maturity Date all accrued interest shall be payable
monthly commencing on June 1, 2008, and continuing on the first day
of each month thereafter. The Master Note shall be in form and
substance as the note attached hereto as Exhibit 1.C.
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D. All disbursements made to the Borrower under the Line of Credit
shall be entered as debits on the Bank’s records. The Bank
shall also record as credits all payments made by the Borrower on
the Line of Credit indebtedness. At least once a month, the Bank
may render a statement of account showing as of its date the
indebtedness owed on the Line of Credit, debited and credited as
set forth above. Unless within 30 days of the date of said
statement of account the Borrower notifies Bank in writing of an
objection to said statement, said statement shall be deemed correct
and accepted by the Borrower and conclusively binding upon the
Borrower.
E.
The provisions of this paragraph are subject to any
funds management agreements or account “sweep”
agreements entered into or to be entered into between Borrower and
Bank. Duly authorized officers or employees or agents of the
Borrower as designated by the Borrower to Bank in writing may from
time to time contact a designated officer or employee of Bank,
requesting that Bank increase or decrease the total principal
amount of the Line of Credit then outstanding not to exceed the
amount stated above. Bank shall immediately increase or decrease
the principal balance then outstanding under the Master Note. All
such requests must be received by the Bank no later than 3:00 p.m.
All requests received after that time may be processed as if
received the following business day. In the
event such a request by the Borrower results in an increase in the
total principal amount then outstanding, Bank shall credit the
amount of said increase to the Borrower’s checking account
maintained with Bank. In the event that such request results in a
decrease to the total principal amount then outstanding, Bank shall
debit the Borrower’s checking account maintained with Bank
and the reduction shall be made to the total principal amount then
outstanding on the Master Note.
F.
Bank shall have no obligation to make any advances
under the Line of Credit after the Line Maturity Date, or if the
Borrower shall be in default under the terms of this Agreement, or
if any event shall have occurred which either of itself or with the
lapse of time or the giving of notice, or both, would constitute an
event of default under this Agreement.
G. On or before the last day of each month, and at such other
times as Bank may request, Borrower shall deliver to Bank a
statement, certified by the President or Chief Financial Officer of
Borrower, and in such form and containing such information as may
be prescribed by Bank, showing the status and value of the
Qualified Accounts, the Qualified Royalties and the Qualified
Auction Rate Securities as of the last day of the previous month or
if specifically requested by Bank as of not more than ten (10) days
prior to the date of delivery of such certificate. Borrower shall
promptly notify Bank if any Qualified Account, Qualified Royalty or
Qualified Auction Rate Security ceases to be qualified. Borrower
shall at all reasonable times and from time to time, upon
reasonable prior notice, allow Bank, through any of its officers,
agents, attorneys, or accountants, to examine, inspect or make
extracts from Borrower’s books and records, and to arrange
for verification of accounts receivable, under reasonable
procedures, directly with account debtors or by other methods.
Borrower shall furnish to Bank upon request additional statements
of any account, together with all notes or other papers evidencing
the same and any guaranty, securities or other documents or
information relating thereto; and shall do, make, execute and
deliver all such additional and further acts, things, deeds,
assurances and instruments as Bank may reasonably require more
completely to vest in and assure to Bank its rights hereunder or in
any collateral security and to carry into effect the provisions and
intent of this Loan Agreement or any other loan
document.
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H. The Borrower shall pay to the Bank the following fees with
respect to the Line of Credit, which fees shall be fully earned and
nonrefundable:
1.
Upon execution and delivery hereof by the Bank, a
fee in the amount of $1,500.00.
2.
Upon each anniversary of the date of this Agreement,
an annual fee in the amount of $250.00.
2. LOAN.
Borrower agrees to borrow from Bank and Bank agrees to loan to
Borrower the sum of Three Million Dollars ($3,000,000.00) (the
“Loan”) pursuant to the terms and conditions of this
Agreement.
A. The Loan
shall mature and become due and payable in full on May 1, 2011 (the
“Loan Maturity Date”).
B. Prior to the
Loan Maturity Date, principal and accrued interest on the Loan
shall be due and payable in monthly installments commencing on June
1, 2008, and continuing on the first day of each successive month
thereafter, each of which installments shall be an amount equal to
$83,333,33. All accrued interest and unpaid principal, if any,
shall be due and payable in full on the aforesaid Loan Maturity
Date.
B. The Loan shall
bear interest at the rate of 6.75% per annum. Upon the occurrence
of and during the continuance of an Event of Default and after the
Loan Maturity Date, the Loan shall bear interest at the rate of
9.75% per annum. All interest charged on the Loan shall be
calculated daily on a 30/360 day basis.
C. The Loan
shall be further evidenced by a promissory note (the “Loan
Note”) in the same form as the Promissory Note attached
hereto as Exhibit 2.C.
D. The Loan may
be prepaid, without premium or fee, in whole or in part at any time
with partial prepayments in the minimum amount of $10,000.00. All
prepayments of principal shall be applied to the payments due in
reverse order of maturity commencing with the balance due at
maturity.
E. Proceeds of
the Loan shall be disbursed only to repay Borrower’s
indebtedness to Wells Fargo Bank.
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3. REPRESENTATIONS
AND WARRANTIES. To induce the Bank to enter into this Agreement,
Borrower represents and warrants as follows:
A. Borrower is a
corporation duly organized and existing under the laws of the State
of Minnesota and is duly authorized under all applicable provisions
of law to carry on its businesses as and where presently conducted.
Borrower has the corporate power to enter into this Agreement and
to borrow hereunder.
B. The making of
this Agreement and compliance with the terms hereof by Borrower
have been duly authorized by all necessary company action and are
not at variance with or in contravention of (i) any provision of
the Articles of Incorporation and By-laws of Borrower, (ii) any
indenture, contract or agreement to which Borrower is a party or to
which it is subject, or (iii) to Borrower’s knowledge, any
statute, rule or regulation binding upon Borrower.
C. Borrower is
not a party to any litigation or administrative proceedings, nor to
Borrower’s knowledge is any litigation or administrative
proceeding threatened against Borrower which would, if adversely
determined, cause any material adverse change in Borrower’s
financial condition or in the conduct of its business, except as
previously disclosed to the Bank in writing prior to the date
hereof.
D. All copies of
financial statements, documents, contracts, agreements and
assignments which Borrower has furnished to Bank are true and
correct in all material respects. There has been no material
adverse change in the property or business operations of Borrower
since the date of the last financial statement furnished to Bank,
except pursuant to the conduct of its ordinary business, and except
as shall have been disclosed in writing by Borrower to Bank prior
to the date of execution of this Agreement.
E. Borrower has
paid, and will pay when due, all federal, state and local taxes,
and will prepare and file returns for accrued taxes on or before
the date on which such returns are due, except that Borrower may
withhold any such payment if it is contesting same in good faith
and by appropriate proceedings and provided the Borrower has
established appropriate reserves for payment thereof in accordance
with generally accepted accounting practices.
F. Borrower
has filed and will file when due all statements, if any, which it
may be required to file under the provisions of any state or
federal securities laws or regulations. Borrower is not an
“investment company” within the meaning of the
Investment Company Act, nor has Borrower engaged in the business of
carrying margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System.
G. This
Agreement is legal, valid, binding upon, and enforceable against
Borrower in accordance with its terms.
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H. Borrower owns
all of its assets, both real and personal, free and clear of any
liens or security interests other than the Permitted Liens set
forth in section 5.B of this Agreement.
I. Borrower
is not engaged, and will not engage at anytime hereafter, in any
conduct that might constitute a “pattern of racketeering
activity” or in any other conduct that would subject its
assets to forfeiture.
J. Borrower
is not a party to any litigation or administrative proceeding, nor
to Borrower’s knowledge is any litigation or administrative
proceeding threatened against it, which in either case (i) asserts
or alleges Borrower violated Environmental Laws (as defined below),
(ii) asserts or alleges that Borrower is required to cleanup,
remove, or take remedial or other responsive action due to the
disposal, depositing, discharge, leaking or other release of any
solid waste, pollutants, petroleum products, or hazardous
substances or materials, or (iii) asserts or alleges that Borrower
is required to pay all or a portion of the cost of any past,
present or future cleanup, removal or remedial or other response
action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any solid waste,
pollutants, petroleum products or hazardous substances or materials
by Borrower.
1.
As used in the foregoing paragraph and hereinafter
throughout this Agreement, the term “Environmental
Laws” shall mean all federal, state, county and local laws
including statutes, regulations, ordinances, codes, rules and other
governmental restrictions and requirements relating to the
discharge of air pollutants, water pollutants or process waste
water or otherwise relating to the environment, solid waste,
petroleum products or hazardous substances including, but not
limited to, the Federal Solid Waste Disposal Act, the Federal Clean
Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976, the Federal Comprehensive
Environmental Responsibility, Cleanup and Liability Act of 1980,
regulations of the Environmental Protection Agency, regulations of
the Nuclear Regulatory Agency, and regulations of any state
department of natural resources or state environmental protection
agency now or at any time hereafter in effect.
K. With respect
to any period during which Borrower owned or occupied the real
estate it presently owns or occupies, to Borrower’s knowledge
no person or entity has stored, deposited, treated, recycled or
disposed of on, under, adjacent to, or at any real estate owned or
occupied by the Borrower, materials, which if present would require
cleanup, removal, payments, or some other remedial action under
Environmental Laws.
L. To
Borrower’s knowledge there are not now nor have there ever
been, tanks or other containment facilities on, under, adjacent to,
or at any real estate presently owned or occupied by Borrower which
contained materials which, if present in soils or ground water,
would require cleanup, removal or some other remedial action under
Environmental Laws except two fuel storage tanks which were removed
from the property approximately 25 years ago.
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M. To
Borrower’s knowledge, there are no conditions existing
currently which would subject Borrower to damages, penalties,
injunctive relief or cleanup costs under any Environmental Laws or
which require or are likely to require cleanup, removal, remedial
action or other response pursuant to Environmental Laws by
Borrower.
N. Borrower is
not subject to any judgment, decree, order or citation related to
or arising out of Environmental Laws, and to Borrower’s
knowledge it has not been identified or listed as a potentially
responsible party by any governmental body or agency in a matter
arising under any Environmental Laws.
O. To
Borrower’s knowledge, Borrower has all permits, licenses and
approvals required under Environmental Laws with respect to its
property or business.
4.
AFFIRMATIVE COVENANTS OF BORROWER. Borrower
covenants and agrees as follows:
A.
Financial Statements.
1. As
soon as available, and in any event within forty-five (45) days
after the end of each calendar quarter, Borrower shall deliver to
Bank its financial statements (balance sheet and income statement)
for such quarter and for that part of its fiscal year ending on the
last day of such quarter, setting forth in each case, in
comparative form, figures for the corresponding periods in the
preceding fiscal year and certified as true, correct and complete,
subject to review and normal year-end adjustments, by the chief
financial officer of the Borrower.
2. As
soon as available, and in any event within 120 days after the end
of each fiscal year of Borrower, Borrower shall deliver to Bank its
audited income statement for such year and audited balance sheet as
of the end of such year setting forth in each case, in comparative
form, figures for the preceding fiscal year. All statements are to
be prepared in accordance with generally accepted principles of
accounting applied on a consistent basis, and year end statements
are to be certified by independent certified public accountants of
recognized standing selected by Borrower and acceptable to
Bank.
3. Upon
request by Bank, Borrower shall deliver to Bank accounts receivable
aging reports showing the aged status of all of its accounts
receivables as of the last day of the month preceding the month in
which such request is received.
4. Bank
may at any time, and without notice to or consent of Borrower,
deliver to any participant or potential participant in the credit
facilities provided pursuant to this Agreement copies of all
financial statements, reports, or any other documents delivered to
Bank hereunder.
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B. Certification of No Default. Together with each of the
quarterly financial statements year-end financial statements to be
provided pursuant to Section 4.A above, Borrower shall deliver to
Bank a certificate signed by the President or Chief Financial
Officer of Borrower stating that he or she has no knowledge of any
Events of Default which have occurred under this Agreement or of
any matters which would with the passage of time or the giving of
notice, or both, constitute an Event of Default hereunder, or if he
or she shall have obtained knowledge of any such Event of Default
or potential Event of Default he or she shall disclose in such
statement the Event of Default or potential Event of Default and
the nature thereof. Each such certificate shall be dated as of the
last day of the period for which it is submitted, and each such
certificate shall be in the form of the Compliance Certificate
attached hereto as Exhibit 4.B and shall be duly completed to
include the information called for therein.
C. Books and Records. Borrower shall keep proper books of record
and accounts and, upon application, give any representative of Bank
access during normal business hours to, and permit him or her to
examine, any and all books, records and documents in
Borrower’s possession relating to the financial affairs of
Borrower and to inspect any of its properties.
D. Insurance.
Borrower shall maintain all insurable property, real and personal,
owned by it insured at all times against loss or damage by fire or
other normally insured hazards through a responsible insurance
carrier selected by it in such amounts and to the extent of the
coverage as is customary for companies engaged in similar
businesses and in similar locations, but in no event shall said
insurance be less than that which Bank, in good faith, believes is
sufficient and adequate to protect the operating value of the
property of Borrower. Bank shall be named in all such insurance
policies as mortgagee-secured party-loss payee. Copies of all such
insurance policies or certificates evidencing such policies shall
be delivered to Bank.
E.
Maintenance. Borrower shall keep its properties
whether owned or leased in good condition, repair and working
order, ordinary wear and tear and casualty excepted.
F.
Taxes. Borrower shall duly pay and discharge all
lawful taxes, assessments and governmental charges upon it or
against its properties prior to the date on which penalties are
attached thereto, unless and to the extent only that the same shall
be contested in good faith and by appropriate proceedings by the
Borrower and provided Borrower has established appropriate reserves
for the payment of said taxes in accordance with generally accepted
accounting practices.
G. Existence. Borrower shall do all things necessary to maintain
its corporate existence, to preserve and keep in full force and
effect its rights and franchises necessary to continue its
businesses and to comply with all applicable laws, regulations and
ordinances.
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H. ERISA. With respect to each of its Plans, if any, under the
Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) and the Internal Revenue Code of 1986, as
amended (the “Code”), Borrower represents, warrants and
agrees that except as disclosed to Bank in writing prior to the
date hereof:
1.
all funding requirements have been met and will
continue to be met on an annual basis;
2.
no “prohibited transactions” have
occurred and that none of the transactions which are the subject of
this Agreement constitute prohibited transactions under the rulings
or regulations of ERISA or the Code;
3. all such Plans are and will continue to be qualified Plans
unless discontinuance will not subject the Borrower to any
additional liability;
4.
to Borrower’s knowledge,
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