$15,000,000.00 or so much thereof
as may have been advanced, to or for
the benefit of Maker
FOR VALUE RECEIVED, ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
, a Delaware
corporation whose local mailing address is Post Office Box 1237, Springdale, Arkansas
), promises to pay LIBERTY BANK OF ARKANSAS
, an Arkansas
state chartered bank whose local
mailing address is 4706 South Thompson, Suite 101, Springdale, Arkansas
72764, Attn: P. Douglas
Lynch, its successors and/or assigns (Holder
), or to order, a principal sum not to exceed the
lessor of (i) Fifteen Million and No/100 Dollars ($15,000,000.00) and (ii) an amount that would be
in excess of the Borrowing Base (as defined in the Loan Agreement (as defined below)), together
with interest thereon from the date hereof, calculated at the Interest Rate as payable as set forth
below. Maker agrees and acknowledges that Holder is obligated to advance funds to Maker pursuant
to this Note only for the sole, absolute and limited purpose of providing a revolving line of
for Maker for working capital in connection with the operation of its business. Holder
shall have no obligation to advance funds under this Note for any other purpose.
1. Definitions. The following definitions are applicable to the words, phrases or
terms used in this Note:
(a) The term Default Rate
shall mean the highest rate of interest permitted under Arkansas
law at the time of the occurrence of the Event of Default or immediately following Maturity.
(b) The term Event of Default shall mean the occurrence of any of the following:
(i) A failure by Maker to make any payment of principal or interest on the Note within ten
(10) days after such payment is due;
(ii) The failure of Maker to comply with any condition or covenant set forth herein or in any
of the Loan Instruments after the expiration of any applicable notice and cure period; or
(iii) The occurrence of any Event of Default, as that term is defined in the Loan Agreement.
(d) The term Guaranty shall mean that certain Guaranty Agreement, of even date herewith,
executed by the Guarantor for the benefit of Holder, guaranteeing, as set forth therein, among
other things, this Note.
(e) The term Interest Rate shall mean:
(1) From the date hereof through and until January
16, 2007, that being Scheduled Maturity, a rate equal to the Wall
Street Journal Prime Rate plus one hundred (100) basis points, adjusted
(2) On and after Maturity, the Default Rate.
(f) The term Loan Agreement shall mean that certain Loan Agreement executed of even date
herewith by Maker as borrower and Holder as lender.
(g) The term Loan Instruments shall mean this Note, the Guaranty, the Loan Agreement, the
Security Agreement executed of even date herewith with Maker as grantor and Holder as lender (the
Security Agreement), and any and all other documents, instruments, agreements or certificates
relating to the indebtedness evidenced by this Note, whether any such documents presently exist or
are hereafter created.
(h) The term Maturity shall mean the earlier to occur of:
(1) January 16, 2007 (Scheduled Maturity); or
(2) the date on which Holder declares all sums due
and payable hereunder after an Event of Default.
(i) The term Note shall mean this Promissory Note.
(j) The term Per Annum with respect to the Interest Rate shall mean a year consisting of
three hundred sixty (360) days.
(k) The term Wall Street Journal Prime Rate shall mean the rate of interest equal to
the prime rate on corporate loans posted by at least seventy-five percent (75%) of the nations
thirty (30) largest banks as published daily in the Wall Street Journal, Southwest Edition, or, in
the absence of such published rate, such other reference or benchmark rate of interest that is
established by the Holder as its index rate to be in effect from time to time, whether or not such
rate is otherwise published, and which is used for its customers previously tied to a Wall Street
Journal Prime Rate of interest.
2. Advancement Terms. Advances under this Note shall be made consistent with the
procedures set forth in the Loan Agreement, up to an aggregate principal balance not to exceed the
lessor (i) Fifteen Million and No/100 Dollars ($15,000,000.00) and (ii) an amount that would be in
excess of the Borrowing Base (as defined in the Loan Agreement), it being expressly understood,
acknowledged, and agreed that Lender shall have the sole and absolute discretion to approve or
disapprove of applications for advances made by Maker
3. Repayment Terms. Maker promises to pay all sums advanced to or for the benefit of
Maker under this Note as follows:
(a) Commencing on February 16, 2006, and continuing on the same day of each successive month
thereafter until Scheduled Maturity, consecutive payments of accrued but unpaid interest calculated
on principal advanced and outstanding hereunder from time to time, said interest to be calculated
at the Interest Rate;
(b) The Borrower must pay upon DEMAND the amount by which at any time the unpaid principal
balance of this Note, plus all accrued but unpaid interest, cost, fees, and other charges, exceeds
the Borrowing Base (as defined in the Loan Agreement); and
(c) The balance of unpaid principal of this Note with all accrued but unpaid interest and all
other fees, costs, charges and expenses shall be due and payable on Scheduled Maturity. It is
understood that a balloon payment of all outstanding principal, plus accrued interest, will be due
at Scheduled Maturity, and that Holder is not obligated to finance that balloon payment.
4. Acceleration of Scheduled Maturity. Notwithstanding the terms and conditions of
this Note in respect to the payment of principal and interest to the contrary, Holder shall have
the right to accelerate Scheduled Maturity for the payment of the indebtedness of this Note, and
the unpaid principal and interest due Holder shall become due and payable at once and without
notice in the event Maker shall commit any Event of Default under this Note or any of the Loan
Instruments, including the Loan Agreement, and such failure is not cured within any applicable
notice and cure period.
5. Prepayment. Maker may prepay this Note in whole or in part at any time without
6. Limitation on Interest. In no contingency, whether by reason of acceleration of
the Scheduled Maturity of this Note or otherwise, shall the interest contracted for, charged or
received by Holder exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, interest would otherwise be payable to Holder in excess of the maximum
lawful amount, the interest payable to Holder shall be reduced to the maximum amount permitted
under applicable law; and, if from any circumstance the Holder shall ever receive anything of value
deemed interest by applicable law in excess of the maximum lawful amount, an amount equal to any
excessive interest shall be applied to the reduction of the principal of this Note and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of principal of the
Note such excess shall be refunded to Maker. All interest paid or agreed to be paid to Holder
shall, to the extent permitted by applicable law, be amortized, pro-rated, allocated, and spread
throughout the full period until payment in full of the principal of the Note (including the period
of any renewal or extension thereof) so that interest thereon for such full period shall not exceed
the maximum amount permitted by applicable law.
7. Remedies; Nonwaiver. Failure of Holder to exercise any right or remedy available
to Holder upon the occurrence of an Event of Default shall not constitute a waiver on the part of
Holder of the right to exercise any such right or remedy for that Event of Default or
any subsequent Event of Default. The exercise of any remedy by Holder shall not constitute an
election of any such remedy to the exclusion of any other remedy afforded Holder at law or in
equity, all such remedies being nonexclusive and cumulative. If an Event of Default occurs under
this Note and this Note is referred to an attorney at law for collection, Maker agrees to pay all
costs incurred by Holder incident to collection, including but not limited to reasonable attorneys
fees in an amount not to exceed ten percent (10%) of the principal and accrued interest then due
hereunder, enforceable as a contract of indemnity, plus all court costs and other expenses incurred
at or prior to trial and in connection with any and all appeals. If reasonable attorneys fees
exceed the amount for which Maker is liable under this contract of indemnity, a court may, in its
discretion, award Holder additional attorneys fees pursuant to A.C.A. § 16-22-308, and such will
also be secured by all liens given as security for this Note.
8. Application of Payments. Payments received on this Note shall be applied first to
accrued interest, then to reimburse Holder for any advances made to preserve or protect any
property given as security for this Note or to protect or maintain the priority of Holders lien on
or security interest therein, and any costs and expenses related thereto, and the balance shall be
applied to principal. If any sum owed by Maker to Holder is unsecured, the unsecured portion of
the indebtedness shall be completely paid prior to the payment of the secured portion of such
indebtedness, and all payments made on account of the indebtedness shall be considered to have been
paid on and applied first to the complete payment of the unsecured portion of the indebtedness.
Similarly, if any sum advanced by Holder to or for the benefit of Maker, or to protect Holders
security for this Note, shall not be used for construction of improvements on the land described in
the Mortgage, or shall otherwise not be secured by a lien entitled to the special priority accorded
by A.C.A. § 18-44-110, that portion of the indebtedness shall be completely paid prior to the
payment of any portion of the indebtedness which is entitled to such priority, and all payments
made on account of the indebtedness shall be considered to have been paid on and applied first to
the complete payment of that portion of the indebtedness not entitled to special priority.
9. Place for Payment. Unless otherwise designated in writing mailed or delivered to
Maker, the place for payment of the indebtedness evidenced by this Note shall be as follows:
Liberty Bank of Arkansas
Attention: P. Douglas Lynch, President
4706 South Thompson, Suite 101
10. Waivers. Except as otherwise specifically provided herein, the Maker, endorsers,
sureties and guarantors hereof, if any, severally waive presentment, protest and demand, notice of
protest, demand, dishonor and nonpayment of this Note, and expressly agree that this Note may be
renewed in whole or in part, or any nonpayment hereunder may be extended, or a new note of
different form may be substituted for this Note, or the rate of interest may be changed, or changes
may be made in consideration of the extension of the Scheduled Maturity date hereof, or any
combination thereof, from time to time, but, in such events, neither Maker nor any guarantor will
be released from liability by reason of the occurrence of any such event, nor shall Holder hereof
be deemed by the occurrence of any such event to have waived or surrendered, either in whole or in
part, any right it otherwise might have.
11. Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR IN ANY
WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS
WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING,
BUT NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OF OR ANY STATE THEREIN, COMMON LAW OR
ANY APPLICABLE STATUTE OR REGULATIONS. EACH PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND
VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
12. Security. Payment of the indebtedness evidenced by this Note is secured by (1)
the liens and encumbrances set forth in the Security Agreement; (2) the other Loan Instruments; and
(3) any UCC Financing Statements to be filed by Holder. Additionally, Maker grants Holder a
continuing lien to secure payment of the indebtedness evidenced by this Note upon any and all
deposits, monies or other property of value owned or belonging to Maker, and the proceeds thereof,
now or hereafter held or received by, or in transit to, Holder from or for the account or benefit
of Maker, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also
upon any and all credits or other property of value due or to become due from Maker, and any and
all claims of Maker against Holder, at any time existing. Upon an Event of Default, Holder shall
have the right and privilege, without the necessity or requirement of notice to Maker or any
endorsers or guarantors hereof, to set off, appropriate and apply any and all property of Maker
generally referred to in this Note against the outstanding indebtedness evidenced by this Note.
13. Controlling Law
. This entire transaction and all terms and provisions in this
Note shall be governed by the laws of the State of Arkansas
; provided however, notwithstanding
anything to the contrary herein, the interest rate to be charged by Holder, including any fees or
other charges which may be deemed to be interest, shall be governed by federal law, specifically
Section 731 of the Gramm-Leach-Bliley Act, Codified as 12 U.S.C. § 1831u(f), and the law of the
state having the highest permissible interest rate which, as of the date hereof, is the home state
to an insured depository institution that has a branch in Arkansas.
14. Late Charge. If any payment by Maker shall be received by Holder more than ten
(10) calendar days after it shall be due, Maker shall pay a late charge for each such late payment
equal to five percent (5%) of the late payment.
[Remainder of page intentionally left blank; Signatures to follow.]
EXECUTED AND EFFECTIVE as of the day and year first above written.
||Advanced Environmental Recycling Technologies, Inc
||Stephen W. Brooks, Co-CEO and Director
This instrument was prepared by:
Friday, Eldredge & Clark, LLP
3425 N Futrall Drive, Suite 103
Fayetteville, Arkansas 72703