EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 3rd day of May, 1991, by and
among BARCLAYS BUSINESS CREDIT, INC. ("Lender"), a Connecticut corporation, with
an office at 0000 Xxxxxx Xxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000; and
RED MAN PIPE & SUPPLY CO. ("Borrower"), an Oklahoma corporation, having its
chief executive office and principal place of business at 0000 Xxxx 00xx Xxxxx,
Xxxxx 000, Xxx Xxx Xxxxx, Xxxxx, Xxxxxxxx 00000.
SECTION 1. GENERAL DEFINITIONS
1.1. DEFINED TERMS. When used herein, the following terms shall have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa):
Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest.
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Acknowledgments - the managers' acknowledgments to be executed by each
manager operating a retail store or warehouse for Borrower, in the form attached
as Exhibit "G".
Adjusted Net Earnings From Operations - with respect to any fiscal period,
means the net earnings of Borrower after provision for income taxes for such
fiscal period all as reflected on the financial statement of Borrower supplied
to Lender pursuant to Section 9.1(J) hereof, but excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary accrued prior to the date it became a
Subsidiary;
(iv) earnings of any corporation, substantially all the assets of which
have been acquired in any manner by Borrower, realized by such corporation prior
to the date of such acquisition;
(v) net earnings of any business entity (other than a Subsidiary) in
which Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions;
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(vi) any portion of the net earnings of any Subsidiary which for any
reason is unavailable for payment of dividends to Borrower;
(vii) the earnings of any Person to which any assets of Borrower shall have
been sold, transferred or disposed of, or into which Borrower shall have merged,
or been a party to any consolidation or other form of reorganization, prior to
the date of such transaction;
(viii) any gain arising from the acquisition of any Securities of Borrower;
(ix) any gain arising from extraordinary or non-recurring items; and
(x) payments on intercompany accounts receivable.
Adjusted Tangible Assets - all assets except: (i) any surplus resulting
from any write-up of assets; (ii) deferred assets, including prepaid insurance
and prepaid taxes; (iii) patents, copyrights, trademarks, trade names, non-
compete agreements, franchises and other similar intangibles; (iv) good will;
(v) Restricted Investments; (vi) unamortized debt discount and expense; (vii)
assets located and notes and receivables due from obligors outside of the United
States of America; and (viii) Accounts, notes and other receivables due from
Affiliates or employees.
Adjusted Tangible Net Worth - at any date means a sum equal to: (i) the
net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of Borrower would be shown on a balance sheet at such date in
accordance with GAAP, less (ii) the amount at which Borrower's liabilities
(other than capital stock and surplus) would be shown on such a balance sheet in
accordance with GAAP, and including as liabilities all reserves for
contingencies and other potential liabilities.
Affiliate - a Person: (i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
Borrower; (ii) which beneficially owns or holds 5% or more of any class of the
voting Securities of Borrower; or (iii) 5% or more of the voting Securities (or
in the case of a Person which is not a corporation, 5% or more of the equity
interest) of which is beneficially owned or held by Borrower or a Subsidiary of
Borrower. For purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting Securities, by
contract or otherwise.
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Agreement - this Loan and Security Agreement, including all Exhibits
hereto, as the same may be modified, supplemented, extended or amended from time
to time.
Annual Business Plan - as defined in Section 9.1(L) of this Agreement.
Applicable Rate - rate of interest set forth in Section 3.1(A) of this
Agreement, as the same may be modified pursuant to Section 3.1(H), applicable to
the Loans, and, for purposes of Sections 3.1(D) and (E) of this Agreement, shall
include the Default Rate.
Average Daily Availability - the amount obtained by adding the difference
between the Borrowing Base and the unpaid balance of Loans owing by Borrower to
Lender at the end of each day during the period in question and by dividing such
sum by the number of days in such period.
Average Daily Loan Balance - the amount obtained by adding the unpaid
balance of Loans owing by Borrower to Lender at the end of each day for each day
during the period in question and by dividing such sum by the number of days in
such period.
Base Rate - the prime rate, base rate or reference rate per annum
(whichever shall be applicable) of interest announced or quoted from time to
time for commercial loans by Barclays Bank PLC, at its offices in New York, New
York, regardless of whether or not such rate is the lowest rate charged by said
bank to its most preferred borrowers. If the prime rate, base rate or reference
rate for commercial loans is discontinued by said bank as a standard, a
comparable reference rate designated by said bank as a substitute therefor shall
be the Base Rate.
Borrowing Base - as at any date of determination thereof, an amount equal
to the lesser of:
(a) the Commitment as of such date; or
(b) an amount up to:
(i) ninety percent (90%) of the net amount (after deduction of such
reserves as Lender deems proper and necessary in its sole discretion, including
a reserve for sales tax payables) of Eligible Accounts outstanding at such date;
PLUS
(ii) the lesser of (A) $6,000,000 or (B) sixty percent (60%) of the
value (after deduction of such reserves as Lender deems proper and necessary in
its sole discretion) of Eligible Inventory at such date consisting of tubular
goods held for
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sale in the ordinary course of Borrower's business, calculated on the basis of
the lower of cost or market;
PLUS
(iii) the lesser of (A) the Supply Inventory Maximum in effect on
such date or (B) the Supply Inventory Advance Rate in effect on such date
multiplied by the value (after deduction of such reserves as Lender deems proper
and necessary in its sole discretion) of Eligible Inventory at such date
consisting of consumable supplies held for sale in the ordinary course of
Borrower's business, calculated on the basis of the lower of cost or market;
MINUS (subtract from the sum of clauses (i), (ii) and (iii) above)
(iv) any amounts which Lender may be obligated to pay in the future
for the account of Borrower.
For purposes hereof, the net amount of Eligible Accounts at any time shall be
the face amount of such Eligible Accounts, less any and all returns, discounts
(which may, at Lender's option, be calculated on shortest terms), credits,
allowances or excise taxes of any nature at any time issued, owing, claimed by
Account Debtors, granted, outstanding or payable in connection with such
Accounts at such time.
Borrowing Base Certificate - means a written report (substantially in the
form of Exhibit "J" attached hereto and made a part hereof) executed by Borrower
and delivered to Lender, and certified as true and correct by an authorized
officer of Borrower setting forth in reasonable detail sufficient information
for Lender to calculate the Borrowing Base.
Business Day - a day on which the Federal Reserve Bank of Dallas is open
for business in Dallas, Texas.
Capital Expenditures - expenditures made and liabilities incurred for the
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year, including the
direct or indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise; provided, however, payments with
respect to Capital Lease obligations shall not be considered to be Capital
Expenditures for the purposes of this Agreement.
Capital Lease - as applied to any Person, any lease of any Property
(whether real, personal or mixed) required to be classified and accounted for as
a capital lease on the balance sheet of such Person in accordance with GAAP.
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Chapter 9 - the Louisiana Commercial Laws - Secured Transactions, Title 10,
Section 9-101 et.seq.
Closing Date - the date on which all of the conditions precedent in Section
10 are satisfied and the initial Loan is made hereunder.
Code - the Uniform Commercial Code as adopted and in force in the State of
Texas, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the obligations.
Commitment - $25,000,000.
Current Assets - at any date means the amount at which all of the current
assets of Borrower would be shown on a balance sheet at such date in accordance
with GAAP.
Current Liabilities - at any date means the amount at which all of the
current liabilities of Borrower would be shown on a balance sheet at such date
in accordance with GAAP.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 3.1(C) of this Agreement.
Distribution - in respect of Borrower means and includes any distribution
(whether in cash or Property) by Borrower to any shareholder whether by way of
dividend or otherwise.
Dominion Account - a special account of Lender established by Borrower
pursuant to this Agreement at a bank selected by Borrower, but acceptable to
Lender, in its sole discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBITDA - for any period, Net Income plus depreciation and amortization,
Interest Expense, and taxes for such period (in each case to the extent deducted
in determining Net Income).
Eligible Account - an Account arising in the ordinary course of Borrower's
business from the sale of goods or rendition of services which Lender, in its
sole credit judgment, deems to be an Eligible Account. No Account shall be an
Eligible Account if: (i) it arises out of a sale made by Borrower to an
Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower; or
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(ii) it remains unpaid more than ninety (90) days after the original invoice
date thereof; or (iii) more than twenty percent (20%) of the total Accounts
owing by the Account Debtor remain unpaid more than ninety (90) days after the
original invoice date thereof, to the extent of all Accounts owing by such
Account Debtor; or (iv) the total unpaid Accounts of the Account Debtor exceed
twenty percent (20%) of the net amount of all Accounts, to the extent of such
excess; or (v) any covenant, representation or warranty contained in this
Agreement with respect to such Account has been breached; or (vi) the Account
Debtor is also Borrower's creditor or supplier, or the Account otherwise is or
may become subject to any right of setoff by the Account Debtor (provided, that
in such case the Account shall be deemed to be an Eligible Account if, and to
the extent, the balance of the Account exceeds all amounts owed by Borrower to
the Account Debtor or the amount of such setoff); or (vii) the Account Debtor
has disputed liability with respect to such Account (provided, that if the
amount disputed is less than twenty-five percent (25%) of the entire balance of
the Account, the Account shall be deemed to be an Eligible Account to the extent
the balance of the Account exceeds the amount disputed); or (viii) the Account
Debtor has commenced a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an involuntary
case under the federal bankruptcy laws, as now constituted or hereafter amended,
or if the Account Debtor has ceased to be Solvent or consented to or suffered a
receiver, trustee, liquidator or custodian to be appointed for it or for all or
a significant portion of its assets or affairs; or (ix) it arises from a sale to
an Account Debtor outside the United States; or (x) it arises from a sale to the
Account Debtor on a xxxx-and-hold, guaranteed sale, sale-or-return, sale-on-
approval, consignment or any other repurchase or return basis; or (xi) Lender
believes, in its sole judgment, that collection of such Account is insecure or
that payment thereof is doubtful or will be delayed by reason of the Account
Debtor's financial condition; or (xii) the Account Debtor is the United States
of America or any State or any department, agency or instrumentality thereof; or
(xiii) the Account Debtor is located in the State of New Jersey, unless Borrower
has filed a Notice of Business Activities Report with the New Jersey Division of
Taxation for the then current year; or (xiv) the Account is not subject to
Lender's duly perfected first priority security interest or is subject to a
Lien, other than a Permitted Lien which is junior to Lender's security interest;
or (xv) the goods giving rise to such Account have not been delivered to and
accepted by the Account Debtor or the services giving rise to such Account have
not been performed by Borrower and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or (xvi) the total unpaid Accounts of
the Account Debtor exceed a credit limit determined by Lender, in its reasonable
discretion, to the extent such Account exceeds such
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limit; or (xvii) the Account is evidenced by chattel paper or an instrument of
any kind, or has been reduced to judgment; or (xviii) Borrower has made any
agreement with the Account Debtor for any deduction therefrom, except for
discounts or allowances which are made in the ordinary course of business for
prompt payment and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account; or (xix)
Borrower has made an agreement with the Account Debtor to extend the time of
payment thereof.
Eligible Inventory - such Inventory of Borrower which Lender, in the
exercise of its sole credit judgment, deems to be Eligible Inventory. No
Inventory shall be Eligible Inventory unless, in Lender's opinion, it (i) is in
good, new and saleable condition, (ii) is not obsolete or unmerchantable, (iii)
meets all standards imposed by any governmental agency or authority, (iv)
conforms in all respects to the warranties and representations set forth in
Section 6.1 hereof, (v) is at all times subject to Lender's duly perfected,
first priority security interest and no other Lien, except a Permitted Lien
which is junior to Lender's security interest or a Permitted Lien described in
Section 9.2(E)(ix) of this Agreement, (vi) is situated at a location in
compliance with Section 4.3 hereof, and (vii) consists of finished tubular goods
or consumable supplies of Borrower held for sale in the ordinary course of
Borrower's business.
Environmental Laws - all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other Tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or hereafter
acquired by Borrower and wherever located, and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as amended
from time to time, and all rules and regulations from time to time promulgated
thereunder.
Excess - as defined in Section 3.1(E) of this Agreement.
Excess Cash Flow - for any period an amount equal to the Net Income of
Borrower for such period, plus the aggregate amount of depreciation,
amortization and other non-cash charges of Borrower for such period, determined
in accordance with GAAP, which, in determining Net Income for such period, were
deducted from the gross income of Borrower; minus (a) Unfinanced Capital
Expenditures
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and Unfinanced Capitalized Lease Payments paid by Borrower during such period,
(b) Distributions paid by Borrower during such period, and (c) regularly
scheduled principal payments during such period (and, without duplication,
principal payments actually paid by Borrower during such period) on Indebtedness
(other than the Loans) of Borrower having a final maturity (or which is
renewable or extendable at the option of Borrower, for a period ending) more
than one year after the date of creation thereof.
Event of Default - as defined in Section 11.1 of this Agreement.
Financial Agreement - as defined in Section 9.2(F) of this Agreement.
Funded Indebtedness - all Indebtedness which would, in accordance with
GAAP, constitute long-term Indebtedness, but in any event shall include, without
duplication:
(a) any Indebtedness outstanding under a revolving credit or similar
agreement providing for borrowings (and renewals and extensions)
for a period of more than one year notwithstanding that any such
Indebtedness may be payable on demand or not more than one year
after its creation;
(b) any obligation with respect to a Capital Lease;
(c) any guarantees with respect to Funded Indebtedness of a type
described in clauses (a) and (b) of this definition of another
Person.
GAAP - generally accepted accounting principles in the United states of
America in effect from time to time.
General Intangibles - all general intangibles of Borrower, whether now
owned or hereafter created or acquired including, without limitation, all choses
in action, causes of action, corporate or other business records, deposit
accounts, inventions, designs, patents, patent applications, trademarks, trade
names, trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, other Intellectual Property, tax refund claims, computer
programs, all claims under guaranties, security interests or other security held
by or granted to Borrower to secure payment of any of the Accounts by an Account
Debtor, all rights to indemnification and all other intangible property of every
kind and nature (other than Accounts).
Guarantor - Xxxxx X. Xxxxxxx.
Guaranty - a limited guaranty agreement to be executed by Guarantor,
whereby Guarantor unconditionally guaranties payment to Lender of up to
$1,000,000 in principal of the obligations and all
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interest, costs and expenses associated therewith, as the same may be modified,
supplemented, extended or amended from time to time.
Indebtedness - as applied to a Person means, without duplication (i) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, Capital Lease obligations, (ii) all contingent liabilities of such
Person, including, without limitation, all obligations of other Persons which
such Person has guaranteed and (iii) in the case of Borrower (without
duplication), the Obligations.
Intellectual Property - all patents, patent applications, trademarks, trade
names, franchise agreements, license agreements, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos,
formulae, recipes, trade secrets, other source and business identifiers,
copyrights and all other similar general intangibles.
Interest Expense - means, for any period, total interest, whether paid or
accrued (including that attributable to obligations which have been or should
be, in accordance with GAAP, recorded as Capital Leases), of Borrower including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and net
costs under interest rate exchange or cap agreements providing interest rate
protection but excluding, however, interest expense not payable in cash
(including amortization of discount), all as determined in conformity with GAAP.
Inventory - all of Borrower's inventory, including, but not limited to, all
goods intended for sale or lease by Borrower, or for display or demonstration;
all work in process; all raw materials and other materials and supplies of every
nature and description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing or
furnishing of such goods or otherwise used or consumed in Borrower's business;
and all documents evidencing and General Intangibles relating to any of the
foregoing, whether now owned or hereafter acquired by Borrower.
Leverage Ratio - at any date means the ratio of the Indebtedness of
Borrower to Adjusted Tangible Net Worth of Borrower.
Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and including, but not limited to,
the security interest, security title or lien arising from a security agreement,
mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
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conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.
Loan Account - the loan account established on the books of Lender pursuant
to Section 2.3 hereof and in which Lender will record all Loans, payments made
on such Loans and other appropriate debits and credits as provided by this
Agreement.
Loans - all loans and advances made by Lender pursuant to this Agreement,
including, without limitation, all revolving credit loans made by Lender as
provided in Section 2.1 of this Agreement.
Maximum Legal Rate - as defined in Section 3.1(D) of this Agreement.
Net Income - for any period, the net income (or loss) after taxes of
Borrower for such period taken as a single accounting period, but before
extraordinary items, as determined in accordance with GAAP.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the other Agreements or otherwise and whether direct or indirect
(including those acquired by assignment), absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, attorney's fees and any other sums chargeable to Borrower under
this Agreement or any of the other Agreements.
Original Term - as defined in Section 3.3 of this Agreement.
Other Agreements - any and all agreements, instruments and documents
heretofore, now or hereafter executed by Borrower or delivered to Lender in
respect to the transactions contemplated by this Agreement, including, without
limitation, the Guaranty and the Acknowledgments, as the same may be modified,
supplemented, extended or amended from time to time.
Overadvance - as defined in Section 2.1.
Participating Lender - shall mean each Person who shall be granted the
right by Lender to participate in any of the Loans described in this Agreement
and who shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Permitted Liens - any Lien of a kind specified in subparagraphs (i) through
(xi) of Section 9.2(E) of this Agreement.
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Person - an individual, partnership, corporation, joint stock company,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for employees
of Borrower that is covered by Title IV of ERISA.
Prohibited Transaction - any transaction set forth in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code of 1986, as amended from time to
time.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or Tangible or intangible.
Purchase Money Lien - a Lien upon fixed assets granted by Borrower to
secure Indebtedness incurred by Borrower to purchase such fixed assets.
Reportable Event - any of the events set forth in Section 4043(b) of ERISA.
Restricted Investment - any investment in cash or by delivery of Property
to any Person, whether by acquisition of stock, Indebtedness or other obligation
or Security, or by loan, advance or capital contribution, or otherwise, or in
any Property, except the following: (i) Property to be used in the ordinary
course of business; (ii) Current Assets arising from the sale of goods and
services in the ordinary course of business of Borrower; (iii) investments in
direct obligations of the United States of America, or any agency thereof or
obligations guaranteed by the United States of America, provided that such
obligations mature within one year from the date of acquisition thereof; (iv)
investments in certificates of deposit maturing within one year from the date of
acquisition issued by a bank or trust company organized under the laws of the
United States or any state thereof having capital surplus and undivided profits
aggregating at least $100,000,000; (v) investments in certificates of deposit
with any federally insured institution which in the aggregate do not exceed
$100,000.00; (vi) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than two hundred seventy
(270) days from the date of creation thereof; (vii) with respect to Borrower,
Borrower's investment in its Subsidiary, Red Man Ventures, Inc., outstanding as
of the date hereof or up to an additional $50,000 investment in such subsidiary
made in any fiscal year; and (viii) investments existing as of the date hereof
and described on Exhibit "E".
Schedule of Accounts - as defined in Section 5.4 of this Agreement.
Security - shall have the same meaning as in Section 2(1) of the Securities
Act of 1933, as amended.
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Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subsidiary - any corporation of which a Person owns, directly or indirectly
through one or more intermediaries, more than 50% of the voting Securities at
the time of determination.
Supply Inventory Advance Rate - initially means forty percent (40%), but
shall automatically decrease by one percent (1%) a month on the first calendar
day of each month, beginning on November 1, 1991, until such time as the Supply
Inventory Advance Rate shall have been reduced to twenty-five percent (25%),
where it shall remain for the remainder of the term of this Agreement.
Supply Inventory Maximum - initially means $5,000,000, but shall
automatically decrease by $100,000 a month on the first calendar day of each
month, beginning on November 1, 1991, until such time as the Supply Inventory
Maximum shall have been reduced to $3,500,000, where it shall remain for the
remainder of the term of this Agreement.
Unfinanced Capital Expenditures and Unfinanced Capitalized Lease Payments -
Capital Expenditures and payments on Capital Leases by Borrower to the extent
not financed pursuant to Indebtedness of Borrower (other than the Loans) having
a final maturity (or which is renewable or extendable at the option of Borrower
for a period ending) more than one year after the date of creation thereof.
1.2. ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in preparation of the financial statements referred to in Section
9.1(J), and all financial data pursuant to the Agreement shall be prepared in
accordance with such principles. All other terms contained in this Agreement
shall have, when the context so indicates, the meanings provided for by the Code
to the extent the same are used or defined therein.
1.3. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of this Agreement.
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SECTION 2. CREDIT FACILITY
2.1. THE LOANS. Provided that no Default or Event of Default has
occurred, Lender will make Loans on a revolving credit basis to Borrower from
time to time, in amounts as requested by Borrower, up to a maximum principal
amount at any time outstanding equal to the Borrowing Base at such time. It is
expressly understood and agreed that Lender may use the Borrowing Base as a
maximum ceiling on Loans outstanding to Borrower at any time. If the unpaid
balance of the Loans should exceed the Borrowing Base or any other limitation
set forth in this Agreement, such Loans shall nevertheless constitute
obligations that are secured by the Collateral and entitled to all benefits
thereof. Insofar as Borrower may request and Lender may be willing in its
discretion to make Loans to Borrower at a time when the unpaid balance of Loans
exceeds, or would exceed with the making of any such Loan, the Borrowing Base
(any such Loan or Loans being herein referred to individually as an
"Overadvance" and collectively as "Overadvances"), Lender shall enter such
Overadvances as debits in the Loan Account. All Overadvances shall be repaid ON
DEMAND. In consideration of Lender making any Overadvance to Borrower, Borrower
agrees to pay to Lender, contemporaneously with the making of such Overadvance,
an amount equal to one percent (1%) of the Overadvance, provided that the
payment of such amount does not cause the interest on the obligations to exceed
the Maximum Legal Rate. The Loans shall be used solely (i) for the satisfaction
of existing Indebtedness of Borrower to F&M Bank and Trust Company of Tulsa,
Oklahoma, (ii) for the satisfaction of certain trade payables and other
unsecured indebtedness owed to trade creditors of Borrower, (iii) for Borrower's
general operating capital needs to the extent not inconsistent with the
provisions of this Agreement, and (iv) for the payment of any of the fees
specified in Section 3.2 of this Agreement and, to the extent approved by
Lender, to the payment of any costs associated with the closing of the
transactions contemplated by this Agreement.
2.2. ALL LOANS TO CONSTITUTE ONE OBLIGATION. All Loans shall constitute
one general obligation of Borrower, and shall be secured by Lender's security
interest in and Lien upon all of the Collateral, and by all other security
interests and Liens heretofore, now or at any time or times hereafter granted by
Borrower to Lender.
2.3. LOAN ACCOUNT. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including all charges and expenses properly
chargeable to Borrower and any other Obligation.
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2.4. INCREASED COSTS AND CAPITAL.
(A) If either (i) the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the interpretation of any law or regulation or (ii) the compliance by
Lender with any guideline or request from any central bank or other governmental
authority (whether or not having the force of law), shall result in any increase
in the cost to Lender of making, funding or maintaining any Loans, then Borrower
agrees to pay, from time to time, upon demand by Lender, to Lender additional
amounts sufficient to indemnify Lender against such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower by
Lender, shall in the absence of manifest error, be conclusive.
(B) If either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) compliance by Lender with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by Lender and Lender determines
that the amount of such capital is increased by or based upon the existence of
Lender's commitment to lend hereunder and other commitments of this type, then,
upon demand by Lender, Borrower shall immediately pay to Lender, from time to
time as specified by Lender, additional amounts sufficient to compensate Lender
in the light of such circumstances, to the extent that Lender reasonably
determines such increase in capital to be allocable to the existence of Lender's
commitment to lend hereunder. A certificate as to such amounts, submitted to
Borrower by Lender, shall, in the absence of manifest error, be conclusive and
binding for all purposes.
(C) Notwithstanding anything contained herein to the contrary, in the event
that Lender makes demand on Borrower pursuant to Section 2.4(A) or (B) hereof
for the payment of any additional amounts as specified therein, Borrower may,
within ninety (90) days following the date of the delivery by Lender of the
certificate(s) described in Section 2.4(A) or (B) hereof, at Borrower's option,
terminate this Agreement upon ten (10) days prior written notice to Lender.
Upon the effective date of such termination, Borrower shall pay to Lender the
then outstanding principal, accrued interest and other charges owing under this
Agreement and any of the other Agreements, and the termination charges or
prepayment premium provided for in Section 3.3(C) of this Agreement shall not be
payable as a result of Borrower's termination pursuant to this Section 2.4(C).
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SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. INTEREST AND CHARGES.
(A) Subject to subsection (D) of this Section 3.1, interest shall accrue on
the principal amount of the Loans outstanding at the end of each day at a
fluctuating rate per annum equal to one and one-half percent (1.50%) above the
Base Rate.
(B) After the date hereof, the Applicable Rate shall be increased or
decreased, as the case may be, by an amount equal to any increase or decrease in
the Base Rate, with such adjustments to be effective as of the opening of
business on the day that any such change in the Base Rate becomes effective.
The Base Rate in effect on the date hereof shall be the Base Rate effective as
of the opening of business on the date hereof, but if this Agreement is executed
on a day that is not a Business Day, the Base Rate in effect on the date hereof
shall be the Base Rate effective as of the opening of business on the last
Business Day immediately preceding the date hereof. Interest on the unpaid
principal balance of the obligations shall be calculated on a daily basis
(computed on the actual number of days elapsed over a year of 360 days or, for
the purposes of determining interest at the Maximum Legal Rate, a year of 365 or
366 days, as applicable), commencing on the date hereof, and shall be payable
monthly, in arrears, on the first day of each month.
(C) Subject to subsection (D) of this Section 3.1, upon and after the
occurrence of an Event of Default, and during the continuation thereof, the
principal amount of the obligations shall bear interest, calculated daily
(computed on the actual days elapsed over a year of 360 days), at a fluctuating
rate per annum equal to two percent (2%) above the Applicable Rate set forth in
Section 3.1(A) (the "Default Rate").
(D) Notwithstanding the foregoing, (i) if at any time the amount of such
interest computed on the basis of the Applicable Rate would exceed the amount of
such interest computed upon the basis of the maximum rate of interest permitted
by applicable state or federal law in effect from time to time hereafter (the
"Maximum Legal Rate"), the interest payable under this Agreement shall be
computed upon the basis of the Maximum Legal Rate, but any subsequent reduction
in the Applicable Rate shall not reduce such interest thereafter payable
hereunder below the amount computed on the basis of the Maximum Legal Rate until
the aggregate amount of such interest accrued and payable under this Agreement
equals the total amount of interest which would have accrued if such interest
had been at all times computed solely on the basis of the Applicable Rate; and
(ii) unless preempted by federal law, the Applicable Rate from time to time in
effect hereunder may not exceed the "Indicated Rate Ceiling" from time to time
in effect
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under Section (c) of Article 5069-1.04, Title 79, Revised Civil Statutes of
Texas, 1925, as amended.
(E) No agreements, conditions, provisions or stipulations contained in this
Agreement or any other instrument, document or agreement between Borrower and
Lender or default of Borrower, or the exercise by Lender of the right to
accelerate the payment of the maturity of principal and interest, or to exercise
any option whatsoever contained in this Agreement or any other agreement between
Borrower and Lender, or the arising of any contingency whatsoever, shall entitle
Lender to collect, in any event, interest exceeding the Maximum Legal Rate and
in no event shall Borrower be obligated to pay interest exceeding such Maximum
Legal Rate and all agreements, conditions or stipulations, if any, which may in
any event or contingency whatsoever operate to bind, obligate or compel Borrower
to pay a rate of interest exceeding the Maximum Legal Rate, shall be without
binding force or effect, at law or in equity, to the extent only of the excess
of interest over such Maximum Legal Rate. In the event any interest is charged
in excess of the Maximum Legal Rate ("Excess"), Borrower acknowledges and
stipulates that any such charge shall be the result of an accident and bona fide
error, and such Excess shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce the obligations; and third, returned
to Borrower, it being the intention of the parties hereto not to enter at any
time into a usurious or otherwise illegal relationship. Borrower recognizes
that, with fluctuations in the Applicable Rate and the Maximum Legal Rate, such
an unintentional result could inadvertently occur. By the execution of this
Agreement, Borrower covenants that (i) the credit or return of any Excess shall
constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall
not seek or pursue any other remedy, legal or equitable, against Lender, based
in whole or in part upon the charging or receiving of any interest in excess of
the maximum authorized by applicable law. For the purpose of determining
whether or not any Excess has been contracted for, charged or received by
Lender, all interest at any time contracted for, charged or received by Lender
in connection with this Agreement, shall be amortized, prorated, allocated and
spread in equal parts during the entire term of this Agreement.
(F) The provisions of Section 3.1(E) shall be deemed to be incorporated
into every document or communication relating to the obligations which sets
forth or prescribes any account, right or claim or alleged account, right or
claim of Lender with respect to Borrower (or any other obligor in respect of the
obligations), whether or not any provision of Section 3.1(E) is referred to
therein. All such documents and communications and all figures set forth therein
shall, for the sole purpose of computing the extent of the obligations and other
obligations of Borrower (or other obligor) asserted by Lender thereunder, be
automatically recomputed by Borrower or such obligor, and by any court
considering the same,
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to give effect to the adjustments or credits required by Section 3.1(E).
(G) If the applicable state or federal law is amended in the future to
allow a greater rate of interest to be charged under this Agreement or the other
Agreements than is presently allowed by applicable state or federal law, then
the limitation of interest hereunder shall be increased to the maximum rate of
interest allowed by applicable state or federal law as amended, which increase
shall be effective hereunder on the effective date of such amendment, and all
then accrued interest owing to Lender by reason thereof shall be payable UPON
DEMAND.
(H) So long as no Default has occurred, in the event that Borrower achieves
the performance factors described below as of each of the calculation dates
specified below, then the Applicable Rate shall be reduced as follows:
(i) Performance Factors to be Achieved as of October 31, 1991. So long as
no Default has occurred, and so long as Borrower achieves the performance
factors set out below, upon the later of (i) receipt and review by Lender of
audited financial statements of Borrower provided pursuant to Section 9.1(J)
demonstrating compliance with the following performance factors, or (ii) receipt
by Lender of Borrower's Annual Business Plan for the twelve months ending
October 31, 1992, the Applicable Rate shall be reduced by 0.125%. Such
reduction shall be made effective November 1, 1991 by (a) crediting the Loan
Account by the difference between the amount of interest paid by Borrower to
Lender since such effective date and the amount of interest which would have
been paid by Borrower to Lender since such effective date had the Applicable
Rate been so reduced, and (b) recalculating all accrued but unpaid interest, and
all interest to accrue with respect to future transactions, at the Applicable
Rate as so reduced. The performance factors required to be achieved as of
October 31, 1991 in order to reduce the Applicable Rate are as follows:
(A) The Average Daily Availability for the six months ending October 31,
1991 shall equal or exceed twenty-five percent (25%) of the Average Daily Loan
Balance for such period;
(B) The Adjusted Net Earnings From Operations, plus taxes (to the extent
deducted therefrom), for the year ending October 31, 1991 shall be at least
$2,800,000; and
(C) Borrower's Leverage Ratio as of October 31, 1991 shall not exceed 3.4
to 1.0.
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Any rate reduction made pursuant to this Section 3.1(H)(i) shall remain in
effect only for so long as no Default has occurred and is continuing and
Borrower maintains the Leverage Ratio described in (C) above.
(ii) Performance Factors to be Achieved as of October 31, 1992. So long
as no Default has occurred, and so long as Borrower achieves the performance
factors set out below, upon the later of (i) receipt and review by Lender of
audited financial statements of Borrower provided pursuant to Section 9.1(J)
demonstrating compliance with the following performance factors, or (ii) receipt
by Lender of Borrower's Annual Business Plan for the twelve months ending
October 31, 1993, the Applicable Rate (as the same may or may not have been
reduced pursuant to Section 3.1(H)(i) above) shall be reduced by 0.25%. Such
reduction shall be made effective November 1, 1992 by (a) crediting the Loan
Account by the difference between the amount of interest paid by Borrower to
Lender since such effective date and the amount of interest which would have
been paid by Borrower to Lender since such effective date had the Applicable
Rate been so reduced, and (b) recalculating all accrued but unpaid interest, and
all interest to accrue with respect to future transactions, at the Applicable
Rate as so reduced. The performance factors required to be achieved as of
October 31, 1992 in order to reduce the Applicable Rate are as follows:
(A) The Average Daily Availability for the months ending October 31,
1992 shall equal or exceed twenty-five percent (25%) of the Average Daily
Loan Balance for such period;
(B) The Adjusted Net Earnings From operations, plus taxes (to the
extent deducted therefrom), for the year ending October 31, 1992 shall be
at least $2,500,000; and
(C) Borrower's Leverage Ratio as of October 31, 1992 shall not exceed
3.3 to 1.0.
Any rate reduction made pursuant to this Section 3.1(H)(ii) shall remain in
effect only for so long as no Default has occurred and is continuing and
Borrower maintains the Leverage Ratio described in (C) above.
(iii) Performance Factors to be Achieved by as of April 30, 1993. So
long as no Default has occurred, Borrower achieves the performance factors
described below, and the Applicable Rate has been and remains reduced pursuant
to each of Section 3.1(H)(i) and (ii) above, upon review and analysis by Lender
of the results of financial performance of Borrower for the period ending April
30, 1993 demonstrating compliance with the following performance factors, the
Applicable Rate
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shall be further reduced by 0.125%. Such reduction shall be made effective
May 1, 1993 by (a) crediting the Loan Account by the difference between the
amount of interest paid by Borrower to Lender since such effective date and the
amount of interest which would have been paid by Borrower to Lender since such
effective date had the Applicable Rate been so reduced, and (b) recalculating
all accrued but unpaid interest, and all interest to accrue with respect to
future transactions, at the Applicable Rate as so reduced. The performance
factors required to be achieved as of April 30, 1993 in order to reduce the
Applicable Rate are as follows:
(A) The Average Daily Availability for the six months ending April 30,
1993 shall equal or exceed twenty-five percent (25%) of the Average Daily
Loan Balance for such period;
(B) The Adjusted Net Earnings From operations, plus taxes (to the
extent deducted therefrom), for the six months ending April 30, 1993 shall
be at least $1,250,000; and
(C) Borrower's Leverage Ratio as of April 30, 1993 shall not exceed
3.2 to 1.0.
Any rate reduction made pursuant to this Section 3.1(H)(iii) shall remain in
effect only for so long as no Default has occurred and is continuing and
Borrower maintains the Leverage Ratio described in (C) above. In addition, in
the event that following any reduction in the Applicable Rate pursuant to this
Section 3.1(H)(iii), Borrower's annual audited financial statements delivered to
Lender pursuant to this Agreement reflect that Borrower was not entitled to such
reduction (notwithstanding that Borrower's unaudited financial statements
reflected that Borrower was entitled to such reduction), then Borrower shall (i)
immediately pay to Lender the difference between (a) the amount of interest paid
by Borrower to Lender since the date of the reduction of the Applicable Rate,
and (b) the amount of interest which would have been paid by Borrower to Lender
if the Applicable Rate had not been reduced, and (ii) the Applicable Rate shall
be immediately increased by 0.125% per annum with respect to all future
transactions.
3.2. FEES.
(A) Closing Fee. Borrower shall pay to Lender a closing fee of
$125,000, which shall be deemed fully earned and nonrefundable at the closing of
the transactions contemplated hereby and shall be paid concurrently with the
initial Loan hereunder. Such fee shall compensate Lender for the costs
associated with the origination, structuring, processing, approving and closing
of the transactions contemplated by this Agreement, including, but not limited
to, administrative, out-of-pocket,
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general overhead and lost opportunity costs, but not including any expenses for
which Borrower has agreed to reimburse Lender pursuant to any other provision of
this Agreement (for example, reasonable attorney's fees incurred by Lender) or
any other Agreement.
(B) Audit Fee. Borrower agrees to pay to Lender an audit fee payable
on a semiannual basis beginning on November 1, 1991 and continuing regularly
thereafter on the first day of each six-month period during the term of this
Agreement and upon termination hereof. The audit fee payable at any date shall
equal $2,000 plus all out of pocket costs and expenses incurred by Lender during
the preceding six month period in connection with administering the Loans,
provided the audit fee paid in any twelve-month period shall not exceed
$5,000.00 and shall not at any time be equal to or in excess of the amount which
would cause the interest on the obligations to exceed the Maximum Legal Rate.
This fee shall compensate Lender for certain aspects of administering the Loans,
including, without limitation, certain internal audits, appraisals and
collateral monitoring functions deemed necessary or appropriate by Lender, but
shall not include any expenses for which Borrower has agreed to reimburse Lender
pursuant to any other provision of this Agreement or any Other Agreement.
(C) Unused Facility Fee. Borrower agrees to pay to Lender a quarterly
unused facility fee, equal to one-half percent (0.50%) per annum of the average
daily unused portion of the Commitment, payable quarterly in arrears, beginning
August 1, 1991 and continuing regularly thereafter during the term of this
Agreement and upon the termination hereof.
3.3. TERM OF AGREEMENT; TERMINATION.
(A) The provisions of this Agreement shall be in effect for a period
of three (3) years from the date hereof, through and including May 3, 1994 (the
"Original Term"), unless terminated as provided in Section 3.3(B) hereof, or
extended pursuant to this Section 3.3(A). So long as no Default has occurred,
the original Term shall be automatically extended by one (1) year unless
Borrower has notified Lender, or Lender has notified Borrower, on or before
January 3, 1994, that it does not desire this Agreement to be extended pursuant
to this Section 3.3(A).
(B) Upon at least ninety (9O) days prior written notice to Lender,
Borrower may, at its option, terminate this Agreement; provided, however, no
such termination shall be effective until Borrower has paid all of the
obligations in immediately available funds, together with the termination charge
or prepayment premium provided for in Section 3.3(C) hereof, if any. It is
understood that Borrower may elect to terminate this Agreement in its entirety
only; no section or lending facility may be terminated singly. Lender may
terminate this Agreement without notice upon or after the occurrence of an Event
of Default.
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(C) At the effective date of such termination by Borrower, Borrower
shall pay to Lender (in addition to the then outstanding principal, accrued
interest and other charges, fees and expenses owing under this Agreement and any
of the other Agreements), as liquidated damages for the loss of the bargain and
not as a penalty, an amount equal to the applicable percentage set forth below
of the highest of the Average Daily Loan Balances outstanding for any month
during the applicable term set forth below during which such termination occurs:
Applicable Term Applicable Percentage
--------------- ---------------------
The date hereof through 3%
May 2, 1992
May 3, 1992, through 2%
May 2, 1993
May 3, 1993, through 1%
May 2, 1994
Thereafter 0%
If termination occurs on the last day of the original Term, Borrower shall not
be obligated to pay Lender any liquidated damages.
(D) All of the obligations shall be forthwith due and payable upon any
termination of this Agreement. Except as otherwise expressly provided for in
this Agreement or any of the other Agreements, no termination or cancellation
(regardless of cause or procedure) of this Agreement or any of the other
Agreements shall in any way affect or impair the powers, obligations, duties,
rights, and liabilities of Borrower or Lender in any way relating to (i) any
transaction or event occurring prior to such termination or cancellation or (ii)
any of the undertakings, agreements, covenants, warranties or representations of
Borrower contained in this Agreement or any of the other Agreements. All such
undertakings, agreements, covenants, warranties and representations shall
survive such termination or cancellation and Lender shall retain its Liens in
the Collateral, and all of its rights and remedies under this Agreement and the
other Agreements notwithstanding such termination or cancellation, until
Borrower has paid the obligations to Lender, in full, in immediately available
funds.
3.4. PAYMENTS. Except where evidenced by notes or other instruments
issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this Section 3.4 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), that
portion of the obligations consisting of:
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(A) Principal, payable on account of Loans made by Lender to Borrower,
shall be payable by Borrower to Lender immediately upon the earliest of (i) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations, or (ii) termination of
this Agreement pursuant to Section 3.3 hereof; provided, however, that if the
principal balance of Loans outstanding at any time shall exceed the Borrowing
Base at such time, Borrower shall, ON DEMAND, repay the Loans in an amount
sufficient to reduce the aggregate unpaid principal amount of such Loans by an
amount equal to such excess;
(B) Interest accrued on the obligations shall be due on the earliest
of (i) the first day of each month (for the immediately preceding month),
computed through the last calendar day of the preceding month, (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the obligations or (iii) termination of
this Agreement pursuant to Section 3.3 hereof; provided, however, that Borrower
hereby irrevocably authorizes Lender, in Lender's sole discretion, to advance to
Borrower, and to charge to the Loan Account hereunder as a Loan, a sum
sufficient each month to pay all interest accrued on the obligations during the
immediately preceding month; and
(C) The remainder of the obligations requiring the payment of money,
if any, shall be payable by Borrower to Lender as and when provided in this
Agreement or the other Agreements.
3.5. APPLICATION OF PAYMENTS AND COLLECTIONS. Borrower irrevocably waives
the right to direct the application of any and all payments and collections at
any time or times hereafter received by Lender from or on behalf of Borrower,
and Borrower hereby irrevocably agrees that Lender shall have the continuing
exclusive right to apply and reapply any and all such payments and collections
received at any time or times hereafter by Lender or its agent against the
obligations, in such manner as Lender may deem advisable, notwithstanding any
entry by Lender upon any of its books and records. If as the result of
collections of Accounts as authorized by Section 5.2 hereof, a credit balance
exists in the Loan Account, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower at any time or times for
so long as no Default or Event of Default exists.
3.6. STATEMENTS OF ACCOUNT. Lender will account to Borrower monthly with
a statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower, unless Lender is notified by Borrower in writing to the contrary
within thirty (30) days of the date each account was rendered. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
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SECTION 4. COLLATERAL: GENERAL TERMS
4.1. SECURITY INTEREST IN COLLATERAL. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing security interest in and Lien upon all the Property and interests in
Property of Borrower, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located, including, without limitation, the
following Property and interests in Property:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
(E) All monies and other Property of any kind, now or at any time or
times hereafter, in the possession or under the control of Lender or a bailee of
Lender;
(F) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D) and (E) above,
including, without limitation, proceeds of and unearned premiums with respect to
insurance policies insuring any of the Collateral; and
(G) All books and records (including, without limitation, customer
lists, credit files, computer programs, print-outs, and other computer materials
and records) of Borrower pertaining to any of (A), (B), (C), (D), (E) or (F)
above.
4.2. FINANCING STATEMENTS; WARRANTIES REGARDING PRIORITY OF THE LIENS OF
LENDER IN THE COLLATERAL.
(A) Borrower agrees to execute the financing statements provided for
by the Code and by Chapter 9, together with any and all other instruments,
assignments or documents, and shall take such other action as may be required to
create, perfect or to continue the perfection of Lender's security interest in
the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes
Lender to execute and file any such financing statement on Borrower's behalf.
The parties agree that a carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in any
appropriate office in lieu thereof.
(B) Borrower is the owner of full legal and equitable title to the
Collateral, free and clear of any Liens, except Permitted Liens, and, other than
in connection with Permitted Liens, no financing statement covering the
Collateral or any part
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or proceeds thereof is on file in any public office, and the execution by
Borrower of this Agreement and the other Agreements to which it is a party and
the filing of the relevant financing statements in the appropriate jurisdictions
will create in favor of the Lender a valid, perfected first Lien against the
Collateral, subject to the Permitted Liens.
4.3. LOCATION OF COLLATERAL. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrower at one or more
of the business locations set forth in Exhibit "A" and shall not, without the
prior written approval of Lender, be moved therefrom except, prior to an Event
of Default and Lender's acceleration of the maturity of the obligations in
consequence thereof, for sales of Inventory in the ordinary course of business,
dispositions of Equipment that are authorized by Section 7.2 hereof and
Inventory and Equipment in transit from one business location to another.
4.4. INSURANCE OF COLLATERAL. Borrower agrees to maintain and pay for
insurance upon such of the Tangible Collateral as shall be required by Lender,
wherever located, in storage or in transit in vehicles, including goods
evidenced by documents, covering casualty, hazard, public liability and such
other risks and in such amounts and with such insurance companies as shall be
reasonably satisfactory to Lender to insure Lender's interest in the Collateral.
Borrower shall deliver certificates for such policies to Lender with
satisfactory lender's loss payable endorsements naming Lender loss payee. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than thirty (30) days prior written notice to Lender in the
event of cancellation of the policy for any reason whatsoever and a clause, if
such a clause is permitted in policies issued in the State of Texas, that the
interest of Lender shall not be impaired or invalidated by any act or neglect of
Borrower or owner of the Property nor by the occupation of the premises for
purposes more hazardous than are permitted by said policy. If Borrower fails to
provide and pay for such insurance, Lender may, at Borrower's expense, procure
the same, but shall not be required to do so. Borrower agrees upon request by
Lender, to deliver to Lender, promptly as rendered, true copies of all reports
made in any reporting forms to insurance companies.
4.5. PROTECTION OF COLLATERAL. Borrower shall pay and discharge when due
all claims to and levies and charges upon any of the Collateral. Lender may, at
any time or times hereafter, in its sole discretion, without waiving or
releasing any obligations, liability or duty of Borrower under this Agreement or
the other Agreements, or any Event of Default, pay when due, acquire or accept
an assignment of any Lien or claim asserted by any Person against any of the
Collateral; provided, however, as long as no Event of Default has occurred,
Lender shall notify Borrower if any single such payment will be in excess of
$5,000. All sums paid by
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Lender in respect thereof and all costs, fees and expenses, including, without
limitation, attorney's fees and court costs, which are incurred by Lender on
account thereof, shall be payable UPON DEMAND by Borrower to Lender, together
with interest accruing at the Default Rate from the date of demand until paid
and shall be secured by the Collateral. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto or for any diminution in the value thereof, or for any
act or default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Borrower's sole risk.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts, and,
unless otherwise indicated in writing to Lender, that with respect to each
Account: it is genuine and in all respects what it purports to be, and it is
not evidenced by a judgment; it arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary course of
its business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto; it is for a liquidated
amount maturing as stated in the duplicate invoice covering such sale or
rendition of services; such Account, and Lender's security interest therein, is
not, and, to the best of Borrower's knowledge, will not be in the future,
subject to any offset, Lien, deduction, defense, dispute, counterclaim or any
other adverse condition, except for disputes resulting in returned goods where
the amount in controversy is deemed by Lender to be immaterial, and, to the best
of Borrower's knowledge, each such Account is absolutely owing to Borrower and
is not contingent in any respect or for any reason; Borrower has made no
agreement with any Account Debtor thereunder for any deduction therefrom, except
discounts or allowances which are granted by Borrower in the ordinary course of
its business for prompt payment; to the best of Borrower's knowledge, there are
no facts, events or occurrences which in any way impair the validity or
enforceability thereof or tend to reduce the amount payable thereunder from the
face amount of the invoice and statements delivered to Lender with respect
thereto; to the best of Borrower's knowledge, the Account Debtor thereunder (i)
had the capacity to contract at the time any contract or other document giving
rise to the Account was executed and (ii) such Account Debtor is Solvent; and
Borrower has no knowledge of any fact or circumstance which would impair the
validity or collectibility of the Account.
5.2. COLLECTION OF ACCOUNTS. To expedite collection, Borrower shall
endeavor in the first instance to make collection of their Accounts for Lender.
All remittances received by Borrower on
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account of Accounts shall be held as Lender's property by Borrower as trustee of
an express trust for Lender's benefit and Borrower shall deposit same in the
Dominion Account. Lender retains the right, upon and after the occurrence of an
Event of Default, to notify Account Debtors that Accounts have been assigned to
Lender and to collect Accounts directly in its own name and to charge the
collection costs and expenses, including attorneys' fees, to Borrower. Lender
has no duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them. For the purpose of computing interest hereunder, all items of
payment received by Lender shall be deemed applied by Lender on account of the
obligations (subject to final payment of such items) on the first Business Day
after Lender's withdrawal of such payment from the Dominion Account in
immediately available funds. Whenever reasonably practicable, Lender shall
withdraw all funds contained in the Dominion Account on a daily basis, for
application of such funds to the payment of the obligations as provided herein.
Borrower shall deposit all proceeds of the Collateral or cause the same to be
deposited in kind in the Dominion Account pursuant to an arrangement with such
banks as may be selected by Borrower and be acceptable to Lender. Borrower
shall deposit all payments or other remittances received by Borrower in their
operating accounts to the Dominion Account. After the occurrence of an Event of
Default Lender may, and Borrower shall at Lender's request, notify Account
Debtors and all other parties obligated on the Collateral to make payments
directly to the Dominion Account. All funds deposited in the Dominion Account
shall immediately become the Property of Lender, and Borrower shall obtain the
agreement by such banks to waive any offset rights against the funds so
deposited. Lender assumes no responsibility for such account arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.
5.3. ADMINISTRATION OF ACCOUNTS. Upon the granting of any discounts,
allowances or credits by Borrower that are not shown on the face of the invoice
for the Account involved, Borrower shall promptly report such discounts,
allowances or credits, as the case may be, to Lender and in no event later than
the time of its submission to Lender of the next Schedule of Accounts as
provided in Section 5.4. If an Account includes a charge for any tax payable to
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower's Loan Account hereunder therefor. Whether or
not a Default or an Event of Default has occurred, Lender shall have the right,
at any time or times hereafter, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount or any other matter relating to any
Accounts, such verification to be in a format reasonably satisfactory to Lender
and Borrower or, if Lender decides, in its sole discretion, to use a different
format or method, such format or method regarding which Borrower shall have been
notified; provided, however, that after the occurrence of
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an Event of Default, Lender shall have the right to determine, in its sole
discretion, the format and method for such verification without the obligation
of giving notice to the Borrower of the format and method decided upon by
Lender. Borrower shall cooperate fully with Lender in an effort to facilitate
and promptly conclude any such verification process.
5.4. ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Borrower shall keep
accurate and complete records of its Accounts and all payments and collections
thereon. On or before the 20th day of each month from and after the date
hereof, Borrower shall deliver to Lender, in form acceptable to Lender, a
detailed aged trial balance of all Accounts existing as of the last day of the
preceding month, specifying the names, addresses, face value, dates of invoices
and due dates for each Account Debtor obligated on an Account so listed
("Schedule of Accounts"), along with, if requested by Lender, copies of proof of
delivery and the original copy of all documents, including, without limitation,
repayment histories and present status reports relating to the Accounts so
scheduled and such other matters and information relating to the status of then
existing Accounts as Lender shall reasonably request, and also with, if
requested by Lender, formal written assignments by Borrower to Lender of all of
Borrower's Accounts, together with copies of invoices or invoice registers
related thereto. If any amounts due and owing in excess of $10,000 are in
dispute between Borrower and any Account Debtor, Borrower shall provide Lender
with written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto, and the amount in controversy. In addition to and not in limitation of
the other provisions of this Section 5.4, if at any time a Default occurs,
Lender shall thereafter have the right to require that Borrower deliver to
Lender such other reports, information and materials regarding the Accounts as
shall be specified by Lender.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to
Inventory, Borrower represents and warrants to Lender that Lender may rely, in
determining which items of Inventory constitute Eligible Inventory, on all
statements and representations made by Borrower with respect to any Inventory
and, unless otherwise indicated in writing to Lender, that: all Inventory is
presently and will continue to be located at Borrower's places of business
listed on Exhibit "A" and will not be removed therefrom, except as authorized by
Section 4.3 of this Agreement; no Inventory is now, nor shall any Inventory at
any time or times hereafter be, stored with a bailee, warehouseman or similar
party unless (i) Lender shall have granted its prior written consent thereto,
(ii) such bailee, warehousemen or similar party shall have delivered to Lender a
warehousemen's letter in the form requested by Lender, and (iii) all original
warehouse receipts or other documents relating
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to such Inventory shall have been delivered to Lender; and no Inventory is or
will be sold by consignment by any Person without Lender's prior written
consent, except as otherwise disclosed on Exhibit "A".
6.2. INVENTORY REPORTS. On or before the 20th day of each month from and
after the date hereof, Borrower agrees to furnish Lender with Inventory reports.
Such reports shall be in form and detail satisfactory to Lender. Borrower shall
conduct such physical inventory tests as are acceptable to the independent
certified public accountants of Borrower who are preparing the financial
statements referred to in Section 9.1(J) and Borrower shall provide to Lender,
upon request by Lender, an annual report regarding their physical inventory
based upon such testing procedures, as well as copies of any other inventory
tests conducted by or on behalf of Borrower, together with such supporting
information as Lender shall, in its discretion, request. In addition to and not
in limitation of the other provisions of this Section 6.2, if at any time a
Default occurs, Lender shall thereafter have the right to require that Borrower
deliver to Lender such other reports, information and materials regarding the
Inventory as shall be specified by Lender.
6.3. RETURNS OF INVENTORY. If at any time or times hereafter any Account
Debtor returns any Inventory with a cost or market value in excess of $10,000 to
Borrower, Borrower shall notify Lender of the same immediately, specifying the
reason for such return and the location and condition of the returned Inventory.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to the
Equipment, Borrower represents, warrants and covenants to and with Lender that
Borrower has good and marketable title to the Equipment, that the Equipment is
in good operating condition and repair, and all necessary replacements of and
repairs thereto shall be made so that the value and operating efficiency of the
Equipment shall be maintained and preserved, reasonable wear and tear excepted.
Borrower will not permit any of the Equipment to become affixed to any real
Property leased to Borrower, so that an interest arises therein under the real
estate laws of the applicable jurisdiction, unless the landlord of such real
Property has executed a landlord waiver in favor of Lender, and Borrower will
not permit any of the Equipment to become an accession to any personal Property,
other than Equipment subject to first priority Liens in favor of Lender, subject
only to Permitted Liens. Immediately on request therefor by Lender, Borrower
shall deliver to Lender any and all evidence of ownership, if any, of any of the
Equipment (including, without limitation, certificates of title and applications
for title). Borrower shall maintain accurate records itemizing and describing
the kind, type, quality, quantity and value of its Equipment and all
dispositions made in accordance with
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Section 7.2 hereof, and shall furnish Lender with a current schedule containing
the foregoing information on at least an annual basis and more often if
requested by Lender.
7.2. DISPOSITIONS OF EQUIPMENT. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction on the sale, lease, disposition or other transfer of any
Equipment shall not apply, for so long as no Default or Event of Default exists,
to (i) dispositions of Equipment which, in the aggregate during any consecutive
twelve-month period, has a fair market value or book value, whichever is less,
of $100,000 or less, provided that all proceeds thereof are turned over to
Lender to be applied by Lender in accordance with Section 3.5 hereof, or (ii)
replacement of Equipment that is substantially worn, damaged or obsolete with
Equipment of like kind, function and value, provided that the replacement
Equipment shall be acquired prior to or concurrently with any disposition of the
Equipment that is to be replaced, the replacement Equipment shall be free and
clear of Liens, other than Permitted Liens, Borrower shall give Lender at least
five (5) days prior written notice of such disposition, and Borrower shall turn
over to Lender all proceeds realized from any such disposition to be applied by
Lender in accordance with Section 3.5 hereof.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. GENERAL REPRESENTATIONS AND WARRANTIES. To induce Lender to enter
into this Agreement and to make Loans hereunder, Borrower warrants, represents
and covenants to Lender that:
(A) Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of oklahoma and that its Federal
Taxpayer Identification Number is 00-0000000; has duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all states and jurisdictions where the character of its Properties or the nature
of its activities make such qualification necessary, except to the extent
previously disclosed to Lender in writing; and has not been known as or used any
corporate names, except as disclosed on Exhibit "B" attached hereto and made a
part hereof and, to the best of its knowledge and belief, has not been known as
or used any fictitious or trade names, except as disclosed on Exhibit "B"
attached hereto and made a part hereof.
(B) Borrower has the power and is duly authorized to enter into,
deliver and perform this Agreement and each of the other Agreements to which it
is a party, and this Agreement is, and each of the other Agreements when
delivered under this Agreement will be, a legal, valid and binding obligation of
Borrower, enforceable against it in accordance with their respective terms.
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(C) Borrower is not engaged principally, nor as one of its important
activities, in the business of purchasing or carrying "margin stock" (within the
meaning of Regulation G or U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loans to Borrower will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock, or be used for any purpose which
violates or is inconsistent with the provisions of Regulation X of said Board of
Governors.
(D) Borrower has all governmental consents, approvals,
authorizations, permits, certificates, inspections, and franchises necessary to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it.
(E) Exhibit "F" sets forth a complete and accurate list of all items
of Intellectual Property which, individually or in the aggregate, are material
to the business, operations, properties, assets or condition of Borrower.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights, licenses and other Intellectual Property necessary for the
present and planned future conduct of its business without any conflict with the
rights of others. Borrower has duly assigned and granted a first, prior and
perfected Lien to Lender in and to such Intellectual Property to secure the
obligations, and no consent, approval or authorization of any Person is or would
be required in connection with such assignment or granting of a Lien.
(F) Except as set forth on Exhibit "C" attached hereto and made a
part hereof, there are no actions, suits, proceedings or investigations pending,
or to the knowledge of Borrower, threatened, against or affecting Borrower or
any of its Properties in any court or before any governmental authority or
arbitration board or tribunal, and no action, suit, proceeding or investigation
shown on Exhibit "C" involves the possibility of materially and adversely
affecting the Properties or condition (financial or otherwise) of Borrower or
the ability of Borrower to perform this Agreement.
(G) Borrower has good, indefeasible and marketable title to and fee
simple ownership of, or valid and subsisting leasehold interests in, all of its
real Property, and good title to all of its other Property, in each case, free
and clear of all Liens, except Liens granted hereunder or under any other
Agreement and Permitted Liens.
(H) The balance sheets of Borrower as of February 28, 1991, and the
related statements of income, changes in stockholder's equity, and changes in
financial position for the periods ended on such dates, have been prepared in
accordance with GAAP (except for changes in application in which Borrower's
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independent certified public accountants concur), and present fairly the
financial positions of Borrower at such dates and the results of Borrower's
operations for such periods. Since February 28, 1991, there has been no
material change in the condition, financial or otherwise, of Borrower, as shown
on the balance sheet as of such date and no change in the aggregate value of
Property owned by Borrower, except changes in the ordinary course of business,
none of which individually or in the aggregate has been materially adverse.
(I) There is no fact which Borrower has failed to disclose to Lender
in writing which materially affects adversely or, so far as Borrower can now
foresee, will materially affect adversely the Properties, business, prospects,
profits, or condition (financial or otherwise) of Borrower or the ability of
Borrower to perform this Agreement.
(J) Borrower has not received any notice to the effect that it is
not in full compliance with any of the requirements of ERISA and the regulations
promulgated thereunder. No fact or situation, including, but not limited to, any
Reportable Event, or Prohibited Transaction exists in connection with any Plan.
(K) Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assessments, fees and other governmental charges that
are due and payable.
(L) Borrower has duly complied with, and its Properties, business
operations and leaseholds are in compliance in all material respects with, the
provisions of all federal, state and local laws, rules and regulations
applicable to Borrower, its Properties or the conduct of its business.
(M) No Default or Event of Default will exist or result from the
execution and delivery of this Agreement or Borrower's performance hereunder.
(N) There are no claims for brokerage commissions, finder's fees or
investment banking fees in connection with the transactions contemplated by this
Agreement.
(O) Borrower has no Subsidiaries, other than Red Man Ventures, Inc.,
which has no operations, income or assets other than ownership of certain
undeveloped real estate and an interest in an aircraft.
(P) The issued and outstanding stock of Borrower consists of (i) an
aggregate of 134,764.69 shares of class A common stock, which is voting stock,
(ii) 34,344 shares of class B common stock, which is non-voting stock, and (iii)
10,000 shares of series B preferred stock. Borrower has delivered to Lender
true
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and correct copies of all agreements pursuant to which the holders of the series
B preferred stock are entitled to receive Distributions, including a true and
correct copy of the Financial Agreement.
8.2. REAFFIRMATION AND SURVIVAL OF REPRESENTATIONS. Each request for a
Loan made by Borrower pursuant to this Agreement or any of the other Agreements
shall constitute (i) an automatic representation and warranty by Borrower to
Lender that there does not then exist any Default or Event of Default and (ii) a
reaffirmation, as of the date of said request, of all of the representations and
warranties of Borrower contained in this Agreement and the other Agreements.
Borrower covenants, warrants and represents to Lender that all representations
and warranties of Borrower contained in this Agreement or any of the other
Agreements shall be true at the time of Borrower's execution of this Agreement
and the other Agreements, and shall survive the execution, delivery and
acceptance thereof by Lender and the parties thereto and the closing of the
transactions described therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. AFFIRMATIVE COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
(A) Pay and discharge all taxes, assessments and governmental
charges upon it, its income and Properties as and when such taxes, assessments
and charges are due and payable, except and to the extent only that such taxes,
assessments and charges are being actively contested in good faith and by
appropriate proceedings, Borrower maintains adequate reserves on its books
therefor and the nonpayment of such taxes does not result in a Lien upon any
Properties of Borrower, other than a Permitted Lien. Borrower shall also pay and
discharge any lawful claims which, if unpaid, might become a Lien against any of
Borrower's Properties, except for Permitted Liens.
(B) File all federal, state and local tax returns and other reports
Borrower is required by law to file and maintain adequate reserves for the
payment of all taxes, assessments, governmental charges, and levies imposed upon
it, its income, or its Profits, or upon any Property belonging to it.
(C) Pay to Lender, ON DEMAND, any and all fees, costs or expenses
which Lender or any Participating Lender pays to a bank or other similar
institution (including, without limitation, any fees paid by the Lender to any
Participating Lender) arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender or any
Participating Lender, proceeds of Loans made by Lender to Borrower pursuant to
this Agreement, and (ii) the depositing for collection, by Lender
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or any Participating Lender, of any check or item of payment received or
delivered to Lender or any Participating Lender on account of the obligations.
(D) Preserve and maintain its separate corporate existence and all
rights, privileges, and franchises in connection therewith, and maintain its
qualification and good standing in all states in which the failure to qualify
would have a materially adverse effect on Borrower, Borrower's business or
Lender's security interest in the Collateral.
(E) Maintain its Properties in good condition and make all necessary
renewals, repairs, replacements, additions and improvements thereto.
(F) Comply with all laws, ordinances, governmental rules and
regulations to which it is subject, and obtain and keep in force any and all
licenses, permits, franchises, or other governmental authorizations necessary to
the ownership of its Properties or to the conduct of its business, which
violation or failure to obtain might materially and adversely affect the
Properties or condition (financial or otherwise) of Borrower.
(G) (i) At all times make prompt payment of contributions required
to meet the minimum funding standards set forth in ERISA with respect to each
Plan; (ii) promptly after the filing thereof, furnish to Lender copies of any
annual report required to be filed pursuant to ERISA in connection with each
Plan and any other employee benefit plan of it and its Affiliates subject to
said Section; (iii) notify Lender as soon as practicable of any Reportable Event
and of any additional act or condition arising in connection with any Plan which
Borrower believes might constitute grounds for the termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States district court of a trustee to administer the Plan; and (iv)
furnish to Lender, promptly upon Lender's request therefor, such additional
information concerning any Plan or any other such employee benefit plan as may
be reasonably requested.
(H) Keep adequate records and books of account with respect to its
business activities in which proper entries are made in accordance with GAAP,
reflecting all its financial transactions.
(I) Permit representatives of Lender, from time to time, as often as
may be reasonably requested, but only during normal business hours, to visit and
inspect the Properties of Borrower, inspect and make extracts from its books and
records, and discuss with its officers, its employees and its independent
accountants, its business, assets, liabilities, financial condition, business
prospects and results of operations.
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(J) Cause to be prepared and furnished to Lender the following (all
to be kept and prepared in accordance with GAAP applied on a consistent basis,
unless Borrower's certified public accountants concur in any change therein and
such change is disclosed to Lender and are consistent with GAAP): (i) as soon as
possible, but not later than one hundred twenty (120) days after the close of
each fiscal year of Borrower, unqualified audited financial statements of
Borrower as of the end of such year, certified by a firm of independent
certified public accountants of recognized standing selected by Borrower, but
acceptable to Lender; (ii) as soon as possible, but not later than twenty (20)
days after the end of each month (other than each October) hereafter (and not
later than sixty (60) days after the end of each October hereafter), unaudited
profit and loss statements and balance sheets of Borrower as of the end of such
month, and of the portion of Borrower's fiscal year then elapsed, certified by
the principal financial officer of Borrower as fairly presenting the financial
position and results of operations of Borrower for such month and period.
Concurrently with the delivery of the financial statements described in clause
(i) of this Section 9.1(J), Borrower shall cause to be prepared and furnish to
Lender a certificate of the aforesaid certified public accountants certifying to
Lender that, based upon their examination of the financial statements of
Borrower, they are not aware of any Default or Event of Default, or, if they are
aware of such Default or Event of Default, specifying the nature thereof. At the
end of each fiscal quarter of Borrower, concurrently with the delivery of the
financial statements described in clause (ii) of this Section 9.1(J), Borrower
shall cause to be prepared and furnished to Lender a certificate from the Chief
Financial officer of Borrower certifying to Lender that, to the best of his
knowledge, Borrower has kept, observed, performed and fulfilled each and every
covenant, obligation and agreement binding upon Borrower in this Agreement and
the other Agreements and that no Default or Event of Default has occurred, or,
if such Default or Event of Default has occurred, specifying the nature thereof.
(K) At Lender's request, promptly execute or cause to be executed
and deliver to Lender any and all documents, instruments and agreements deemed
necessary by Lender to perfect or to continue the perfection of Lender's Liens,
to facilitate collection of the Collateral or otherwise to give effect to or
carry out the terms or intent of this Agreement or any of the other Agreements.
(L) Cause to be prepared and furnished to Lender as soon as
possible, but not later than ninety (90) days after the close of each fiscal
year of Borrower, a business plan forecasting, on a monthly basis, the income
statement and the balance sheet of Borrower (an "Annual Business Plan").
(M) Cause to be prepared and furnished to each fiscal quarter of the
Borrower, a certificate (the "Compliance
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Certificate"), which shall state the Borrower's compliance or non-compliance
with the financial covenants contained in Section 9.3 of this Agreement, the
Compliance Certificate to be substantially in the form of Exhibit "H" to this
Agreement, the Compliance Certificate for each of the first three fiscal
quarters in each fiscal year of the Borrower to be furnished to Lender on or
before the 20th day after the end of each such fiscal quarter, with the
Compliance Certificate for the fourth fiscal quarter in each fiscal year of the
Borrower to be furnished to Lender on or before the 120th day after the end of
such fourth fiscal quarter.
(N) Cause to be prepared and delivered to Lender periodic Borrowing
Base Certificates, Schedules of Accounts and Inventory Reports as frequently as
Lender may request for the period selected by Lender.
9.2. NEGATIVE COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
(A) Merge or consolidate with any Person, nor acquire all or any
substantial part of the Properties of any Person.
(B) Make any loans or other advances of money (other than for
salary, travel advances, advances against commissions and other similar advances
in the ordinary course of business) to any Person.
(C) Enter into any transaction with any Affiliate or stockholder,
except in the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms which are fully disclosed
to Lender and are no less favorable to Borrower than would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of Borrower.
(D) Guarantee, assume, endorse or otherwise, in any way, become
directly or contingently liable with respect to the Indebtedness of any Person,
except by endorsement of instruments or items of payment for deposit or
collection.
(E) Create or suffer to exist any Lien upon any of its Property,
income or profits, whether now owned or hereafter acquired, except: (i) Liens at
any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien
imposed pursuant to any of the provisions of ERISA) not yet due or being
contested as permitted by Section 9.1(A) hereof, but only if in Lender's
judgment, such Lien does not affect adversely Lender's rights or the priority of
Lender's Lien in the Collateral; (iii) Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, and other like Persons for
labor, materials or
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supplies incurred in the ordinary course of Borrower's business, but only if the
payment thereof is not at the time required and only if such Liens are junior to
the Liens in favor of Lender; (iv) deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings and such Liens do not, in the aggregate, materially detract from the
value of the Property of Borrower or materially impair the use thereof in the
operation of Borrower's business; (vi) Purchase Money Liens securing
indebtedness incurred for the payment of Capital Expenditures permitted by this
Agreement; (vii) reservations, exceptions, easements, rights of way, and other
similar encumbrances affecting real Property, provided that, in Lender's sole
judgment, they do not in the aggregate materially detract from the value of said
Properties or materially interfere with their use in the ordinary conduct of
Borrower's business and, if said real Property constitutes Collateral, Lender
has consented thereto; (viii) Liens permitted pursuant to the provisions of any
other Agreement; (ix) Landlord or warehouseman liens with respect to any
premises leased by Borrower or upon which Borrower's goods are stored, as long
as Lender pursuant to Section 10.1(C) of this Agreement has deducted as a
reserve from the amount of the Borrowing Base an amount equal to the total
rental for the remaining lease term for such premises; (x) Liens specified on
Exhibit "D" attached hereto and (xi) such other Liens as Lender may hereafter
approve in writing.
(F) Make Distributions during any fiscal year, in excess of the
aggregate amount of $15O,OOO, other than (i) compensation of officers and
directors permitted pursuant to Section 9.2(M), and (ii) redemption of the
currently outstanding series B preferred stock of Borrower on October 31, 1993
pursuant to the terms of that certain Amended Financial Agreement dated October
24, l99O between otter, Inc. and Borrower (The "Financial Agreement"), provided,
immediately after giving effect to such redemption, the Borrowing Base as of
such date, less the aggregate amount of Loans outstanding as of such date,
equals or exceeds twenty-five percent (25%) of the Average Daily Loan Balance
for the six months preceding such date. Borrower shall not modify the terms of
the Financial Agreement.
(G) Hereafter create any Subsidiary or divest itself of any material
assets by transferring them to any Subsidiary to whose existence Lender has
consented.
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(H) Make Capital Expenditures or payments on account of Capital
Leases which exceed in the aggregate (i) for the period from May 1, 1991 to
October 31, 1991, $150,000, or (ii) $300,OOO for any fiscal year thereafter
occurring.
(I) Transfer its principal place of business or chief executive
office, or open manufacturing plants, or maintain or transfer Collateral or
records with respect to Accounts or Inventory, to or at any locations other than
those at which the same are presently kept or maintained, as set forth on
Exhibit "A" hereto, except upon at least thirty (3O) days prior written notice
to Lender and after the delivery to Lender of financing statements, if required
by Lender, in form satisfactory to Lender to perfect or continue the perfection
of Lender's Lien and security interest hereunder.
(J) Enter into any new business; make any material change in any of
Borrower's business objectives, purposes and operations; or incur any new
operating lease obligations resulting in additional lease expenditures of more
than $2OO,OOO during any fiscal year.
(K) Sell, lease, assign, transfer or otherwise dispose of any of its
Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of Borrower's business for so long as no Event
of Default exists hereunder, or (ii) dispositions expressly authorized by this
Agreement.
(L) Use any corporate name (other than its own) or any fictitious
name, tradestyle or "d/b/a", except for names disclosed in writing to Lender on
or before the Closing Date.
(M) Permit the total annual compensation (including, without
limitation, salaries, fees, commissions and other payments, whether direct or
indirect, in money, or otherwise, but not including bonuses) of its officers and
directors to exceed during any fiscal year 12O% of the amount paid during the
preceding fiscal year. Permit the total amount of bonuses paid to its officers
and directors to exceed during any fiscal year 15O% of the amount paid during
the preceding fiscal year.
(N) Own, purchase or acquire (or enter into any contract to purchase
or acquire) any "margin security" as defined by any regulation of the Federal
Reserve Board as now in effect or as the same may hereafter be in effect unless,
prior to any such purchase or acquisition or entering into any such contract,
Lender shall have received an opinion of counsel satisfactory to Lender to the
effect that such purchase or acquisition will not cause this Agreement to
violate Regulations G, U, or X or any other regulation of the Federal Reserve
Board then in effect.
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(O) Make or have any Restricted Investment.
(P) Change its fiscal year.
(Q) Create, assume or suffer to exist any indebtedness for borrowed
money or issue or sell any obligation of Borrower (whether absolutely,
concurrently or otherwise), excluding only (i) the obligations; (ii) accounts
payable and accrued liabilities arising in the ordinary course of Borrower's
business; (iii) indebtedness incurred for the payment of Capital Expenditures
permitted by this Agreement; (iv) existing indebtedness of Borrower which shall
have been approved in writing by Lender, and which shall be set forth on Exhibit
"D" attached hereto and made a part hereof; (v) additional indebtedness of
Borrower not to exceed an aggregate of $1OO,OOO in principal outstanding at any
time on terms and conditions satisfactory to Lender and (vi) such other
indebtedness as Lender may hereafter approve in writing.
9.3. SPECIFIC FINANCIAL COVENANTS. During the term of this Agreement, and
thereafter for so long as there are any obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, Borrower
shall:
(A) Maintain a Leverage Ratio not greater than the ratio shown below
for the date corresponding thereto:
Date Amount
------------------------------------ ----------
May 1, 1991 to October 31, 1991 3.5 to 1.0
November 1, 1991 to April 3O, 1992 3.4 to 1.0
May 1, 1992 and Thereafter 3.3 to 1.0
(B) Maintain at all times a ratio of (i) Current Assets to (ii)
Current Liabilities plus, to the extent not included therein, the obligations,
of not less than 1.1 to 1.0.
(C) Maintain positive Net Income plus taxes (to extent deducted
therefrom) calculated as of the last day of month for the six-month period
ending on such day.
(D) Maintain a positive Excess Cash Flow calculated as of the last
day of each month for the six-month period ending on such day.
(E) Achieve Adjusted Net Earnings from operations, taxes (to the
extent deducted therefrom), equal to the specified below for the periods
specified below:
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Period Amount
------ ------
fiscal year ending October 31, 1991 $2,700,000
May 1, 1991 to April 30, 1992 $2,200,000
fiscal year ending October 31, 1992 $2,200,000
and each fiscal year thereafter
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other
Agreements, and without affecting in any manner the rights of Lender under the
other Sections of this Agreement, it is understood and agreed that Lender will
not make any Loan under Section 2 of this Agreement unless and until each of the
following conditions has been and continues to be satisfied, all in form and
substance satisfactory to Lender and its counsel:
10.1. DOCUMENTATION. Lender shall have received the following documents,
or provision of this Agreement or any of the other Agreements, all in form and
substance satisfactory to Lender and its counsel:
(A) Certified copies of Borrower's casualty insurance policies,
together with loss payable endorsements on Lender's standard form of loss payee
endorsement naming Lender as loss payee, and certified copies of Borrower's
liability insurance policies, together with endorsements naming Lender as a co-
insured;
(B) Copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence in a form acceptable
to Lender that such Liens constitute valid and perfected security interests and
Liens, having the Lien priority specified in Section 4.2(B) hereof;
(C) Landlord or warehouseman agreements with respect to all premises
leased by Borrower or upon which Borrower's goods are stored; provided, however,
if a satisfactory landlord or warehouseman agreement is not received by Lender
with respect to any premises leased by Borrower, then an amount equal to the
total rental for the remaining lease term for such premises shall be deducted as
a reserve from the amount of the Borrowing Base; provided, that Lender may
delete as a further reserve from the Borrowing Base such additional amount as
Lender deems proper and necessary, based upon Lender's analysis of the terms of
the lease or warehouseman agreement or other agreement regarding such premises
upon which Borrower's goods are stored;
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(D) A copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of incorporation;
(E) Good standing certificates for Borrower, issued by the Secretary
of State or other appropriate official of Borrower's jurisdiction of
incorporation and each jurisdiction where the conduct of Borrower's business
activities or the ownership of its Properties necessitates qualification;
(F) A closing certificate signed by Borrower, dated as of the date
hereof, stating that (i) the representations and warranties set forth in Section
8 hereof are true and correct on and as of such date, (ii) Borrower is on such
date in compliance with all the terms and provisions set forth in this Agreement
and (iii) on such date no Default or Event of Default has occurred or is
continuing;
(G) The other Agreements duly executed by the relevant Persons and
delivered by Borrower;
(H) The favorable, written opinion of Xxxx, Xxxxxx & Xxxxxxxx,
counsel to Borrower, regarding Borrower, Guarantor, this Agreement, the other
Agreements, and the transactions contemplated by this Agreement and the other
Agreements, to be in form and content acceptable to Lender and its counsel;
(I) Duly executed agreement establishing the Dominion Account with a
financial institution acceptable to Lender for the collection or servicing of
the Accounts;
(J) The Annual Business Plan for 1991, a copy of which shall be
attached hereto as Exhibit "I";
(K) Such assignments of notes and liens as Lender may request, duly
executed by each holder of Indebtedness being refinanced by the obligations;
(L) Duly executed acknowledgement by the holder of the series B
preferred stock of Borrower to the effect that the subordination provisions of
the Financial Agreement inure to the benefit of Lender; and
(M) Such other documents, instruments and agreements as Lender shall
reasonably request in connection with the foregoing matters.
10.2. OTHER CONDITIONS. The following conditions have been and shall
continue to be satisfied, in the sole discretion of Lender:
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(A) No Default or Event of Default shall exist;
(B) Each of the conditions precedent set forth in the Other
Agreements shall have been satisfied;
(C) Since February 28, 1991, there shall not have occurred any
material adverse change in the business, financial condition or results of
operations of Borrower, or the existence or value of any Collateral, or any
event, condition or state of facts which would reasonably be expected materially
and adversely to affect the business, financial condition or results of
operations of Borrower;
(D) No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby or which,
in Lender's sole discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the other Agreements; and
(E) After giving effect to the initial Loan to be made hereunder,
the proceeds of which shall be used solely (i) for the satisfaction of existing
Indebtedness of Borrower to F&M Bank and Trust Company of Tulsa, Oklahoma, (ii)
for the satisfaction of at least $60O,OOO in trade payables and other unsecured
indebtedness owed to trade creditors of Borrower, and (iii) for the payment of
any of the fees specified in Section 3.2 of this Agreement and, to the extent
approved by Lender, to the payment of any costs associated with the closing of
the transactions contemplated by this Agreement, the Borrowing Base shall exceed
the amount of such initial Loan by at least $6,250,000.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) Borrower shall fail to pay any of the Obligations on the due
date thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise);
(B) any warranty, representation, or other statement made or
furnished to Lender by or on behalf of Borrower or in any instrument,
certificate or financial statement furnished in compliance with or in reference
to this Agreement or any of the other Agreements proves to have been false or
misleading in any material respect when made or furnished;
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(C) Borrower (i) shall fail or neglect to perform, keep or observe
any covenant contained in this Agreement (other than a covenant a default in the
performance or observance of which is dealt with specifically in clause (ii)
hereof or elsewhere in this Section 11.1) and the breach of such covenant is not
cured to Lender's satisfaction within fifteen (15) days after the sooner to
occur of Borrower's receipt of notice of such breach from Lender or the date on
which such failure or neglect becomes known to any officer of Borrower; or (ii)
shall fail or neglect to perform, keep or observe any covenant contained in
Sections 4.2, 4.3, 4.4, 4.5, 5.2, 5.4, 7.2, 9.1(A), 9.1(E), 9.1(F), 9.1(J),
9.1(K), 9.1(N), 9.2 or 9.3 of this Agreement;
(D) any event of default shall occur under, or Borrower or Guarantor
shall default in the performance or observance of any term, covenant, condition
or agreement contained in, any of the other Agreements and such default shall
continue beyond any applicable period of grace;
(E) there shall occur any default or event of default on the part of
Borrower under any agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its Property is bound, creating or relating
to any Indebtedness if the payment or maturity of such Indebtedness is
accelerated in consequence of such event of default or demand for payment of
such Indebtedness is made;
(F) any material loss, theft, damage or destruction not fully
covered by insurance (as required by this Agreement and subject to such
deductibles as Lender shall have agreed to in writing), or sale, lease or
encumbrance of any of the Collateral or the making of any levy, seizure, or
attachment thereof or thereon, except in all cases as may be specifically
permitted by other provisions of this Agreement;
(G) there shall occur any material adverse change in the financial
condition or business prospects of Borrower;
(H) Borrower or Guarantor shall cease to be Solvent or shall suffer
the appointment of a receiver, trustee, custodian or similar fiduciary, or shall
make an assignment for the benefit of creditors, or any petition for an order
for relief shall be filed by or against Borrower or Guarantor under the
Bankruptcy Code (if against Borrower or Guarantor, the continuation of such
proceeding for more than thirty (30) days), or Borrower or Guarantor shall make
any offer of settlement, extension or composition to its unsecured creditors
generally;
(I) Guarantor shall cease to collectively own and control,
beneficially and of record, at least fifty-one percent (51%) of the issued and
outstanding voting capital stock of Borrower;
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(J) a Reportable Event shall occur which Lender, in its sole
discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed.
11.2. ACCELERATION OF THE OBLIGATIONS. Without in any way limiting the
right of Lender to demand payment of any portion of the obligations payable ON
DEMAND in accordance with Section 3.4 hereof, upon and after the occurrence of
an Event of Default as above provided, all or any portion of the obligations due
or to become due from Borrower to Lender, whether under this Agreement, or any
of the other Agreements or otherwise, shall, at the option of Lender and without
notice or demand by Lender, become at once due and payable and Borrower shall
forthwith pay to Lender, in addition to any and all sums and charges due, the
entire principal of and interest accrued on the obligations.
11.3. REMEDIES. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
(A) All of the rights and remedies of a secured party under the Code
or under other applicable law, including without limitation the provisions of
Chapter 9, and all other legal and equitable rights to which Lender may be
entitled, all of which rights and remedies shall be cumulative, and none of
which shall be exclusive, and shall be in addition to any other rights or
remedies contained in this Agreement or any of the other Agreements.
(B) The right to take immediate possession of the Collateral, and
(i) to require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Lender at a place designated by Lender which is reasonably
convenient to the parties, and (ii) to enter any of the premises of Borrower or
wherever any of the Collateral shall be located, and to keep and store the same
on said premises until sold (and if said premises be the Property of Borrower,
Borrower agrees not to charge Lender for storage thereof).
(C) The right to sell or otherwise dispose of all or any portion of
any Inventory or Equipment in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or Section
credit, all as Lender, in its sole discretion, may deem advisable. Borrower
agrees that ten (10) days written notice to Borrower of any public or private
sale or other disposition of such Collateral shall be reasonable notice thereof,
and such sale shall be at such locations as Lender may designate in said notice.
Lender shall have the right to conduct such sales on Borrower's premises,
without charge therefor, and
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such sales maybe adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of such
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of such Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the obligations.
(D) Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and-selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
(E) The proceeds realized from the sale of any Collateral may be
applied, after allowing two (2) Business Days for collection, first to the
reasonable costs, expenses and attorneys' fees and expenses incurred by Lender
for collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; secondly, to interest due upon any of the
obligations, and thirdly, to the principal of the obligations. If any deficiency
shall arise, Borrower shall remain liable to Lender therefor.
11.5. REMEDIES CUMULATIVE: NO WAIVER. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Agreements, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained.
11.6. SPECIAL LOUISIANA PROVISIONS. Insofar as the validity or perfection
of a security interest hereunder or the remedies hereunder are governed by the
laws of the State of Louisiana, the following provisions shall apply:
Borrower specifically acknowledges the obligations secured hereby, whether
now existing or to arise hereafter, and confesses judgment thereon in favor of
Lender if the same are not paid at maturity. Upon and after the occurrence of an
Event of Default, it shall be lawful for and Borrower does hereby authorize
Lender without making a demand or putting Borrower in default, the making of
demand and a putting in default being expressly waived, to cause all and
singular the Collateral to be seized and sold after due process of law, Borrower
waiving the benefit of any and all laws or
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parts of laws relative to the appraisement of the property seized and sold,
under executory process or other legal process, and consenting that the
Collateral be sold without appraisement, either in its entirety or in lots or
parcels, as Lender may determine, to the highest bidder for cash or on such
other terms as the plaintiff in such proceeding may direct. Furthermore, upon
the occurrence of an Event of Default, if Lender employs an attorney to enforce
Lender's rights in Louisiana against Borrower or any other Person which may be
obligated to Lender under this Agreement or any of the other Agreements,
Borrower agrees to pay Lender's reasonable attorney's fees in an amount equal to
5% of the unpaid obligations then due and owing.
Borrower hereby waives (a) the benefit of appraisement provided for in
Articles 2332, 2336, 2723, and 2724 of the Louisiana Code of Civil Procedure and
all other laws conferring the same; (b) the demand and three (3) days notice of
demand as provided in Articles 2639 and 2721 of the Louisiana Code of Civil
Procedure; (c) the notice of seizure provided for in Articles 2293 and 2721 of
the Louisiana Code of Civil Procedure; and (d) the three (3) days delay provided
for in Articles 2331 and 2722 of the Louisiana Code of Civil Procedure.
Borrower expressly authorizes and agrees that Lender shall have the right
to appoint a keeper of the Collateral pursuant to the terms and provisions of
La. R.S. 9:5136. The keeper may be Lender or its designated agent or nominee,
who or which shall be named by Lender in its pleadings to enforce Lender's
rights and remedies hereunder in a court of competent jurisdiction. The
compensation for the services of the keeper is hereby fixed at 5% of the amount
due or sued for or claimed or sought to be protected, preserved or enforced in
the proceeding for the recognition or enforcement of this Loan and Security
Agreement, and shall be secured by the security interest herein granted.
SECTION 12. MISCELLANEOUS
12.1. POWER OF ATTORNEY. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
(A) At such time or times hereafter as Lender or said agent, in its
sole discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which come into the possession of Lender or under Lender's
control; and
(B) At such time or times upon or after the occurrence of an Event
of Default as Lender or its agent in its sole
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discretion may determine: (i) enforce payment of the Accounts by legal
proceedings or otherwise and exercise generally all of Borrower's rights and
remedies with respect to the collection of the Accounts; (ii) settle, adjust,
compromise, discharge or release any of the Accounts or other Collateral or any
legal proceedings brought to collect any of the Accounts or other Collateral;
(iii) prepare, file and sign Borrower's name to a proof of claim in bankruptcy
or similar document against any Account Debtor or to any notice of lien,
assignment or satisfaction of lien or similar document in connection with any of
the Collateral; (iv) receive, open and dispose of all mail addressed to Borrower
and to notify postal authorities to change the address for delivery thereof to
such address as Lender may designate; (v) endorse the name of Borrower upon any
of the items of payment or proceeds relating to any Collateral and deposit the
same to the account of Lender on account of the obligations; (vi) endorse the
name of Borrower upon any chattel paper, document, instrument, invoice, freight
xxxx, xxxx of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (vii) use Borrower's stationery and sign the
name of Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (viii) make and adjust claims under policies of insurance; and (ix) do
all other acts and things necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement.
12.2. INDEMNITY. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender as the result of Borrower's
operation of its business or its failure to observe, perform or discharge
Borrower's duties hereunder. Without limiting the generality of the foregoing,
this indemnity shall extend to any claims asserted against Lender by any Person
under any Environmental Laws or similar laws by reason of Borrower's or any
other Person's failure to comply with laws applicable to solid or hazardous
waste materials or other toxic substances. The obligation of Borrower under this
Section 12.2 shall survive the payment in full of the obligations and the
termination of this Agreement.
12.3. MODIFICATION OF AGREEMENT: SALE OF INTEREST. This Agreement may not
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement or any of the other Agreements, or any portion thereof,
including, without limitation, Borrower's rights, title, interests, remedies,
powers, and duties hereunder or thereunder. Borrower hereby consents to Lender's
participation, sale, assignment, transfer or other disposition, at any time or
times hereafter, of this Agreement and any of the other Agreements, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder.
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12.4. REIMBURSEMENT OF EXPENSES. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender or any Participating Lender employs counsel for advice or other
representation, or incurs legal expenses or other costs or out-of-pocket
expenses in connection with: (A) the negotiation and preparation of this
Agreement or any of the other Agreements, any amendment of or modification of
this Agreement or any of the other Agreements, any consent or waiver granted by
Lender in connection with this Agreement or any of the other Agreements, or any
sale or attempted sale of any interest herein to a Participating Lender; (B) the
administration of this Agreement or any of the other Agreements and the
transactions contemplated hereby and thereby; (C) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Lender, Borrower or
any other Person) in any way relating to the Collateral, this Agreement or any
of the other Agreements or Borrower's affairs; (D) any attempt to enforce any
rights of Lender or any Participating Lender against Borrower or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Agreements, including, without limitation, the Account Debtors; or (E)
any attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then, in any
such event, the attorneys' fees arising from such services and all expenses,
costs, charges and other fees of such counsel or of Lender or relating to any of
the events or actions described in this Section shall be payable, ON DEMAND, by
Borrower to Lender or to such Participating Lender, as the case may be, and
shall be additional obligations hereunder secured by the Collateral.
Additionally, if any taxes (excluding taxes imposed upon or measured by the net
income of Lender) shall be payable on account of the execution or delivery of
this Agreement, or the execution, delivery, issuance or recording of any of the
other Agreements, or the creation of any of the obligations hereunder, by reason
of any existing or hereafter enacted federal or state statute, Borrower will pay
all such taxes, including, but not limited to, any interest and penalties
thereon, and will indemnify and hold Lender harmless from and against liability
in connection therewith. Borrower hereby irrevocably authorizes Lender to enter
any and all expenses or other amounts owing to Lender by Borrower pursuant to
this Section 12.4 as debits in the Loan Account.
12.5. INDULGENCES NOT WAIVERS. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Lender of an Event of Default under this Agreement or any of the other
Agreements shall not suspend, waive or affect any other Event of Default under
this Agreement or any of the other Agreements,
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whether the same is prior or subsequent thereto and whether of the same or of a
different type.
12.6. SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.7. SUCCESSORS AND ASSIGNS. This Agreement and the other Agreements
shall be binding upon and inure to the benefit of the successors and assigns of
Borrower and Lender. This provision, however, shall not be deemed to modify
Section 12.3 hereof.
12.8. CUMULATIVE EFFECT: CONFLICT OF TERMS. The provisions of the other
Agreements are hereby made cumulative with the provisions of this Agreement.
Except as otherwise provided in Section 3.4 of this Agreement and except as
otherwise provided in any of the other Agreements by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in direct conflict with, or inconsistent with, any provision in any
of the other Agreements, the provision contained in this Agreement shall govern
and control.
12.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
12.10. NOTICE. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto to be effective shall be in writing (and,
if sent by mail, shall be sent by certified or registered mail, return receipt
requested) or by telegraph or telex and, unless otherwise expressly provided
herein, shall be deemed to have been validly served, given or delivered when
delivered against receipt or one Business Day after deposit in the mail, postage
prepaid, or, in the case of telegraphic notice, when delivered to the telegraph
company, or, in the case of telex notice, when sent, answerback received,
addressed as follows:
(A) If to Lender: Barclays Business Credit, Inc.
0000 Xxxxxx Xxxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxx X. Xxxxxxxxxxx
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With a copy to: Xxxxxx & Xxxx
Bank One Plaza, Suite 2800
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxx
(B) If to Borrower: Red Man Pipe & Supply Co.
0000 Xxxx 00xx Xxxxx, Xxxxx 000
Xxx Xxx Xxxxx
Xxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
With a copy to: Xxxx, Xxxxxx & Xxxxxxxx
Suite 300 Grantson Building
000 Xxxx Xxxxx Xxxxxx
Xxxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxx
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.10; provided, however, that any notice,
request or demand to or upon Lender pursuant to Section 3.3 shall not be
effective until received by Lender.
12.11. LENDER'S CONSENT. Whenever Lender's consent is required to be
obtained under this Agreement or any of the other Agreements as a condition to
any action, inaction, condition or event, Lender shall be authorized to give or
withhold such consent in its sole and absolute discretion and to condition its
consent upon the giving of additional collateral security for the obligations,
the payment of money or any other matter.
12.12. DEMAND OBLIGATIONS. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable ON DEMAND by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such obligations.
12.13. TIME OF ESSENCE. Time is of the essence of this Agreement and the
other Agreements.
12.14. PARTICIPATING. Lender shall have the right at any time and from
time to time to grant participating in the Agreement and the other Agreements.
Each Participating Lender shall be entitled to receive all information received
by Lender regarding the creditworthiness of Borrower, including, without
limitation, information required to be disclosed to a participant pursuant to
Banking Circular 181 (Rev., August 2, 1984), issued by the Comptroller of the
Currency (whether the participant is subject to the circular or not).
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12.15. NONAPPLICATION OF CHAPTER 15 OF TEXAS CREDIT CODE. The provisions
of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes) Article
5O69-15 are specifically declared by the parties hereto not to be applicable to
this Agreement or any of the other Agreements or to the transactions
contemplated hereby.
12.16. No PRESERVATION OR MARSHALING. Borrower agrees that Lender has no
obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person.
12.17. GOVERNING LAW: CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED
AND SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF TEXAS. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF TEXAS AND NOT THE LAWS OF CONFLICTS OF THE STATE OF TEXAS; PROVIDED,
HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION
OTHER THAN TEXAS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER
AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE APPLICABLE AND ARE DIFFERENT FROM
OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART OF THE CONSIDERATION FOR NEW
VALUE THIS DAY RECEIVED, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN DALLAS COUNTY OF THE STATE OF TEXAS AND
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO
BORROWER AT THE ADDRESS STATED IN SECTION 12.10 HEREOF AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. BORROWER WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE.
BORROWER HAS READ AND UNDERSTANDS
SECTION 12.17: /s/ LBK (INITIALS)
12.18. WAIVERS BY BORROWER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS
AGREEMENT, BORROWER WAIVES (I) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY
ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER AGREEMENTS, THE
OBLIGATIONS OR THE COLLATERAL; (II) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL
OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT
PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE
ISSUANCE OF AN IMMEDIATE WRIT OF
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POSSESSION; (III) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE
OBLIGATIONS TO REQUIRE LENDER TO TERMINATE IT8 SECURITY INTEREST IN THE
COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS
AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY
PERSON WHOSE LOANS TO BORROWER IS USED IN WHOLE OR IN PART TO SATISFY THE
OBLIGATIONS OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER
MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED
BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS;
AND (IV) ANY RIGHT TO PRESENTMENT, PROTEST, NOTICE OF PROTEST AND NON-PAYMENT,
OR OTHER NOTICE OF DEFAULT, NOTICE ACCELERATION OR INTENT TO ACCELERATE.
BORROWER HAS READ AND UNDERSTANDS
SECTION 12.18:/s/ LBK (INITIALS)
12.19. DTPA WAIVER. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE DECEPTIVE
TRADE PRACTICES - CONSUMER PROTECTION ACT ("DTPA"), OTHER THAN SECTION 17.555
(PERTAINING TO CONTRIBUTION AND INDEMNITY) OF THE DTPA, AND EXPRESSLY WARRANTS
AND REPRESENTS THAT BORROWER (A) HAS ASSETS OF S5,OOO,OOO OR MORE, (B) HAS
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER
TO EVALUATE THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS BEEN
REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT.
BORROWER HAS READ AND UNDERSTANDS
SECTION 12.19: /s/ LBK (INITIALS)
12.20. ENTIRE, FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
AGREEMENTS, TOGETHER WITH ALL OTHER INSTRUMENTS, AGREEMENTS AND CERTIFICATES
EXECUTED BY THE PARTIES IN CONNECTION HEREWITH OR THEREWITH OR WITH REFERENCE
HERETO OR THERETO, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
BORROWER HAS READ AND UNDERSTANDS
SECTION 12.20: /s/ LBK (INITIALS)
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IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year specified at the beginning hereof.
BORROWER:
RED MAN PIPE & SUPPLY CO.
By: /s/ XXXXX X. XXXXXXX
Name: XXXXX X. XXXXXXX
Title: President
LENDER:
BARCLAYS BUSINESS CREDIT, INC.
By: /s/ XXXXXX X. XXXXXXX
Name: XXXXXX X. XXXXXXX
Title: Assistant Vice President
DTPA WAIVER
The undersigned, legal counsel to Borrower, Red Man Pipe & Supply Co.,
executes this Agreement solely to acknowledge the waiver of the Texas Deceptive
Trade Practices - Consumer Protection Act contained in Section 12.19 of the
Agreement.
Borrower's Counsel:
XXXX, XXXXXX & XXXXXXXX
By: /s/ XXXXX X. XXXX
XXXXX X. XXXX
Exhibits:
Exhibit "A" - Locations of Collateral
Exhibit "B" - Fictitious or Trade Names
Exhibit "C" - Litigation
Exhibit "D" - Existing Indebtedness and Liens
Exhibit "E" - Existing Investments
Exhibit "F" - Intellectual Property
Exhibit "G" - Acknowledgments
Exhibit "H" - Form of Compliance Certificate
Exhibit "I" - 1991 Annual Business Plan
Exhibit "J" - Form of Borrowing Base Certificate
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