FORM 10-QSB
SECURITIES EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1998
Commission file number:
INTERNATIONAL ISOTOPES INC.
(Exact name of registrant as specified in its charter)
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Texas 74-2763837
(State of incorporation) (IRS Employer Identification Number)
3100 Jim Christal Rd.
Denton, Texas 76207
(Address of principal executive offices) (zip code)
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940-484-9492
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of July 31, 1998 the aggregate market value of the common stock of the
registrant held by non-affiliates of the registrant as determined by reference
to the closing price of Common Stock as reported on the Nasdaq Small Cap Market
System, was $110,142,403. As of July 31, 1998 the number of shares of common
stock, $.01 par value, outstanding was 6,538,608.
*Registrant became subject to the filing requirements of the Securities Exchange
Act of 1934 on August 14, 1997, when its Registration Statements on Form SB-2
and Form 8-A were declared effective by the Commission.
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INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
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Page No.
PART I - FINANCIAL INFORMATION:
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Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1998 3
(unaudited) and December 31, 1997.
Condensed Consolidated Statements of Operations for the 4
Six Months Ended June 30, 1998 and 1997, and for the
Three Months Ended June 30, 1998 and 1997, and for the
period from November 1, 1995 (inception) through
June 30, 1998 (unaudited).
Condensed Consolidated Statements of Cash Flows for the 5
Six Months Ended June 30, 1998 and 1997 and for the
period from November 1, 1995 (inception) through
June 30, 1998 (unaudited).
(1) Notes to Condensed Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of Financial 11
Condition and Plan of Operation
PART II - OTHER INFORMATION:
Item 2 - Changes in Securities 14
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 16
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(development stage enterprises)
Condensed Consolidated Balance Sheets
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June 30, December 31,
1998 1997
Assets (unaudited)
- ----------------------------------------------------------------- ------------- -------------
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Current assets:
Cash and cash equivalents $ 2,529,692 $ 8,201,417
Securities available for sale, at market price - 5,082,777
Interest receivable - 152,358
Accounts receivable 545,743 -
Assets held for sale 526,533 564,932
Inventory 2,138,773 741,853
Other current assets 699,783 97,941
----------- -----------
Total current assets 6,440,524 14,841,278
Property, plant and equipment, net:
Property consisting of land 663,674 563,674
Plant and improvements 7,213,440 2,871,266
Furniture and equipment 8,200,264 2,845,820
Goodwill, less accumulated amortization 1,834,618 -
----------- -----------
Total assets 24,352,520 21,122,038
=========== ===========
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------
Current liabilities:
Accounts payable $ 1,673,610 $ 906,062
Accrued liabilities 720,058 602,064
Current installments of mortgage and notes payable to banks 523,366 634,454
----------- -----------
Total current liabilites 2,917,034 2,142,580
Mortgage and notes payable to banks, excluding current installments 3,685,706 3,053,818
----------- -----------
Total liabilities 6,602,740 5,196,398
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized,
no shares issued and outstanding
Common stock, $.01 par value; 20,000,000 shares authorized,
issued and outstanding 6,538,608 shares at June 30, 1998
and 6,370,950 shares at December 31, 1997 65,386 63,709
Additional paid-in capital 25,184,643 21,787,337
Deficit accumulated during the developmental stage (6,780,249) (5,205,406)
Receivable from stock sales (720,000) (720,000)
----------- -----------
Total stockholders' equity 17,749,780 15,925,640
----------- -----------
Total liabilities and stockholders' equity 24,352,520 21,122,038
=========== ===========
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See accompanying notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(development stage enterprises)
Consolidated Statements of Operations
(unaudited)
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Period from
Six Months ended Three Months ended November 1, 1995
June 30, June 30, (inception) through
1998 1997 1998 1997 June 30, 1998
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Revenue:
Sales of Reactor Products 620,937 - 620,937 - 620,937
Development Contract Income 250,000 - 100,000 - 250,000
Sale of accelerator components 77 135,187 77 7,115 910,944
---------- ---------- ---------- ---------- ----------
871,014 135,187 721,014 7,115 1,781,881
Cost of revenue:
Cost of reactor products (419,221) - (419,221) - (419,221)
Cost of development (62,830) - - - (62,830)
Cost of accelerator components - (68,438) - (2,782) (342,727)
---------- ---------- ---------- ---------- ----------
Gross Profit 388,963 66,749 301,793 4,333 957,103
Operating costs and expenses:
Salaries and contract labor 449,346 1,928,036 207,025 1,250,129 1,483,961
Employee incentive compensation - - - - 2,397,500
Sales and marketing 350,756 116 234,268 116 350,872
General and administrative 1,208,369 212,602 844,721 129,349 2,166,043
Consulting fees 54,047 5,183 22,520 1,724 489,650
Legal and professional fees 92,193 8,425 51,690 7,198 187,641
Rent and security 8,948 78,996 4,357 32,256 289,581
Commissions and fees 158 - 158 - 95,473
Taxes 15,000 - - - 15,000
Other - - - - 102,567
---------- ---------- ---------- ---------- ----------
Total operating expenses 2,178,817 2,233,358 1,364,739 1,420,772 7,578,288
---------- ---------- ---------- ---------- ----------
Loss from development stage operations (1,789,854) (2,166,609) (1,062,946) (1,416,439) (6,621,185)
Other income (expense):
Gain on sale (donation) of assets held for sale (24,332) - (4,000) - 327,006
Interest income 239,343 7,258 80,137 6,835 542,084
Interest expense - (149,303) - (65,987) (528,154)
Loan financing fees - - - - (750,000)
---------- ---------- ---------- ---------- ----------
Loss before extraordinary item (1,574,843) (2,308,654) (986,809) (1,475,591) (7,030,249)
Extraordinary gain on debt extinguishment - - - - 250,000
---------- ---------- ---------- ---------- ----------
Net loss (1,574,843) (2,308,654) (986,809) (1,475,591) (6,780,249)
========== ========== ========== ========== ==========
Net loss per common share - basic and diluted (0.24) (0.60) (0.15) (0.38) (1.69)
========== ========== ========== ========== ==========
Weighted average common shares outstanding -
basic and diluted 6,439,434 3,851,482 6,507,918 3,863,923 4,016,492
========== ========== ========== ========== ==========
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See accompanying notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(development stage enterprises)
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Period from
Six Months November 1, 1995
Ended June 30, (inception) through
1998 1997 June 30, 1998
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Cash flows from operating activities:
Net loss (1,574,843) $ (2,308,655) $ (6,780,249)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 74,091 4,836 93,105
(Gain) loss on sale or donation of assets 24,332 - (327,006)
Services compensated by stock issuance - 1,171,383 2,178,886
Changes in operating assets and liabilities,
exclusive of effects of acquistion: - - -
Interest receivale 135,382 - (16,976)
Accounts receivable 158,554 - 158,554
Other current assets (5,837) (338,306) (103,778)
Inventory (27,727) 54,807 (769,580)
Accounts payalbe 482,587 (27,748) 815,918
Accrued liabilities 94,754 675,850 696,818
----------- ------------ ------------
Net cash used in operating activities (638,707) (767,833) (4,054,308)
Cash flows from investing activities:
Proceeds from sale of certificate of deposit - 200,000 400,000
Purchase of certificate of deposit - - (400,000)
Purchase of property, plant and equipment (9,874,262) (273,748) (13,557,882)
Purchase of securities available for sale - - (5,082,777)
Proceeds from sale of securitites available for sale 5,082,777 - 5,082,777
Purchase of assets for sale and operations in connection
with initial founding - - (2,900,000)
Proceeds from sale of assets held for sale 7,667 - 825,605
Purchase of MAC Isotopes, Inc., net of cash acquired (495,000) (495,000)
Payments for Trademarks (250,000) - (250,000)
Payments for License Fee (25,000) (25,000)
----------- ------------ ------------
Net cash provided (used) in investing activities (5,553,818) (73,748) (16,402,277)
Cash flows from financing activities:
Collections of stock sale receivable - - 160,000
Proceeds from issuance of notes payable to chairman - - 120,000
Proceeds from issuance of common stock - 260,475 18,612,205
Proceeds from issuance of debt 607,098 3,558,154 12,558,705
Principal payments on notes payable (86,298) (3,043,204) (8,349,633)
Payments on notes payable to chairman - - (115,000)
----------- ------------ ------------
Net cash provided by financing activities 520,800 775,425 22,986,277
Net increase (decrease) in cash and cash equivalents (5,671,725) (66,156) 2,529,692
Cash and cash equivalents at beginning of period 8,201,417 331,397
----------- ------------ ------------
Cash and cash equivalents at end of period $ 2,529,692 $ 265,241 $ 2,529,692
=========== ============ ============
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(Continued)
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(development stage enterprises)
Condensed Consolidated Statements of Cash Flows
(unaudited)
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Period from
Six Months November 1, 1995
Ended June 30, (inception) through
1998 1997 June 30, 1998
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Supplemental disclosure of cash flow activities:
Cash paid for interest 168,294 112,410 701,730
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Cash paid for financing fees 36,350 15,261 546,611
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Supplemental disclosure of noncash transactions:
Common stock issued for stock receivables - - 880,000
========== ======= ===========
Capital expenditures included in accounts payable 1,317,762 - 1,317,762
========== ======= ===========
Common stock issued for account payable to director - - 62,852
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Conversion of notes payable to common stock - - 5,000
========== ======= ===========
Acquistion of subsidiary through issuance of
common stock (note 6) 3,173,973 - 3,248,976
========== ======= ===========
Acquistion of patent through issuance of common stock - - 100
========== ======= ===========
Acquistion of license fee through issuance of common stock 225,000 - 225,000
========== ======= ===========
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See accompanying notes to unaudited condensed consolidated financial statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(development stage enterprises)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The Company and Basis of Presentation
International Isotopes Inc. (the "Company" or "I(3)") was incorporated on
November 15, 1995 and is a development stage enterprise. The Company's primary
activities have been to obtain assets to be used in the production of
radioisotopes, to obtain funding to complete the reconfiguration and reassembly
of the linear accelerator, and prepare for production and marketing of a full
range of radioisotopes, pharmaceutical grade radioisotopes and finished
radiopharmaceuticals. Since the Company's acquisition of MAC Isotopes, Inc. (see
note 6) was consummated to further establish a supply of certain radioisotopes,
the Company remains a development stage enterprise.
The accompanying unaudited consolidated financial statements include the results
of operations of the Company and its wholly owned subsidiaries, Gazelle Realty
and International Isotopes Idaho Inc. ("I(4)"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The unaudited
financial statements included herein by the Company have been prepared without
audit and in accordance with generally accepted accounting principles, and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). These statements reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of the
Company's financial position as of June 30, 1998, and the results of its
operations for the six and three-month periods ended June 30, 1998 and 1997, and
its cash flows for the six-month periods ended June 30, 1998 and 1997. This
information should be read in conjunction with the Company's audited
consolidated financial statements for the period from November 1, 1995
(inception) through December 31, 1997 as set out in the Company's Form10-KSB
filed March 31, 1998.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income includes
net income and other comprehensive income which is generally comprised of
changes in the fair value of available-for-sale marketable securities, foreign
currency translation adjustments and adjustments to recognize additional minimum
pension liabilities. The Company had no accumulated other comprehensive income
at June 30, 1998 or December 31, 1997
The Company is assessing the reporting and disclosure requirements of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. The statement
is effective for financial statements for periods beginning after December 15,
1997, but is not required for interim financial statements in the initial year
of its application. The Company will adopt the provisions of SFAS No. 131 in its
December 31, 1998 consolidated financial statements.
Certain information in footnote disclosures, normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the SEC.
The financial data disclosed in the notes to the consolidated statements are
unaudited for these periods.
(2) Earnings (loss) Per Common Share - Basic and Diluted
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128").
SFAS No. 128 revised the previous calculation methods and
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presentations of earnings per share under APB 15 and requires that all
prior-period earnings (loss) per share data be restated. The Company adopted
SFAS No. 128 in the fourth quarter of 1997 as required by this Statement. In
accordance with SFAS No. 128, the Company has presented basic earnings (loss)
per share, computed on the basis of the weighted average number of common shares
outstanding during the period, adjusted as discussed in the following paragraph.
Diluted earnings (loss) per share, which is computed on the basis of the
weighted average number of common shares and all potentially dilutive common
shares outstanding during the period, is the same as basic earnings (loss) per
share, as all potential common shares were anti-dilutive. Potential common
shares excluded from diluted weighted average common shares include 290,000
common stock options and 220,000 common stock warrants.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock, options,
warrants, or other potentially dilutive instruments have been issued for nominal
consideration during the periods covered by income statements in an initial
public offering filing (hereinafter referred to as "nominal issuances"), those
nominal issuances are to be reflecting earnings per share calculations for all
periods presented in a manner similar to a stock split or stock dividend for
which retroactive restatements is required by SFAS No. 128. Accordingly, common
stock issued for all periods prior to the Company's public offering for nominal
consideration have been included in the calculation of weighted average number
of shares as if they were outstanding for all period presented.
(3) Mortgage and Notes Payable to Banks
As of June 30, 1998, mortgage and notes payable to banks consisted of five
loans, (a) an interim construction loan on the Administrative and Processing
Building located on Spencer Road in Denton, Texas in the amount of $920,823
secured by building and land, with a current interest rate of 8.5%, (b) a one
year term loan in the amount of $500,000, (c) a revolving line of credit having
a maximum amount of $250,000 and a current balance of $0, both secured by 20
acres of land in Denton, Texas upon which the Company is currently constructing
the Radioisotope Production Facility, with variable rates currently at 8.5%, (d)
an amortizing fifteen year loan in the amount of $318,509 which is secured by
the Superconducting Super Collider ("SSC") project land and buildings in
Waxahachie, Texas with a rate at June 30, 1998 of 8.5%, and (e) an amortizing
loan for $2,473,351 that is secured by the land and building at Jim Christal
Road, the Radiopharmaceutical Manufacturing Facility, in Denton, Texas.
An interim construction loan, with a maximum committed amount of $5,000,000 and
a current interest rate of 8.5%, for the construction of the Radioisotope
Production Facility being built on 20 acres of land in Denton, Texas was closed
on June 26, 1998 but not funded until July 1998. An initial draw from this loan
in the amount of $594,382 was used to payoff the $500,000 one year term loan
described above, accrued interest of $5,240, and closing and loan costs of
$89,142.
(4) Common Stock
On August 19, 1997, the Company completed a public offering of 2,200,000 shares
of its Common Stock at $9.00 per share. The Company received proceeds of
$17,805,823 after deducting underwriters' discounts and commissions. Additional
costs associated with the offering due to legal, audit, printing and other
expenses were $898,117 resulting in net proceeds of $16,907,706. On September
30, 1997 the Company completed the sale of an additional 100,000 shares of its
Common Stock as a result of the exercise of the underwriter's over allotment
option. In December 1997, the Company issued 155,000 shares of its unregistered
Common Stock to four key employees. On April 24, 1998 the Company issued 159,416
shares of its unregistered Common Stock for the purchase of Mac Isotopes, Inc.
On May 14, 1998 the Company issued 8,242 shares of its unregistered Common Stock
in connection with a product license agreement with Bracco Diagnostics Inc.
Common Stock shares outstanding at June 30, 1998 totaled 6,538,608
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(5) Stock Options
During the six month period ended June 30, 1998, the Company granted options to
purchase 90,700 shares of Common Stock to 32 employees under the terms specified
in the Company's 1997 Long Term Incentive Plan. The plan authorizes grants of
options, over a three year period, to purchase up to 600,000 shares to officers,
employees and consultants. Common Stock options outstanding at June 30 totaled
436,900 of which 81,667 are eligible to be exercised.
(6) Acquisition of Subsidiary
On April 24, 1998, Company completed the acquisition of MAC Isotopes, Inc. from
its parent corporation, MACTEC, Inc., of Golden, Colorado and then merged MAC
Isotopes into International Isotopes Idaho Inc. ("I4") a newly formed subsidiary
of the Company. The Company exchanged $500,000 in cash and 159,416 shares of its
unregistered Common Stock for 100% of the stock in MAC Isotopes. I4 assumed MAC
Isotopes' exclusive five year contract, with an option to renew for three
additional years, for the utilization of the Department of Energy Advanced Test
Reactor facility located near Idaho Falls, Idaho. This acquisition was accounted
for under the purchase method of accounting and, accordingly, results of
operations of I4 have been included in the condensed consolidated statement of
operations since the acquisition date. Activities conducted by I4 include the
production of high specific activity medical radioisotopes to be used in
diagnostics and therapy of cancer and various other diseases.
As of June 30, 1998, the fair values assigned to certain assets acquired and
liabilities assumed are based upon preliminary estimates, which are subject to
change pending completion of independent valuation. A summary of the assets
acquired and liabilities assumed in connection with the MAC Isotopes acquisition
follows:
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Current assets, net of cash acquired $2,051,822
Property, plant and equipment 41,810
Intangible assets 1,883,542
Current liabilities (308,201)
----------
Total 3,668,973
Issuance of 159,416 shares of I3 common stock,
valued at $19.91 per share 3,173,973
----------
Cash paid, net of cash acquired $ 495,000
===========
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The results of operations of MAC Isotopes for the six months ended June 30, 1998
and the year ended December 31, 1997 were insignificant therefore pro forma
results of operations for prior periods as if the acquisition had occurred on
January 1, 1997, has not been provided.
(7) Development Income
In January 1998 the Company entered into a contract with Imagyn Medical
Technologies for development and manufacturing of radioisotope permanent implant
seeds for the treatment of cancer and other diseases, a process known as
brachytherapy. The contract includes a $1,000,000 development fee to be paid by
Imagyn to the Company in installments during the first year of the contract as
certain developmental milestones are met. The contract grants Imagyn exclusive
distribution rights for the seed products covered thereby subject to Imagyn
meeting certain minimum seed purchase requirements. The Company has estimated
the value of the contract to be $9,000,000. Imagyn has to date met each of its
financial obligations to the Company and has told the Company it intends to meet
all future obligations. However in light of recent public disclosures by Imagyn,
concerning, ongoing liquidity issues, there can be no assurance that Imagyn will
be able to meet all of its obligations, in which case the Company has the right
to employ other distributors for the seed
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products covered by the Imagyn contract. At June 30, 1998 the Company had
$100,000 in accounts receivable from Imagyn, all of which has been received
subsequent to June 30.
(8) Licensing Agreements
In May 1998, the Company entered into an exclusive license agreement with Dr.
Roger M. Good and Endo Tech Inc. for the world-wide rights under Patent No.
5,342,383 and an FDA approved 510(k) for the use, sale, lease, manufacture and
distribution of sputter coated spherical I-125 brachytherapy seeds. The Company
made an initial payment of $250,000 at the time of the execution of the
agreement. An additional payment of $250,000 is due to be paid when 100,000
seeds have been sold commercially. The Company further agreed to issue to the
Good Group (i) $500,000 of its Common Stock when the pre-market clearance is
received or when determination is made that permission from the FDA is not
required to market the seeds and (ii) stock options in the amount of 60,000
shares of its Common Stock as various annual sales volume goals are reached. In
addition, I3 agreed to pay a running royalty calculated as a percentage of net
sales price, based on various sales price levels.
In May 1998, the Company entered into a five-year manufacturing, distribution
and license agreement with Bracco Diagnostics Inc. for the production of
finished radiopharmaceuticals. The Company issued 8,242 shares of its
unregistered Common Stock and $25,000 in cash to Bracco at the time of execution
of the agreement and, in addition, agreed to pay royalties based on a percentage
of net sales to other customers. Pursuant to such agreement, I3 and Bracco
agreed to share revenues, Bracco agreed to certain minimum pricing, and I3
agreed to perform warehousing, customer service, manufacturing, distribution and
billing functions.
(9) Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. The goodwill balance relating to the MAC Isotope Inc. purchase
will be amortized over 77 months, the term of certain contracts. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
(10) Subsequent Events
On July 1, 1998, the Company entered into a lease agreement with First Sierra
Software Finance for the lease purchase of software and services from Fourth
Shift Corporation. The terms of the lease call for an initial payment of $24,125
due July 1, 1998 and 23 monthly payments as follows: payments 2 through 12 in
the amount of $6,000, payments 13 through 18 in the amount of $9,700, and
payments 19 through 24 in the amount of $18,685. At the end of the lease term
the Company has agreed to purchase the equipment for $52,676. The value of the
equipment leased is $231,182.
On July 10, 1998, the Company executed a promissory note for a line of credit
with a commercial lender for $2,500,000 with a maturity date of October 1, 1998
and a variable interest rate equal to the prime rate as listed in the Wall
Street Journal plus 1.75%. The loan is secured by 400,000 shares of the Common
Stock of I3 owned by I. L. Morgan, Chairman of the Board.
On July 23, 1998, the Company finalized its contract for the construction of the
Radioisotope Production Facility with Andres Construction Services as the
construction manager. Construction began in January 1998 and is expected to be
completed in September 1998. The Company and construction manager have arrived
at a Guaranteed Maximum Price of $6,333,307.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATION
Except for historical information contained herein, the following contains
forward-looking information that is subject to certain risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, set forth in
the "Risk Factors" section included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission (SEC) on March 31, 1998. The following
discussion should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Plan of Operation" included in the 10-KSB.
OVERVIEW
International Isotopes Inc., a Texas corporation, is a development stage company
that is executing plans to be the first commercial domestic producer of a full
range of radioisotopes, pharmaceutical grade radioisotopes and finished
radiopharmaceuticals (on a contract or joint venture basis) for commercial sale
to the nuclear medicine industry for the diagnosis and treatment of cancer and
other diseases. The Company is also developing instrumentation for radiation
therapy and medical imaging.
Radioisotopes, indispensable components of nuclear medicine, are radiation
emitting atoms that are used for both medical diagnostics and in-the-body ("in
vivo") therapeutics. When a specifically selected radioisotope is attached or
"tagged" to one of a variety of pharmaceuticals, the resulting product is known
as a radiopharmaceutical. The pharmaceutical component acts as a carrier to seek
out targeted internal organs, tumor sites and/or cells for which it has a
predetermined natural affinity. In diagnostics, the radioisotope component
provides a signal as to the location of the attached pharmaceutical as it
targets the specific organ or site. This process, in turn, is captured by
external imaging equipment such as positron emission tomography ("PET") and
single photon emission computed tomography ("SPECT") cameras. In therapeutics,
the radioisotope component provides in vivo treatment of the targeted organ,
cancerous tumor and/or cancerous cell site through the emission of either
photons or beta radiation. In addition to radiopharmaceutical applications,
radioisotopes may also be injected into the body at the site of a tumor as part
of a medical device. This process is known as brachytherapy. Radioisotopes are
produced commercially either by an accelerator (a cyclotron or a linear
accelerator) or a nuclear reactor. Accelerators are machines, which accelerate
charged particles, generally protons, to bombard a stable (non-radioactive)
isotope target, causing a reaction such that the target is transformed into a
radioactive isotope. A nuclear reactor produces radioisotopes by bombarding a
stable isotope target with neutrons.
Presently, the most commonly used radioisotopes in the United States, such as
thallium-201, gallium-67, indium-111 and palladium-103, which the Company
intends to commercially produce, are produced by four domestic
radiopharmaceutical companies, primarily for their own use, and by two foreign
manufacturers, and are used either independently or in various combinations or
"cocktails" to assist in the diagnosis of a myriad of medical conditions,
including coronary heart disease, pulmonary embolism, thyroid carcinoma, bone
cancer, brain disorders, acute cholecystitis (inflammation of the gall bladder),
gastrointestinal bleeding, renal artery stenosis and other diseases.
The Company's newly acquired subsidiary, International Isotopes Idaho Inc "I4",
is a premier supplier of Ir-192 used in remote loaded brachytherapy treatment of
various cancers, primarily cancer of the cervix. I4 also produces Co-60 for use
in the General Electric "gamma knife" used for the precise external beam of
irradiation of inoperable brain tumors and Sr-89 for bone cancer pain
palliation. I4 will produce other neutron rich radioisotopes which are currently
in demand and primarily supplied by foreign sources.
Since its incorporation in November 1995, the Company's operations have been
concentrated in acquiring its proton linear accelerator ("LINAC") and related
assets, redesigning and reconfiguring the LINAC for production of radioisotopes,
acquiring land, designing and constructing facilities for the production and
distribution of radioisotopes, radiopharmaceuticals and brachytherapy products,
raising capital, selling certain accelerator components and excess equipment and
entering into strategic alliances with medical and pharmaceutical companies,
universities and other institutions.
<PAGE>
In November 1997, the Company acquired two buildings and twelve acres of land in
Denton, Texas, and relocated all personnel and equipment to this location in
December 1997. Also in December 1997, the Company installed a CP-42 Cyclotron
donated by M.D. Anderson Hospital to the University of North Texas at this site.
This machine will be operated by the Company under a lease agreement with the
university and is being rebuilt for use in the production of certain isotopes.
The Company is currently constructing a 35,000 square foot Radioisotope
Production Facility that will house the LINAC and radiochemistry processing. The
Radioisotope Production Facility is being constructed on 20.16 acres of land the
Company has acquired in a 500-acre high technology biomedical research
industrial park located in Denton, Texas, known as the "North Texas Research
Center." Construction is anticipated to be completed by late September.
Upon full operation of the Radioisotope Production Facility and the LINAC in
conformity with the Company's redesign and reconfiguration, the Company intends
to produce currently used radioisotopes and the upcoming and potentially
superior diagnostic and therapeutic pharmaceutical grade radioisotopes which can
be cost effectively accelerator-produced with the high energy (70 MeV) and the
1.0mA beam intensity of the LINAC.
On July 2, 1998, the Company was granted a Radioactive Material License from the
Texas Department of Health, Bureau of Radiation Control. The license allows for
the receipt, manufacture, storage and distribution of radiochemicals and
radiopharmaceuticals as well as the development of manufacturing processes
related to radioisotopes to be manufactured at its Radiopharmaceutical
Manufacturing Facility.
On July 10, 1998, the Company submitted to the Food and Drug Administration a
Section 510(k) notification of intent to market Imagyn125 Seed devices. Approval
to begin marketing the device, to be used for permanent interstitial
implantation in selected localized tumors, was received on July 31. The device
can be used either as a primary treatment (such as prostate cancer or
unresectable tumors) or for treatment of residual disease after excision of the
primary tumors or recurring tumors.
On July 24, 1998, the Company received a Certificate of Registration for
Industrial Radiation Machines from the Texas Department of Health, Bureau of
Radiation Control. This certification authorizes the operation of the LINAC at
the Radioisotope Production Facility and the CP-42 cyclotron at the
Radiopharmaceutical Manufacturing Facility.
The Company has achieved the following production related milestones during the
current reporting period:
[bullet] Completed construction of the Accelerator Tunnel and the
Accelerator support building (part of the Radioisotope Production
Facility at 2100 Shady Oaks Drive in Denton, Texas).
[bullet] Initiated installation of the LINAC in the Accelerator
Tunnel. [bullet] Completed construction of a portion of the
Radiopharmaceutical Manufacturing Facility containing two aseptic
manufacturing suites and six terminally sterilized manufacturing
suites (part of the manufacturing complex at 3100 Jim Christal Road in
Denton, Texas).
[bullet] Occupied the Administrative and Processing Building (1500
Spencer Road in Denton, Texas).
[bullet] Completed renovation of the Cp-42 cyclotron and made
preparations for final testing.
[bullet] Acquired MAC Isotopes, Inc. with operations in Idaho and
continued with planned production and sales from the Idaho facility.
<PAGE>
RESULTS OF OPERATIONS
Six and Three Month periods ended June 30, 1998 and 1997
The Company's net losses for the six and three month periods ended June 30, 1998
were $1,574,843 and $986,809 respectively, as compared to net losses of
$2,308,654 and $1,475,591 for the comparable periods of 1997. Net loss per basic
and diluted common share for the six and three month periods ended June 30, 1998
were $.24 and $.15 respectively, as compared to net loss per common share of
$.60 and $.38 for the same periods of 1997.
The decrease in the losses were largely due to 1) the receipt of development
income related to the Company's contract with Imagyn for brachytherapy seeds, 2)
the capitalization of internal labor costs as the Company concentrates its
efforts on the construction of the isotope production accelerators as well as
radiochemistry and radiopharmaceutical facilities and 3) the acquisition of
International Isotopes Idaho, Inc. and its related net revenues.
Revenues for the six and three-month periods ended June 30, 1998 were $871,014
and $721,014 respectively, as compared to $135,187 and $7,115 for the same
periods in 1997. Gross profits for the six and three-month periods ended June
30, 1998 were $388,963 and $301,793 as compared to $66,749 and $4,333 for the
same periods in 1997. The increase in revenues was attributable to sales from
International Isotopes Idaho, Inc., a wholly owned subsidiary, and the
development contract between the Company and its marketing partner related to
the development of brachytherapy devices for the treatment of cancer. The
development contract, executed in January 1998, calls for an additional $750,000
to be paid during the remainder of 1998 (see note 7 of unaudited notes to
condensed consolidated financial statements).
Operating expenses decreased to $2,178,817 and $1,364,739 for the six and
three-month periods ended June 30, 1998 compared to $2,233,358 and $1,420,772
for the same periods of 1997. Salaries and contract labor expenses for the six
and three-month periods ended June 30, 1998 were $449,346 and $207,025
respectively as compared to $1,928,036 and $1,250,129 for the same periods of
1997, a decrease of $1,478,690 and $1,043,104. The decreases in salaries and
contract labor expenses were attributed to no incentive compensation expense
being incurred during this period and the capitalization of internal labor
costs. General and administrative and sales and marketing expenses totaled
$1,559,125 and $1,078,989 for the six and three-month periods ended June 30,
1998 as compared to $212,718 and $129,465 for the same periods of 1997, an
increase of $1,346,407 and $949,524. The increase in general and administrative
and sales and marketing costs were attributable to increases in personnel for
production, marketing, quality assurance, safety and administrative personnel as
the Company expanded its organizational structure.
Interest income earned during the six and three-month periods ended June 30,
1998 was $239,343 and $80,137 as compared to $7,258 and $6,835 for the
comparable periods of 1997. This increase was attributable to the investment of
funds received from the Company's initial public offering completed in August
1997. Interest expense of $0 was recorded for the both the six and three-month
periods ended June 30, 1998, as the Company capitalized all interest costs on
debt during this time, as compared to $149,303 and $65,987 recognized as
interest expense for the comparable periods of 1997.
LIQUIDITY AND CAPITAL RESOURCES
From November 1, 1995 (inception) through May 1997, the Company obtained funds
primarily through principal shareholder guaranteed bank loans, sales of
accelerator components and excess equipment, sales of Common Stock in a private
placement to investors and from loans from stockholders and directors. During
the third quarter of 1997, the Company completed an underwritten public offering
of 2,200,000 shares of common stock , generating $16,907,706 in net proceeds to
the Company after commissions and legal, audit, printing and other expenses.
Approximately $3,200,000 of funds from the public offering were utilized to
extinguish all Company debt outstanding at the time of the offering, with the
exception of the construction loan for the Company's administration,
manufacturing, research and development facility. Additional funds of $801,133,
net of underwriters' discount, were received by the Company in September 1997,
as a result of the exercise of the underwriter's over allotment option.
Disbursements of approximately $11,508,175 were expended for the purposes of
construction, engineering and the purchase and installation of machinery,
equipment and capital assets. Funds in the amount $775,000 were
<PAGE>
utilized for the purchase of subsidiary and license agreements. Funds in the
amount of $2,225,664 were utilized for working capital purposes, including
personnel, facilities, insurance and other operating expenses. These
transactions resulted in remaining cash, cash equivalents and short-term
securities of approximately $2,529,692 at June 30, 1998.
The Company experienced several changes to its financial ratios during the past
year. Current assets to current liability ratio at June 30, 1998 was 2.21 to 1.
The total assets to total liabilities ratio at June 30, 1998 was 3.69 to 1.
Shareholder equity increased to $17,749,780 at June 30, 1998.
Management is currently negotiating potential financing from financial
institutions and commercial lenders, and has obtained a commitment for
additional financing of $6,000,000.This financing, which is available until
August 31, 1998, will provide adequate funds to complete the facilities
currently under construction. Management estimates that approximately $4,000,000
is necessary for the completion of its LINAC.
In addition, the Company expects to close a private placement for $15,000,000 of
its Convertible Preferred Stock in September 1998. The proceeds from this
private placement will enable the Company to continue its expansion of
facilities for the production of finished radiopharmaceuticals to respond to
additional demands from potential customers. However there can be no assurance
that the Company will close the private placement
Management plans to continue other financing options and will finalize these
arrangements as necessary to conform to long term financing plans, although
there can be no assurance that sufficient financing will be available.
Management is currently negotiating with several financial institutions for
working capital and other purposes as well as to repay the $2,500,000 loan that
was obtained on July 10, 1998. In the event these financing arrangements are not
completed with terms acceptable to Management the Company will renew the
existing loan or utilize other sources of funding for that purpose. Management
anticipates, based on its currently proposed plans and assumptions relating to
its operations, that the current cash resources, proposed debt and equity
financing discussed above, income from operations and sale of assets held for
sale will be sufficient to sustain operations for at least the next 12 months.
YEAR 2000 ISSUE
Historically certain computer programs have been written using two digits rather
than four to define the applicable year, which could result in the computer
recognizing a date using "00" as the year 1900 rather than the year 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 problem." The Company is currently
evaluating the Year 2000 problem, including an evaluation of its lab and
production equipment, to assure that the transition to the Year 2000 will not
disrupt the Company's research and development or production capabilities. The
Company also intends to evaluate the systems of its vendors. Presently, the
Company does not believe the Year 2000 problem will have a material adverse
effect on the business operations or financial performance of the Company. There
can be no assurance, however, that the Year 2000 problem will not adversely
affect the Company and its business.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On April 24, 1998, Company completed the acquisition of MAC Isotopes, Inc. from
its parent corporation, MACTEC, Inc., of Golden, Colorado and then merged MAC
Isotopes into International Isotopes Idaho Inc. ("I4"), a newly formed
subsidiary of the Company. The Company exchanged 159,416 shares of its
unregistered Common Stock, valued at $3,173,973 for 100% of the stock in MAC
Isotopes. Upon consummation of the acquisition, the Company made a capital
contribution of $500,000 to I4 to pay liabilities owed to MACTEC, Inc.
International Isotopes Idaho Inc, incorporated in Texas (formerly MAC Isotopes,
Inc.), assumed MAC Isotopes' exclusive five year contract, with an option to
renew for three additional years, for the utilization of the Department of
Energy Advanced Test Reactor facility located near Idaho Falls, Idaho.
Activities conducted at this location include the
<PAGE>
production of high specific activity medical radioisotopes to be used in
diagnostics and therapy of cancer and various diseases.
In May 1998 the Company entered into a five-year manufacturing, distribution and
license agreement with Bracco Diagnostics Inc. for the production of finished
radiopharmaceuticals. The Company issued 8,242 shares of its unregistered Common
Stock and $25,000 to Bracco at the time of execution of the agreement and, in
addition, agreed to pay royalties based on a percentage of net sales to
customers other than Bracco. Pursuant to such agreement, I3 and Bracco agreed to
share revenues, Bracco agreed to certain minimum pricing, and I3 agreed to
perform warehousing, distribution, shipping and distribution functions.
The issuance of shares of the Company's Common Stock in connection with the MAC
Isotope acquisition and the Bracco agreement were exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereunder.
Common Stock shares outstanding at June 30, 1998 totaled 6,538,608.
Item 5. Other Information
In January 1998 the Company entered into a contract with Imagyn Medical
Technologies for development and manufacturing of radioisotope permanent implant
seeds for the treatment of cancer and other diseases, a process known as
brachytherapy. The contract includes a $1,000,000 development fee to be paid by
Imagyn to the Company in installments during the first year of the contract as
certain developmental milestones are met. The contract grants Imagyn exclusive
distribution rights for the seed products covered thereby subject to Imagyn
meeting certain minimum purchase requirements. Imagyn has to date met each of
its financial obligations to the Company and has told the Company it intends to
meet all future obligations. However, In light of recent public disclosures by
Imagyn, concerning ongoing liquidity issues, there can be no assurance that
Imagyn will be able to meet all of its obligations, in which case the Company
has the right to seek other distributors for the seed products covered by the
Imagyn contract.
In May 1998 the Company entered into an exclusive license agreement with Dr.
Roger M. Good and Endo Tech Inc. for the world-wide rights under Patent No.
5,342,383 and an FDA approved 510(k) for the use, sale, lease, manufacture and
distribution of sputter coated spherical I-125 brachytherapy seeds. The Company
believes that these seeds will be superior in encapsulation safety and dose
distribution for the treatment of prostate cancer and other tumors. The Company
made an initial payment of $250,000 at the time of the execution of the
agreement. An additional payment of $250,000 is due to be paid when 100,000
seeds have been sold commercially. The Company further agreed to issue $500,000
of its Common stock upon receipt of permission from the FDA to market I-125
seeds or when determination is made that permission from the FDA is not required
to market the seeds and stock options in the amount of 60,000 shares of its
common stock as various annual sales volume goals are reached. In addition, I3
agreed to pay a running royalty calculated as a percentage of net sales price,
based on various sales price levels.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.1 Copy of promissory note between the Company and Texas Bank dated as of
June 26, 1998
10.2 Deed of trust, security agreement and assignment of rents &
leases between the Company and Texas Bank executed on June 26, 1998
10.3 Copy of promissory note between the Company and First Southwest
Company dated as of July 10, 1998
27.1 Financial Data Schedule
Reports on Form 8-K:
The Company filed a Form 8-K on May 8, 1998 with respect to the acquisition of
MAC Isotopes, Inc.
TEXAS BANK
PROMISSORY NOTE
$5,000,000.00 June 26, 1998
------------ -------------
Effective Date
March 26, 2019
- ----------- --------------
Note Number Maturity Date
1. Definitions. As used in this Promissory Note, the following terms
have the meanings indicated below.
"Bank" means Texas Bank and its successors and assigns.
"Borrower" means, whether one or more, International Isotopes, Inc.
"Business Day" means any day other than a Saturday, Sunday or any other
day on which a Texas state bank is authorized to be closed.
"Change Date" means March 26, 1999, and the same date of every third
year thereafter.
"Deed of Trust" means the Deed of Trust of even date with this Note,
executed by Borrower for the benefit of Bank covering certain real and personal
property located in Denton County, Texas, as it may be amended, restated,
renewed and extended from time to time.
"Effective Date" means June 26, 1998.
"Loan Agreement" means the Construction Loan Agreement, dated the
Effective Date, between Bank and Borrower, together with any and all renewals,
extensions, amendments and modifications to such Construction Loan Agreement.
"Loan Documents" has the meaning assigned to such term in the Loan
Agreement.
"Loan Rate" means eight and one-half percent (8.50%) per annum from the
Effective Date through the day before the first Change Date. Effective the first
Change Date and thereafter the Loan Rate shall be the Prime Rate on each Change
Date. The Loan Rate is fixed between each Change Date.
"Maturity Date" means March 26, 2019.
"Maximum Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, may then be charged on this Note.
If such maximum rate of interest changes after the date hereof and this Note
provides for a fluctuating rate of interest, the Maximum Rate shall be
automatically increased or decreased, as the case may be, without notice to
Borrower from time to time as of the effective date of each change in such
maximum rate. If applicable law ceases to provide for such maximum rate of
interest, the Maximum Rate means eighteen percent (18%) per annum.
"Note" means this Promissory Note and all modifications, increases,
replacements, renewals, and extensions of this Promissory Note.
"Prime Rate" means an index which is the published Prime Lending Rate
in The Wall Street Journal for large, money center banks. If more than one Prime
Rate is published the highest shall be used.
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<PAGE>
2. Promise to Pay. For value received, Borrower, (jointly and severally
if more than one), unconditionally hereby promises to pay to the order of Bank,
at its principal place of business located at 729 Fort Worth Drive, Denton,
Texas 76202, or at such other place as the holder of this Note may hereafter
designate, the principal sum of Five Million and no/100 Dollars ($5,000,000.00)
or so much thereof as may be advanced, in lawful money of the United States of
America for the payment of private debts, together with interest on the unpaid
principal balance from time to time owing hereon computed from the date hereof
until maturity at a per annum rate which shall be, except as otherwise provided
in this Note, the lesser of (a) the Loan Rate in effect from day to day, or (b)
the Maximum Rate. Interest on this Note is computed on a 365/360 simple interest
basis; that is by applying the ratio of the annual interest over a year of 360
days times the outstanding principal balance, times the actual number of days
the principal balance is outstanding, unless such calculation would result in a
usurious rate, in which case interest shall be calculated on a per diem basis of
a year of 365 or 366 days as the case may be. All past due principal and matured
interest, at Bank's option, shall bear interest at the Maximum Rate. This Note
is subject to multiple advances but this Note does not have a revolving credit
feature.
3. Prime Rate. If The Wall Street Journal no longer publishes the Prime
Rate, then Bank shall select another comparable, nationally recognized index, at
its reasonable discretion, and shall provide Borrower written notice thereof.
Borrower understands that the Prime Rate may or may not be the lowest rate
charged by Bank from time to time on similar loans, and that Bank may make loans
based on other indices as well.
4. Payments. This Note is payable as follows: accrued interest shall be
due and payable on July 26, 1998, and on the same day of each succeeding
calendar month through March 26, 1999. Thereafter principal and interest shall
be payable in equal monthly installments of $43,391.16 (subject to an adjustment
in the installment amount caused by a change in the Loan Rate) with the first of
such installments due on April 26, 1999, and a like installment shall be due on
the same day of each succeeding calendar month thereafter until the Maturity
Date, on which date all unpaid principal and accrued, unpaid interest shall be
due and payable. On each Change Date Bank will determine the amount of the
monthly installment which would be sufficient to amortize the unpaid principal
(based on a 20-year amortization as of the first Change Date, and reduced by
three [3] years on each succeeding Change Date) by the stated Maturity Date in
substantially equal payments, which payments shall include accrued interest. The
result of this calculation will be Borrower's new monthly payment until the
payment following the next Change Date. Bank will provide Borrower with written
notice of any change in the interest rate and monthly payment from time to time
either prior to or as these changes become effective. If any payment of
principal or interest on this Note shall become due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
any such extension of time shall be included in computing interest in connection
with such payment. All regularly scheduled payments of the indebtedness
evidenced by this Note shall be applied first to any accrued, unpaid interest
then due and payable hereunder and then to the principal amount then due and
payable. All non-regularly scheduled payments and payments made after an Event
of Default has occurred and is continuing shall be applied to such indebtedness
(including collection costs) in such order and manner as the holder of this Note
may from time to time determine in its sole discretion. Borrower agrees that all
payments of any obligation due hereunder shall be final, and if any such payment
is recovered in any bankruptcy, insolvency or similar proceedings instituted by
or against Borrower, all obligations due hereunder shall be automatically
reinstated in respect of the obligation as to which payment is so recovered.
5. Prepayment. Borrower may prepay this Note in part or in full without
penalty before final maturity, whether by cash, a new loan, renewal, or
otherwise. Prepayment in full shall consist of payment of the remaining unpaid
principal balance together with all accrued and unpaid interest and all other
amounts, costs and expenses for which Borrower is responsible under this Note or
any other agreement with Bank pertaining to this loan, and in no event will
Borrower ever be required to pay any unearned interest. Early payments will not,
unless agreed in writing, relieve Borrower of Borrower's obligation to continue
to
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<PAGE>
make payments under the above payment schedule. Upon a prepayment in full,
points, if any, are not refundable except and to the extent the total interest
and points for the time the loan is outstanding would exceed the maximum
interest allowed by law at the time of prepayment.
6. Waiver. Except as otherwise provided herein, Borrower hereby waives
all notices of nonpayment, demands for payment, presentments for payment,
notices of intention to accelerate maturity, notices of actual acceleration of
maturity, grace, protests, notices of protest, and any other demands or notices
of any kind as to this Note, diligence in collection hereof and in bringing suit
hereon, and any notice of, or defense on account of, the extension of time of
payments or change in the method of payments, and without further notice hereby
consents to any and all renewals and extensions in the time of payment hereof
either before or after maturity and the release of any party primarily or
secondarily liable hereon. Borrower agrees that Bank's acceptance of partial or
delinquent payments, or failure of Bank to exercise any right or remedy
contained herein or in any instrument given as security for the payment of this
Note shall not be a waiver of any obligation of Borrower to Bank or constitute
waiver of any similar default subsequently occurring. The holder of this Note is
entitled to the benefits and security provided in the Loan Documents.
7. Events of Default and Remedies. At the option of Bank, the entire
unpaid principal balance and accrued interest owing hereon shall at once become
due and payable without notice or demand upon the occurrence at any time of any
of the following "Events of Default" (herein so called):
A. The failure of Borrower to pay (or cause to be paid) any
installment of principal or interest of this Note in accordance with its terms,
through acceleration, or otherwise and such failure continues for more than five
(5) days after written notice thereof shall have been given by Bank to Borrower;
provided, however, Bank is not obligated to provide more than three (3) such
notices during any twelve (12) month period; or
B. A Default occurs under the Loan Agreement.
C. Any natural person who guarantees, in whole or in part,
Borrower's payment of this Note and/or performance under any Loan Document,
dies.
It is understood and agreed by Borrower that the foregoing "Events
of Default" are cumulative and in addition to any "Defaults" or "Events of
Default" contained in the other Loan Documents, or other documents modifying,
renewing, extending, evidencing, securing or pertaining to this Note or the loan
evidenced hereby. Upon the occurrence of any of the Events of Default, and if
such has not been cured within the designated period of time, if any, then the
holder hereof may, at its option, do any one or more of the following: (a)
declare the entire unpaid balance of principal of and accrued, unpaid interest
upon this Note to be immediately due and payable, (b) reduce any claim to
judgment, (c) foreclose all liens and security interests securing payment
thereof or any part thereof, and/or (d) without notice of default or demand,
pursue and enforce any of Bank's other rights and remedies provided under or
pursuant to any applicable laws or agreement. All rights and remedies of Bank
shall be cumulative and concurrent and may be pursued singularly, successively,
or together, at the sole discretion of Bank, and may be exercised as often as
the occasion therefor shall arise. Failure by Bank to exercise any right or
remedy upon the occurrence of an Event of Default shall not constitute a waiver
of the right to exercise such right or remedy upon the occurrence of any
subsequent Event of Default. In the event that Bank, after the occurrence of an
Event of Default hereunder, consults an attorney regarding the enforcement of
any of its rights under this Note or if this Note is placed in the hands of an
attorney for collection or if suit be brought to enforce this Note, Borrower
promises to pay all costs thereof, including reasonable attorneys' fees. Such
costs and attorneys' fees shall include, without limitation, costs and
reasonable attorneys' fees incurred by Bank in any appellate proceedings or in
any proceedings under any present or future federal bankruptcy act, state
receivership law or probate.
8. Usury. This Note and all of the other Loan Documents are intended to
be performed in accordance with, and only to the extent permitted by, all
applicable usury laws. If any provision hereof or of any of the other Loan
Documents or the application thereof to any person or circumstance shall,
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<PAGE>
for any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by law.
It is expressly stipulated and agreed to be the intent of the holder hereof to
at all times comply with the usury and other applicable laws now or hereafter
governing the interest payable on the indebtedness evidenced by this Note. If
the applicable law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the indebtedness evidenced by this Note, or if Bank's exercise of the
option to accelerate the maturity of this Note, or if any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by law,
then it is the express intent of Borrower and Bank that all excess amounts
theretofore collected by Bank be credited on the principal balance of this Note
(or, if this Note and all other indebtedness arising under or pursuant to the
other Loan Documents have been paid in full, refunded to Borrower), and the
provisions of this Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectable hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the then applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid, or
agreed to be paid, by Borrower for the use, forbearance, detention, taking,
charging, receiving or reserving of the indebtedness of Borrower to Bank under
this Note or arising under or pursuant to the other Loan Documents shall, to the
maximum extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such indebtedness does not
exceed the usury ceiling from time to time in effect and applicable to such
indebtedness for so long as such indebtedness is outstanding. To the extent
federal law permits Bank to contract for, charge or receive a greater amount of
interest, Bank will rely on federal law instead of the Texas Finance Code, as
supplemented by Texas Credit Title, for the purpose of determining the Maximum
Rate. Additionally, to the maximum extent permitted by applicable law now or
hereafter in effect, Bank may, at its option and from time to time, implement
any other method of computing the Maximum Rate under the Texas Finance Code, as
supplemented by Texas Credit Title, or under other applicable law, by giving
notice, if required, to Borrower as provided by applicable law now or hereafter
in effect. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Bank to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration. In no event
shall Chapter 346 of the Texas Finance Code (which regulates certain revolving
loan accounts and revolving tri-party accounts) apply to this Note. To the
extent that Chapter 303 of the Texas Finance Code, is applicable to this Note,
the "weekly ceiling" specified in such Chapter 303 is the applicable ceiling;
provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
9. GOVERNING LAW AND VENUE. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA. BORROWER AGREES THAT THIS NOTE IS PERFORMABLE IN DENTON
COUNTY, TEXAS AND THAT SUCH COUNTY IS PROPER VENUE FOR ANY ACTION OR PROCEEDING
INVOLVING THIS NOTE TO THE EXCLUSION OF ALL OTHER VENUES.
10. Miscellaneous.
A. Notices or communications to be given under this Note shall be
given to the respective parties in writing as set forth in the Loan Agreement.
B. Time is of the essence of this Note.
C. This Note may not be changed or terminated orally, but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, termination or discharge is sought.
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D. This Note is secured, in part, by the Deed of Trust to which
reference is hereby made for a description of the mortgaged premises, the nature
and extent of the security, and the rights of the Bank in respect thereof.
E. This Note and all the covenants, promises and agreements
contained herein shall be binding upon Borrower's successors, assigns, heirs and
personal representatives and inure to the benefit of Bank's successors and
assigns.
Effective June 26, 1998.
INTERNATIONAL ISOTOPES, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-5-
When Recorded, Return To:
Texas Bank
729 Fort Worth Drive
Denton, Texas 76202
Attn: Linda Farquhar
TEXAS BANK
DEED OF TRUST, SECURITY AGREEMENT AND
ASSIGNMENT OF RENTS AND LEASES
STATE OF TEXAS ss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF DENTON ss.
THAT, International Isotopes, Inc. ("Grantor," whether one or more), whose
address is 3100 Jim Christal Road, Denton, Texas 76207, for and in consideration
of the sum of TEN DOLLARS ($10.00) to Grantor in hand paid by Tony Clark,
Trustee, of Denton County, Texas ("Trustee"), in order to secure the payment of
the Indebtedness (as hereinafter defined) and the performance of the
obligations, covenants, agreements and undertakings of Grantor hereinafter
described, does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET
OVER to Trustee the real estate (the "Land") situated in the County of Denton
and State of Texas described in Exhibit "A" attached hereto and made a part
hereof, TOGETHER WITH the following, whether now owned or hereafter acquired by
Grantor: (a) all buildings and other improvements now or hereafter attached to,
erected, constructed or developed on the Land (the "Improvements"); (b) all
fixtures (the "Personal Property") whatsoever now or hereafter delivered to,
attached to the Improvements or which are necessary or useful for the complete
and comfortable use and occupancy of the Improvements for the purposes for which
they were or are to be attached, erected, constructed or developed, or which
Personal Property is or may be used in the development of the Improvements, and
all renewals of or replacements or substitutions for any of the foregoing
whether or not the same shall be attached to the Land or Improvements; (c) all
water and water rights and minerals related to the Land or Improvements; (d) all
building materials and equipment now or hereafter delivered to and intended to
be installed in or on the Land or Improvements; (e) all security deposits and
advance rentals under any lease agreements now or at any time hereafter arising
from or by virtue of any transactions related to the Land, Improvements or the
Personal Property and held by or for the benefit of Grantor; (f) all monetary
deposits which Grantor has given to any public or private utility with respect
to utility services furnished to the Land or Improvements; (g) all rents,
issues, revenues, royalties, bonuses or other benefits of the Land, the
Improvements or the Personal Property, including, without limitation, cash or
securities deposited pursuant to leases of all or any part of the Land,
Improvements or Personal Property; (h) all proceeds (including premium refunds)
of each policy of insurance relating to the Land, Improvements or Personal
Property; (i) all proceeds from the taking of the Land, Improvements, Personal
Property or any part thereof or any interest or right or estate appurtenant
thereto by eminent domain or by purchase in lieu thereof; (j) all Grantor's
rights (but not its obligations) under any contracts related to the Land or
Improvements; (k) all Grantor's rights (but not its obligations) under any
documents, contract rights, commitments, accounts, general intangibles
(excluding trademarks, trade names and symbols used in connection therewith)
arising by virtue of any transactions related to the Land, Improvements or
Personal Property; (l) all deposits, bank accounts, funds, instruments, notes or
chattel paper arising from or related to the Land, Improvements or Personal
Property; (m) all permits, licenses, franchises, certificates and other rights
and privileges obtained in connection with the Land, Improvements or Personal
Property; (n) all plans, specifications, maps, surveys, reports, architectural,
engineering and construction contracts, books of account, insurance policies and
other documents, of whatever kind or character, relating to the use,
construction upon, occupancy, leasing, sale or operation of the Land or
Improvements; (o) all oil, gas and other hydrocarbons and other minerals
produced from or allocated to the Land or Improvements and all products
processed or obtained therefrom, the proceeds thereof, and all accounts and
general intangibles under which such proceeds may arise and all proceeds of the
Personal Property; (p) all easements and rights of way used in connection with
the Land or Improvements or as a means of ingress to or egress from said Land or
Improvements; (q) all right, title and interest of Grantor in and to all
streets, roads, ways, alleys, public places, easements and rights-of-way,
existing or proposed, public or private, adjacent to or used in connection with,
belonging or pertaining to the Land or any part thereof; and (r) all rights,
estates, powers, privileges and interests of whatever kind or character
appurtenant or incident to the foregoing. The above-described property is
collectively herein referred to as the "Mortgaged Property."
TO HAVE AND TO HOLD the Mortgaged Property, together with the rights,
privileges and appurtenances thereto belonging unto the Trustee and his
successors or substitutes, forever in this trust and to his or their successors
and assigns, IN TRUST, however, upon the terms, provisions and conditions herein
set forth.
ARTICLE I
SECURED INDEBTEDNESS
1.1 Secured Indebtedness. This Deed of Trust, Security Agreement and
Assignment of Rents and Leases (the "Mortgage") is made to secure and enforce
the payment of the following promissory note, obligations, indebtedness and
liabilities: (a) one certain promissory note of even date herewith in the
original principal amount of Five Million and no/100 DOLLARS ($5,000,000.00),
made by Grantor and payable to the order of TEXAS BANK, whose address is 729
Fort Worth Drive, Denton, Texas 76202, with interest at the rate or rates
therein provided, both principal and interest being payable as therein provided,
and containing a provision for the payment of a reasonable additional amount as
attorneys' fees (such promissory note and all modifications, increases, renewals
or extensions thereof, in whole or in part, and all other notes given in
substitution therefor or in modification, increase, renewal or extension
thereof, in whole or in part, are collectively referred to herein as the "Note",
and said payee and all subsequent holders of the Note or any part thereof or any
of the Indebtedness, as hereinafter defined, are collectively referred to herein
as "Noteholder"); and (b) all future loans and advances and all other
indebtedness, obligations and liabilities of every kind and character of Grantor
now or hereafter existing in favor of Noteholder arising pursuant to the
provisions of this Mortgage or any other Loan Document (defined below), it being
contemplated that Grantor may hereafter become indebted to Noteholder in further
sum or sums. The indebtedness, obligations, and liabilities referred to in this
Paragraph are hereinafter collectively referred to as the "Indebtedness." This
Mortgage, the Note, the Loan Agreement (as hereinafter defined) and any other
instruments, documents and agreements now or hereafter evidencing, securing,
governing, guaranteeing and/or pertaining to the Indebtedness or any part
thereof are hereinafter collectively referred to as the "Loan Documents."
ARTICLE II
REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF GRANTOR
2.1 Representations and Warranties. Grantor does hereby represent and
warrant to Noteholder as follows:
(a) Intentionally Omitted.
(b) Title and Authority. Grantor is the lawful owner of good and
indefeasible title to the Land and Improvements and has good right and authority
to grant, bargain, sell, transfer, assign and mortgage the Land and Improvements
and to grant a security interest in the Personal Property. Grantor does not do
business with respect to the Mortgaged Property under any trade name.
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(c) Permitted Encumbrances. The Mortgaged Property is free and clear from
all liens, security interests and encumbrances except the lien and security
interest evidenced hereby and, as applicable, (i) the liens and/or encumbrances
set forth in Exhibit "B" attached hereto and made a part hereof, if any, or (ii)
the matters, if any, set forth as exceptions on Schedule B of the Policy (as
defined hereinbelow), if any, or (iii) if no Exhibit "B" is attached hereto and
no Policy is issued, then any liens and/or encumbrances affecting the Mortgaged
Property appearing in the Real Property Records of the county(ies) in which the
Land is situated, but only to the extent the same are valid and subsisting
(hereinafter called the "Permitted Encumbrances"). There are no mechanic's or
materialmen's liens, lienable bills or other claims constituting or that may
constitute a lien on the Mortgaged Property, or any part thereof.
(d) No Financing Statement. There is no financing statement covering all
or any part of the Mortgaged Property or its proceeds on file in any public
office which has not been terminated or assigned to Noteholder.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) No Default or Violation. The execution, delivery and performance of
this Mortgage, the Note and all of the other Loan Documents do not contravene,
result in a breach of or constitute a default under any mortgage, deed of trust,
lease, promissory note, loan agreement or other contract or agreement to which
Grantor is a party or by which Grantor or any of its properties may be bound or
affected and, to the best of Grantor's knowledge, do not violate or contravene
any law, order, decree, rule or regulation to which Grantor is subject.
(h) Compliance with Covenants and Laws. The Mortgaged Property and the
intended use thereof by Grantor comply with all applicable restrictive
covenants, zoning ordinances and building codes, flood disaster laws, applicable
health and environmental laws and regulations and all other applicable laws,
statutes, ordinances, rules, regulations, orders, determinations and court
decisions, including, without limitation, the Americans With Disabilities Act of
1990 and TEX. REV. CIV. STAT. ANN. art. 9102, as amended (all of the foregoing
hereinafter sometimes collectively referred to as "Applicable Laws"), without
reliance upon grandfather provisions or adjacent or other properties. Grantor
has obtained all requisite zoning, utility, building, health and operating
permits from each governmental authority or municipality having jurisdiction
over the Mortgaged Property. All engineering specifications with respect to the
Mortgaged Property are within applicable environmental standards.
(i) Environmental. To the best of Grantor's knowledge, without limitation
of any of the foregoing, no asbestos, material containing asbestos which is or
may become friable or material containing asbestos deemed hazardous by
Applicable Laws has been installed in the Mortgaged Property and the Mortgaged
Property and Grantor are not in violation of or subject to any existing, pending
or, to the best knowledge of Grantor, threatened investigation or inquiry by any
governmental authority or to any remedial obligations under any Applicable Laws
pertaining to health or the environment (such Applicable Laws as they now exist
or are hereafter enacted and/or amended hereinafter sometimes collectively
referred to as "Applicable Environmental Laws"), including without limitation,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986
(collectively, together with any subsequent amendments hereinafter referred to
as "CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended by
the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of
1980, and the Hazardous and Solid Waste Amendments of 1984 (collectively,
together with any subsequent amendments hereinafter called "RCRA"), the Texas
Water Code and the Texas Solid Waste Disposal Act, and this representation would
continue to be true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the Mortgaged Property and Grantor. Grantor has not obtained
and is not required to obtain any permits, licenses or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures and
equipment forming a part of the Mortgaged Property by reason of any Applicable
Environmental Laws. Grantor undertook, at the time of acquisition of the
Mortgaged Property, all appropriate inquiry into the previous ownership and uses
of the Mortgaged Property consistent with good commercial or customary practice
to determine that the Mortgaged Property and the uses therefor are in compliance
with all Applicable Environmental Laws. Grantor has taken all steps reasonably
necessary to determine and has determined that no hazardous substances or solid
wastes have been disposed of or otherwise released on or to the Mortgaged
Property. The use which Grantor makes and intends to make of the Mortgaged
Property will not result in the disposal or other release of any hazardous
substance or solid waste on or to the Mortgaged Property. The terms "hazardous
substance" and "release" as used in this Mortgage shall have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
shall have the meanings specified in RCRA; provided, in the event either CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
then such broader meaning shall apply subsequent to the effective date of such
amendment and provided further, to the extent that the laws of the State of
Texas establish a meaning for the terms "hazardous substance," "release," "solid
waste," or "disposal" (or "disposed") which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply.
(j) No Suits. There are no judicial or administrative actions, suits or
proceedings pending or, to the best of Grantor's knowledge, threatened against
or affecting Grantor, any other person liable, directly or indirectly, for the
Indebtedness, or the Mortgaged Property or involving the validity,
enforceability or priority of any of the Loan Documents.
(k) Condition of Property. None of the improvements on the Mortgaged
Property will create an encroachment over, across or upon any of the Mortgaged
Property boundary lines, rights of way or easements and no buildings or other
improvements on adjoining land create such an encroachment.
(l) Intentionally Omitted.
(m) Intentionally Omitted.
(n) Intentionally Omitted.
2.2 Covenants and Agreements. So long as the Indebtedness or any part
thereof remains unpaid, Grantor covenants and agrees with Noteholder as follows:
(a) Payment and Performance. Grantor will make prompt payment, as the same
becomes due, of the Indebtedness and shall punctually and properly perform all
of Grantor's covenants, obligations and liabilities under the Loan Documents.
(b) Intentionally Omitted.
(c) Intentionally Omitted.
(d) Operation of Mortgaged Property. Grantor will operate the Mortgaged
Property in a good and workmanlike manner and in accordance with all Applicable
Laws and will pay all fees or charges of any kind in connection therewith
(subject to Grantor's right to contest fees, charges, liens and/or taxes set
forth herein, or under the Loan Agreement). Grantor will keep the Mortgaged
Property occupied, if necessary, so as not to impair the insurance carried
thereon. Grantor will not use or occupy, or allow the use or occupancy of, the
Mortgaged Property in any manner which violates any Applicable Law or which
constitutes a public or private nuisance or which makes void, voidable or
cancelable, or increases the premium of, any insurance then in force with
respect thereto. Grantor will not initiate or permit any zoning reclassification
of the Mortgaged Property or seek any variance under existing zoning ordinances
applicable to the Mortgaged Property or use or permit the use of the Mortgaged
Property in such a manner which would result in such use becoming a
nonconforming use under applicable zoning ordinances or other Applicable Laws.
Grantor will not impose any restrictive covenants or encumbrances upon the
Mortgaged Property, execute or file any subdivision plat affecting the
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Mortgaged Property or consent to the annexation of the Mortgaged Property to any
municipality, without the prior written consent of Noteholder, not be
unreasonably delayed, withheld or conditioned. Grantor shall not cause or permit
any drilling or exploration for, or extraction, removal or production of,
minerals from the surface or subsurface of the Mortgaged Property. Grantor will
not do or suffer to be done any act whereby the value of any part of the
Mortgaged Property may be lessened. Grantor will allow, after receiving
reasonable prior written notice, Noteholder or its authorized representative to
enter the Mortgaged Property at any reasonable time to inspect the Mortgaged
Property and Grantor's books and records pertaining thereto and Grantor will
assist Noteholder or said representative in whatever way reasonably necessary to
make such inspection. If Grantor receives a notice or claim from any federal,
state or other governmental entity pertaining to the Mortgaged Property,
including, without limitation, a notice that the Mortgaged Property is not in
compliance with any Applicable Law, Grantor will promptly furnish a copy of such
notice or claim to Noteholder.
(e) Debts for Construction. Grantor will cause all debts and liabilities
of any character, including without limitation, all debts and liabilities for
labor, material and equipment and all debts and charges for utilities servicing
the Mortgaged Property, incurred in the construction, maintenance, operation and
development of the Mortgaged Property (subject to retainage), to be paid before
past due.
(f) Ad Valorem Taxes. Grantor will cause to be paid prior to delinquency
all taxes and assessments heretofore or hereafter levied or assessed against the
Mortgaged Property, or any part thereof, or against Trustee or Noteholder for or
on account of the Note or any other Indebtedness or the interest created by this
Mortgage and will furnish Noteholder with receipts showing payment of such taxes
and assessments at least ten (10) days prior to the applicable default date
therefor; provided that Grantor may in good faith, by appropriate proceedings,
contest the validity, applicability, or amount of any asserted tax or
assessment, and pending such contest Grantor shall not be deemed in default
hereunder if (i) Grantor shall diligently prosecute such contest in a manner not
prejudicial to the rights, liens and security interests of Noteholder; (ii)
prior to delinquency of the asserted tax or assessment Grantor establishes with
Noteholder an escrow acceptable to Noteholder adequate to cover the payment of
such tax or assessment with interest, costs and penalties and a reasonable
additional sum to cover possible costs, interest and penalties (which escrow
shall be returned to Grantor upon payment of all such taxes, assessments,
interest, costs and penalties or disbursed in accordance with the resolution of
the contest to the claimant) or furnishes Noteholder with an indemnity bond
secured by a deposit in cash or other security acceptable to Noteholder, or with
a surety acceptable to Noteholder, in the amount of the tax or assessment being
contested by Grantor plus a reasonable additional sum to pay all costs,
interests and penalties which may be imposed or incurred in connection
therewith; (iii) Grantor pays to Noteholder promptly after demand therefor all
costs and expenses incurred by Noteholder in connection with such contest; and
(iv) Grantor promptly causes to be paid any amount adjudged by a court of
competent jurisdiction to be due, with all costs, penalties and interest
thereon, promptly after such judgment becomes final and non-appealable;
provided, however, that in any event each such contest shall be concluded and
the tax, assessment, penalties, interest and costs shall be paid prior to the
date any writ or order is issued under which the Mortgaged Property or any part
thereof may be sold.
(g) Repair and Maintenance. Grantor will keep the Mortgaged Property in
first class order, repair, operating condition and appearance, causing all
necessary repairs, renewals, replacements, additions and improvements to be
promptly made, and will not allow any of the Mortgaged Property to be misused,
abused or wasted or to deteriorate. Grantor will promptly replace all worn-out
or obsolete fixtures covered by this Mortgage with fixtures comparable to the
replaced fixtures when new, and will repaint the Mortgaged Property when needed.
Grantor will make all renovations, modifications and alterations to the
Mortgaged Property in compliance with all Applicable Laws. Notwithstanding any
of the foregoing, Grantor will not, without the prior written consent of
Noteholder, (i) remove from the Mortgaged Property any fixtures covered by this
Mortgage except those replaced by Grantor by an article of equal suitability and
value, owned by Grantor, free and clear of any lien or security interest (except
that created by this Mortgage); (ii) make any structural alteration to the
Mortgaged Property or any other alterations thereto which impair the value
thereof; or (iii) make any alteration to the Mortgaged Property involving an
estimated expenditure exceeding $20,000 except pursuant to plans and
specifications approved in writing by Noteholder. Upon request of Noteholder,
Grantor will promptly deliver to Noteholder an inventory describing and showing
the make, model, serial number and location of all fixtures used in the
management, maintenance and operation of the Mortgaged Property with a
certification by Grantor that said inventory is a true and complete schedule of
all such fixtures and personal property used in the management, maintenance and
operation of the Mortgaged Property, that such items specified in the inventory
constitute all of the fixtures required in the management, maintenance and
operation of the Mortgaged Property, and that all such items are owned by
Grantor free and clear of any lien or security interest (except that created by
this Mortgage).
(h) Insurance and Casualty. Grantor will keep the Mortgaged Property
insured against loss or damage by fire, explosion, windstorm, hail, flood (if
the Mortgaged Property shall at any time be located in an identified "flood
prone area" in which flood insurance has been made available pursuant to the
Flood Disaster Protection Act of 1973), tornado and such other hazards as may be
required by Noteholder by policies of fire, extended coverage and other
insurance in such company or companies, in such amounts, upon such terms and
provisions, and with such endorsements, all as may be acceptable to Noteholder.
Grantor will also provide such other insurance as Noteholder may from time to
time require, in such companies, upon such terms and provisions, in such
amounts, and with such endorsements, all as are approved by Noteholder. Grantor
further agrees that Grantor will deliver to Noteholder the original policies
evidencing such insurance and any additional insurance which shall be taken out
upon any part of the Mortgaged Property and receipts evidencing the payment of
all premiums, and will deliver certificates evidencing renewals of all such
policies of insurance to Noteholder at least fifteen (15) days before any such
insurance shall expire. Without limiting the discretion of Noteholder with
respect to required endorsements to insurance policies, Grantor further agrees
that all such policies shall provide that proceeds thereunder will be payable to
Noteholder as its interest may appear pursuant and subject to a mortgage clause
(without contribution) of standard form attached to or otherwise made a part of
the applicable policy. In the event of foreclosure of this Mortgage, or other
transfer of title to the Mortgaged Property in extinguishment in whole or in
part of the Indebtedness, all right, title and interest of Grantor in and to
such policies then in force concerning the Mortgaged Property and all proceeds
payable thereunder shall thereupon vest in the purchaser at such foreclosure or
Noteholder or other transferee in the event of such other transfer of title. In
the event any of the Mortgaged Property covered by such insurance is destroyed
or damaged by fire, explosion, windstorm, hail or by any other casualty against
which insurance shall have been required hereunder, (i) Noteholder may, but
shall not be obligated to, make proof of loss if not made promptly by Grantor;
(ii) each insurance company concerned is hereby authorized and directed to make
payment for such loss directly to Noteholder instead of to Grantor; and (iii)
Noteholder shall have the right to apply the insurance proceeds first, to
reimburse Noteholder or Trustee for all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection with the
collection of such proceeds and, second, the remainder of said proceeds shall be
applied as set forth in the Loan Agreement. In any event the unpaid portion of
the Indebtedness shall remain in full force and effect and Grantor shall not be
excused in the payment thereof. If any act or occurrence of any kind or nature
(including any casualty on which insurance was not obtained or obtainable) shall
result in damage to or loss or destruction of the Mortgaged Property, Grantor
shall give immediate written notice thereof to Noteholder and, unless otherwise
so instructed by Noteholder, shall promptly, at Grantor's sole cost and expense
and regardless of whether the insurance proceeds, if any, shall be sufficient
for the purpose, restore, repair, replace and rebuild the Mortgaged Property as
nearly as possible to its value, condition and character immediately prior to
such damage, loss or destruction in accordance with plans and specifications
submitted to and approved by Noteholder.
(i) Condemnation. Immediately upon obtaining knowledge of the institution
of any proceedings for the condemnation of the Mortgaged Property or any portion
thereof, or any other proceedings arising out of injury or damage to the
Mortgaged Property, or any portion thereof, Grantor will notify Noteholder of
the pendency of such proceedings. Noteholder may participate in any such
proceedings, and Grantor shall from time to time deliver to Noteholder all
instruments requested by it to permit such participation. Grantor shall, at its
expense, diligently prosecute any such proceedings, and shall consult with
Noteholder, its attorneys and experts, and cooperate with them in the carrying
on or defense of any such proceedings. All proceeds of condemnation awards or
proceeds of sale in lieu of condemnation with respect to the Mortgaged Property
and all judgments, decrees and awards for injury or damage to the Mortgaged
Property shall be paid to Noteholder and shall be applied, first, to reimburse
Noteholder or Trustee for all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred in connection with collection of such
proceeds and,
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second, the remainder of said proceeds shall be applied, at the sole discretion
of Noteholder, to the payment of the Indebtedness (without premium or penalty)
in the order determined by Noteholder in its sole discretion or paid out to
repair or restore the Mortgaged Property so affected by such condemnation,
injury or damage. In any event the unpaid portion of the Indebtedness shall
remain in full force and effect and Grantor shall not be excused in the payment
thereof. In the event any of the foregoing proceeds are applied to the repair,
restoration or replacement of the Mortgaged Property, Grantor shall promptly
commence and complete such repair, restoration or replacement of the Mortgaged
Property as nearly as possible to its value, condition and character immediately
prior to such damage or taking in accordance with plans and specifications
submitted to and approved by Noteholder. Grantor hereby assigns and transfers
all such proceeds, judgments, decrees and awards to Noteholder and agrees to
execute such further assignments of all such proceeds, judgments, decrees and
awards as Noteholder may reasonably request. Noteholder is hereby authorized, in
the name of Grantor, to execute and deliver valid acquittances for, and to
appeal from, any such judgment, decree or award. Noteholder shall not be, in any
event or circumstances, liable or responsible for the failure to collect, or the
failure to exercise diligence in the collection of, any such proceeds,
judgments, decrees or awards.
(j) Protection and Defense of Lien. If the validity or priority of this
Mortgage or of any rights, titles, liens or security interests created or
evidenced hereby with respect to the Mortgaged Property or any part thereof
shall be endangered or questioned or shall be attacked directly or indirectly or
if any legal proceedings are instituted against Grantor with respect thereto,
Grantor will give prompt written notice thereof to Noteholder and at Grantor's
own cost and expense will diligently endeavor to cure any defect that may be
developed or claimed, and will take all necessary and proper steps for the
defense of such legal proceedings, including, without limitation, the employment
of counsel, the prosecution or defense of litigation and the release or
discharge of all adverse claims, and Trustee and Noteholder, or either of them
(whether or not named as parties to legal proceedings with respect thereto) are
hereby authorized and empowered to take such additional steps as in their
judgment and discretion may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Mortgage
and the rights, titles, liens and security interests created or evidenced
hereby, including, without limitation, the employment of counsel, the
prosecution or defense of litigation, the compromise or discharge of any adverse
claims made with respect to the Mortgaged Property, the purchase of any tax
title and the removal of prior liens or security interests (including, without
limitation, the payment of debts as they mature or the payment in full of
matured or unmatured debts, which are secured by these prior liens or security
interests), and all expenses so incurred of every kind and character shall be
subject to and covered by the provisions of Paragraph 2.3 hereof.
(k) No Other Liens. Grantor will not, without the prior written consent of
Noteholder, create, place or permit to be created or placed, or through any act
or failure to act, acquiesce in the placing of, or allow to remain, any deed of
trust, mortgage, voluntary or involuntary lien, whether statutory,
constitutional or contractual (except for the lien for ad valorem taxes on the
Mortgaged Property which are not delinquent), security interest, encumbrance or
charge, or conditional sale or other title retention document, against or
covering the Mortgaged Property, or any part thereof, other than the Permitted
Encumbrances, regardless of whether the same are expressly or otherwise
subordinate to the lien or security interest created in this Mortgage, and
should any of the foregoing become attached hereafter in any manner to any part
of the Mortgaged Property without the prior written consent of Noteholder,
Grantor will cause the same to be promptly discharged and released as set forth
in the Loan Agreement. Grantor will own all parts of the Mortgaged Property and
will not acquire any fixtures, equipment or other property forming a part of the
Mortgaged Property pursuant to a lease, license or similar agreement, without
the prior written consent of Noteholder.
(l) Intentionally Omitted.
(m) Intentionally Omitted.
(n) Escrow. If requested by Noteholder at any time during the term the
Indebtedness (but only after a Default has occurred) is outstanding in order to
secure the performance and discharge of Grantor's obligations under
Subparagraphs (f) and (h) of this Paragraph 2.2, but not in lieu of such
obligations, Grantor will deposit with Noteholder a sum equal to ad valorem
taxes, assessments and charges (which charges for the purpose of this
Subparagraph shall include without limitation ground rents and water and sewer
rents and any other recurring charge which could create or result in a lien
against the Mortgaged Property) against the Mortgaged Property for the current
year and the premiums for such policies of insurance for the current year, all
as estimated by Noteholder and prorated to the end of the calendar month
following the month during which this Mortgage is executed and delivered, and
thereafter will deposit with Noteholder, on each date when an installment of
principal and/or interest is due on the Note, sufficient funds (as estimated
from time to time by Noteholder) to permit Noteholder to pay, at least fifteen
(15) days prior to the due date thereof, the next maturing ad valorem taxes,
assessments and charges and premiums for such policies of insurance. Noteholder
shall have the right to rely upon tax information furnished by applicable taxing
authorities in the payment of such taxes or assessments and shall have no
obligation to make any protest of any such taxes or assessments. Any excess over
the amounts required for such purposes shall be held by Noteholder for future
use, applied to any Indebtedness or refunded to Grantor, at Grantor's option,
and any deficiency in such funds so deposited shall be made up by Grantor upon
written demand of Noteholder. All such funds so deposited shall bear no interest
whatsoever, may be mingled with the general funds of Noteholder and shall be
applied by Noteholder toward the payment of such taxes, assessments, charges and
premiums when statements therefor are presented to Noteholder by Grantor (such
statements to be presented by Grantor to Noteholder within a reasonable time
before the applicable amount is due); provided, however, that, if a Default (as
hereinafter defined) shall have occurred hereunder, such funds may at
Noteholder's option be applied to the payment of the Indebtedness in the order
determined by Noteholder in its sole discretion, and that Noteholder may at any
time, in its sole discretion, apply all or any part of such funds toward the
payment of any such taxes, assessments, charges or premiums which are past due,
together with any penalties or late charges with respect thereto being protested
as permitted in the Loan Agreement. The conveyance or transfer of Grantor's
interest in the Mortgaged Property for any reason (including, without
limitation, the foreclosure of a subordinate lien or security interest or a
transfer by operation of law) shall constitute an assignment or transfer of
Grantor's interest in and rights to such funds held by Noteholder under this
Subparagraph but subject to the rights of Noteholder hereunder.
(o) Further Assurances. Grantor will, on request of Noteholder, promptly
(i) correct any defect, error or omission which may be discovered in the
contents of this Mortgage or in any other instrument now or hereafter executed
in connection herewith or in the execution or acknowledgment thereof; (ii)
execute, acknowledge, deliver and record or file such further instruments
(including, without limitation, further deeds of trust, security agreements,
financing statements, continuation statements and assignments of rents and
leases) and do such further acts as may be necessary, desirable or proper to
carry out more effectively the purposes of this Mortgage and such other
instruments and to subject to the liens and security interests hereof and
thereof any property intended by the terms hereof and thereof to be covered
hereby and thereby including, without limitation, any renewals, additions,
substitutions, replacements or appurtenances to the Mortgaged Property; (iii)
execute, acknowledge, deliver, procure and record or file any document or
instrument (including, without limitation, any financing statement) deemed
advisable by Noteholder to protect the lien or security interest hereunder
against the rights or interests of third persons; and (iv) provide such
certificates, documents, reports, information, affidavits and other instruments
and do such further acts as may be necessary, desirable or proper in the
reasonable determination of Noteholder to enable Noteholder to comply with the
requirements or requests of any agency having jurisdiction over Noteholder or
any examiners of such agencies with respect to the Indebtedness, Grantor or the
Mortgaged Property and Grantor will pay all costs connected with any of the
foregoing.
(p) Title Insurance. Grantor shall, at its sole cost and expense obtain
and maintain title insurance in the form of a commitment, binder or policy
(collectively, "Policy") as Noteholder may require, issued by a title company
acceptable to Noteholder. If for any reason during the period the Indebtedness
is outstanding such title insurance is no longer valid or the issuing title
company is insolvent or unable to adequately insure the validity and priority of
the lien evidenced by this Mortgage (as determined by Noteholder in its
reasonable discretion), Grantor agrees to obtain, at its sole cost and expense,
a replacement Policy issued by a title company acceptable to Noteholder in favor
of Noteholder as mortgagee, in an amount equal to the outstanding Indebtedness,
and in form reasonably required by Noteholder, insuring the validity and
priority of the lien evidenced by this Mortgage.
(q) Fees and Expenses; Indemnification. Grantor will pay all appraisal
fees, filing and recording fees, inspection fees, survey fees, taxes, brokerage
fees and commissions, abstract fees, title policy fees, uniform commercial code
search fees, escrow
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fees, attorneys' fees, and all other costs and expenses of every character
incurred by Grantor or Noteholder in connection with the Indebtedness, either at
the closing thereof or at any time during the term thereof, or otherwise
attributable or chargeable to Grantor as owner of the Mortgaged Property, and
will reimburse Noteholder for all such reasonable costs and expenses incurred by
Noteholder. Grantor shall pay all expenses and reimburse Noteholder for any
expenditures, including, without limitation, reasonable attorneys' fees and
legal expenses, incurred or expended in connection with (i) Default by Grantor
hereunder; (ii) Noteholder's exercise of any of its rights and remedies
hereunder or under the Note or any other Loan Document or Noteholder's
protection of the Mortgaged Property and its lien and security interest therein
as provided herein; or (iii) any amendments to this Mortgage, the Note or any
other Loan Document or any matter requested by Grantor or any approval required
hereunder. Grantor will indemnify and hold harmless Trustee and Noteholder (for
purposes of this Subparagraph, the terms "Trustee" and "Noteholder" shall
include the directors, officers, partners, employees, representatives and agents
of Trustee and Noteholder, respectively, and any persons or entities owned or
controlled by, owning or controlling, or under common control or affiliated with
Trustee and Noteholder, respectively) from and against, and reimburse them for,
all claims, demands, liabilities, losses, damages, causes of action, judgments,
penalties, costs and expenses (collectively, the "Claims") (including, without
limitation, reasonable attorneys' fees) which may be imposed upon, asserted
against or incurred or paid by them by reason of, on account of or in connection
with any bodily injury or death or property damage occurring in or upon or in
the vicinity of the Mortgaged Property through any cause whatsoever or asserted
against them on account of any act performed or omitted to be performed
hereunder or on account of any transaction arising out of or in any way
connected with the Mortgaged Property or with this Mortgage, the Note or any
other Loan Documents; provided, however, such indemnification shall only apply
to Claims which accrue prior to release, foreclosure or such other termination
of this Mortgage. The foregoing indemnities shall not terminate upon release,
foreclosure or other termination of this Mortgage but will survive foreclosure
of this Mortgage or conveyance in lieu of foreclosure and the repayment of the
Indebtedness and the discharge and release of this Mortgage and the other Loan
Documents. Any amount to be paid hereunder by Grantor to Noteholder and/or
Trustee shall be subject to and governed by the provisions of Paragraph 2.3
hereof.
(r) Liability Insurance. Grantor shall maintain Commercial General
Liability insurance against claims for bodily injury or death and property
damage occurring in or upon or resulting from the Mortgaged Property, in
standard form and with such insurance company or companies as may be acceptable
to Noteholder, such insurance to afford immediate protection, to the limit of
not less than $5,000,000 in respect of any one accident or occurrence, and to
the limit of not less than $100,000 for property damage, with not more than
$5,000 deductible. Such Commercial General Liability insurance shall include
Blanket Contractual Liability coverage which insures contractual liability under
the indemnification of Noteholder and the Trustee by Grantor set forth in this
Mortgage (but such coverage or the amount thereof shall in no way limit such
indemnification). Grantor shall maintain with respect to each policy or
agreement evidencing such Commercial General Liability insurance such
endorsements as may be required by Noteholder and shall at all times deliver and
maintain with Noteholder a certificate with respect to such insurance in form
satisfactory to Noteholder. Not less than fifteen (15) days prior to the
expiration date of each policy of insurance required of Grantor pursuant to this
Subparagraph, Grantor shall deliver to Noteholder a renewal policy or policies
marked "premium paid" or accompanied by other evidence of payment satisfactory
to Noteholder. In the event of a foreclosure of this Mortgage, the purchaser of
the Mortgaged Property shall succeed to all the rights of Grantor, including,
without limitation, any right to unearned premiums, in and to all policies of
insurance assigned pursuant to the provisions of this Subparagraph, and Grantor
hereby authorizes Noteholder to notify any or all insurance carriers of this
assignment.
(s) Warranty. Grantor will warrant and forever defend the title to the
Mortgaged Property against the claims of all persons making any claim to the
same or any part thereof, subject to the Permitted Encumbrances.
(t) Intentionally Omitted.
(u) Change of Name, Identity or Structure. Grantor will not change
Grantor's name, identity (including its trade name or names) or, if not an
individual, Grantor's corporate, partnership or other structure without
notifying Noteholder of such change in writing at least thirty (30) days prior
to the effective date of such change. Grantor will execute and deliver to
Noteholder, prior to or contemporaneously with the effective date of any such
change, any financing statement or financing statement change or other document
required by Noteholder to establish or maintain the validity, perfection and
priority of the lien and security interest granted herein. At the request of
Noteholder, Grantor shall execute a certificate in form satisfactory to
Noteholder listing the trade names under which Grantor intends to operate the
Mortgaged Property, and representing and warranting that Grantor does business
under no other trade name with respect to the Mortgaged Property.
(v) Intentionally Omitted.
(w) Intentionally Omitted.
(x) Intentionally Omitted.
(y) Loan Agreement. Grantor will punctually perform and discharge each and
every obligation and undertaking of Grantor under the loan agreement, if any, of
even date herewith, as from time to time amended or restated (the "Loan
Agreement"), between Grantor and Noteholder and will not permit a default to
occur thereunder.
(z) Permitted Encumbrances. Grantor will comply with and will perform all
of the covenants, agreements and obligations imposed upon it or the Mortgaged
Property in the Permitted Encumbrances in accordance with their respective terms
and provisions. Grantor will not modify or permit any modification of any
Permitted Encumbrance without the prior written consent of Noteholder, such
consent not to be unreasonably delayed, withheld or conditioned.
(aa) Environmental. Grantor will not cause or permit the Mortgaged
Property or Grantor to be in violation of, or do anything or permit anything to
be done which will subject the Mortgaged Property to any remedial obligations
under, any Applicable Environmental Laws, including, without limitation, CERCLA,
RCRA, the Texas Water Code and the Texas Solid Waste Disposal Act, assuming
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to Grantor and/or the Mortgaged
Property, and Grantor will promptly notify Noteholder in writing of any
existing, pending or, to the best knowledge of Grantor, threatened investigation
or inquiry by any governmental authority in connection with any Applicable
Environmental Laws. Grantor shall obtain any permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings, improvements,
fixtures and equipment forming a part of the Mortgaged Property by reason of any
Applicable Environmental Laws. Grantor shall take all steps reasonably necessary
to determine that no hazardous substances or solid waste are being disposed of
or otherwise released on or to the Mortgaged Property. Grantor will not cause or
knowingly permit the disposal or other release of any hazardous substance or
solid waste on or to the Mortgaged Property and covenants and agrees to keep or
cause the Mortgaged Property to be kept free of any hazardous substance or solid
waste and to remove the same (or if removal is prohibited by law, to take
whatever action is required by law) promptly upon discovery at its sole expense.
Upon Noteholder's reasonable request, at any time and from time to time during
the existence of this Mortgage, Grantor will provide at Grantor's sole expense
an inspection or audit of the Mortgaged Property from an engineering or
consulting firm approved by Noteholder, indicating the presence or absence of
hazardous substances and solid wastes on the Mortgaged Property. If Grantor
fails to provide same after forty-five (45) days' notice, Noteholder may order
same, and Grantor grants to Noteholder and its agents, employees, contractors
and consultants access to the Mortgaged Property and a license (which is coupled
with an interest and irrevocable while this Mortgage is in effect) to perform
inspections and tests. The cost of such inspections and tests shall be a demand
obligation owing by Grantor to Noteholder pursuant to this Mortgage and shall be
subject to and covered by the provisions of Paragraph 2.3 hereof.
(bb) Asbestos. Grantor covenants and agrees that it will not install in
the Mortgaged Property, nor permit to be installed in the Mortgaged Property,
asbestos, material containing asbestos which is or may become friable or
material containing asbestos deemed hazardous by any Applicable Environmental
Law, and that if any such asbestos or material containing asbestos exists in or
on the Mortgaged Property, whether installed by Grantor or others, Grantor will
remove the same (or if removal is prohibited by law, will take whatever action
is required by law, including, without limitation, implementing any required
operation and maintenance
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program) promptly upon discovery at its sole expense. Upon Noteholder's
reasonable request, but not more frequently than once per calendar year, Grantor
shall provide at Grantor's sole expense an inspection or audit of the Mortgaged
Property from an engineering or consulting firm approved by Noteholder,
indicating the presence or absence of asbestos or material containing asbestos
on the Mortgaged Property. If Grantor fails to provide same after thirty (30)
days' notice, Noteholder may order same, and Grantor grants to Noteholder and
its agents, employees, contractors and consultants access to the Mortgaged
Property and a license (which is coupled with an interest and irrevocable while
this Mortgage is in effect) to perform inspections and tests. The cost of such
inspections and tests shall be subject to and covered by the provisions of
Paragraph 2.3 hereof.
2.3 Right of Noteholder to Perform. Grantor agrees that if Grantor fails to
perform any act or to take any action which Grantor is required to perform or
take hereunder or under any of the other Loan Documents, or to pay any money
which Grantor is required to pay hereunder or under any of the other Loan
Documents, or takes any action prohibited hereby or thereby, Noteholder, in
Grantor's name or in its own name, may but shall not be obligated to perform or
cause to be performed such act or take such action, including, without
limitation, entering the Mortgaged Property for such purpose and to take all
such action thereon as it may deem necessary or appropriate, or pay such money
or remedy any action so taken, and any reasonable expenses so incurred by
Noteholder, and any money paid by Noteholder in connection therewith, shall be a
demand obligation owing by Grantor to Noteholder and Noteholder, upon making
such payment, shall be subrogated to all of the rights of the party receiving
such payment. Any amounts due and owing by Grantor to Noteholder pursuant to
this Mortgage shall bear interest from the date such amount becomes due until
paid at the rate of interest payable on matured but unpaid principal of or
interest on the Note and shall be a part of the Indebtedness and shall be
secured by this Mortgage and by all of the other Loan Documents.
2.4 Indemnification Regarding Environmental Matters. Grantor agrees to
indemnify and hold Noteholder and Trustee (for purposes of this Paragraph, the
terms "Noteholder" and "Trustee" shall include the directors, officers,
partners, employees, representatives and agents of Noteholder and Trustee,
respectively, and any persons or entities owned or controlled by, owning or
controlling, or under common control or otherwise affiliated with Noteholder and
Trustee, respectively) harmless from and against, and to reimburse Noteholder
and Trustee with respect to, any and all claims, demands, losses, damages
(including consequential damages), liabilities, causes of action, judgments,
penalties, costs and expenses (including attorneys' fees and court costs) of any
and every kind or character, known or unknown, fixed or contingent, imposed on,
asserted against or incurred by Noteholder and/or the Trustee at any time and
from time to time by reason of, in connection with or arising out of (a) the
breach of any representation or warranty of Grantor as set forth herein
regarding asbestos, material containing asbestos or Applicable Environmental
Laws, (b) the failure of Grantor to perform any obligation herein required to be
performed by Grantor regarding asbestos, material containing asbestos or
Applicable Environmental Laws, (c) any violation on or before the Release Date
(as hereinafter defined) of any Applicable Environmental Law in effect on or
before the Release Date, (d) the removal of hazardous substances or solid wastes
from the Mortgaged Property (or if removal is prohibited by law, the taking of
whatever action is required by law), (e) the removal of asbestos or material
containing asbestos from the Mortgaged Property (or if removal is prohibited by
Applicable Environmental Laws, the taking of whatever action is required by
Applicable Environmental Laws, including, without limitation, the implementation
of any required operation and maintenance program), (f) any act, omission, event
or circumstance existing or occurring on or prior to the Release Date
(including, without limitation, the presence on the Mortgaged Property or
release from the Mortgaged Property of any hazardous substance or solid waste
disposed of or otherwise released on or prior to the Release Date), resulting
from or in connection with the ownership, construction, occupancy, operation,
use and/or maintenance of the Mortgaged Property, regardless of whether the act,
omission, event or circumstance constituted a violation of any Applicable
Environmental Law at the time of its existence or occurrence, and (g) any and
all claims or proceedings accruing, in whole or in part, before the Release Date
(whether brought by private party or governmental agency) for bodily injury,
property damage, abatement or remediation, environmental damage or impairment or
any other injury or damage resulting from or relating to any hazardous substance
or solid waste located upon or migrating into, from or through the Mortgaged
Property (whether or not any or all of the foregoing was caused by Grantor or
its tenant or subtenant, or a prior owner of the Mortgaged Property or its
tenant or subtenant, or any third party and whether or not the alleged liability
is attributable to the handling, storage, generation, transportation or disposal
of such substance or waste or the mere presence of such substance or waste on
the Mortgaged Property). The term "Release Date" as used herein shall mean the
earlier of the following two dates: (i) the date on which the Indebtedness has
been paid and performed in full and this Mortgage has been released, or (ii) the
date on which the lien of this Mortgage is foreclosed or a conveyance by deed in
lieu of such foreclosure is fully effective; provided, if such payment,
performance, release, foreclosure or conveyance is challenged, in bankruptcy
proceedings or otherwise, the Release Date shall be deemed not to have occurred
until such challenge is rejected, dismissed or withdrawn with prejudice. The
foregoing indemnities shall not terminate upon the Release Date or upon the
release, foreclosure or other termination of this Mortgage but will survive the
Release Date, foreclosure of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the Indebtedness and the discharge and release of this
Mortgage and the other Loan Documents. Any amount to be paid hereunder by
Grantor to Noteholder and/or Trustee shall be a demand obligation owing by
Grantor to Noteholder and/or Trustee and shall be subject to and covered by the
provisions of Paragraph 2.3 hereof. Nothing in this Paragraph, elsewhere in this
Mortgage or in any other Loan Document shall limit or impair any rights or
remedies of Noteholder and/or Trustee against Grantor or any third party under
Applicable Environmental Laws, including without limitation, any rights of
contribution or indemnification available hereunder or thereunder.
ARTICLE III
ASSIGNMENT OF RENTS, LEASES, PROFITS, INCOME,
CONTRACTS AND BONDS
3.1 Assignment of Rents. Grantor does hereby absolutely and unconditionally
assign, transfer and set over to Noteholder all rents, income, receipts,
revenues, issues and proceeds to be derived from the Mortgaged Property,
including, without limitation, the immediate and continuing right to collect and
receive all of the rents, income, receipts, revenues, issues, profits and other
sums of money that may now or at any time hereafter become due and payable to
Grantor under the terms of any leases now or hereafter covering the Mortgaged
Property, or any part thereof, including, but not limited to, minimum rents,
additional rents, percentage rents, deficiency rents and liquidated damages
following default, all proceeds payable under any policy of insurance covering
the loss of rents resulting from untenantability caused by destruction or damage
to the Mortgaged Property, and all of Grantor's rights to recover monetary
amounts from any tenant in bankruptcy, including, without limitation, rights of
recovery for use and occupancy and damage claims arising out of lease defaults,
including rejections, under any Applicable Bankruptcy Law (as hereinafter
defined), together with any sums of money that may now or at any time hereafter
become due and payable to Grantor by virtue of any and all royalties, overriding
royalties, bonuses, delay rentals and any other amount of any kind or character
arising under any and all present and future oil, gas and mining leases covering
the Mortgaged Property or any part thereof (collectively, the "Rents"); and all
proceeds and other amounts paid or owing to Grantor under or pursuant to any and
all contracts and bonds relating to the construction, erection or renovation of
the Mortgaged Property; subject however to a license hereby granted by
Noteholder to Grantor to collect and receive all of the foregoing (such license
evidenced by Noteholder's acceptance of the Mortgage), subject to the terms and
conditions hereof. Notwithstanding anything contained herein or in any of the
other Loan Documents to the contrary, the assignment in this Paragraph is an
absolute, unconditional and presently effective assignment and not merely a
security interest; provided, however, upon the occurrence of a Default (as
hereinafter defined) hereunder, such license shall automatically and immediately
terminate and Grantor shall hold all Rents paid to Grantor thereafter in trust
for the use and benefit of Noteholder and Noteholder shall have the right, power
and authority, whether or not it takes possession of the Mortgaged Property, to
seek enforcement of any such lease, contract or bond and to demand, collect,
receive, sue for and recover in its own name any and all of the above described
amounts assigned hereby and to apply the sum(s) collected, first to the payment
of expenses incident to the collection of the same, and the balance to the
payment of the Indebtedness; provided further, however, that Noteholder shall
not be deemed to have taken possession of the Mortgaged Property except on the
exercise of its option to do so, evidenced by its demand and overt act for such
purpose. It shall not be necessary for Noteholder to institute any type of legal
proceedings or take any other action whatsoever to enforce the assignment
provisions in this Paragraph 3.1.
3.2 Assignment of Leases. Grantor hereby assigns to Noteholder all existing
and future leases, including, without limitation, all subleases thereof, and any
and all extensions, renewals, modifications and replacements thereof, upon any
part of the Mortgaged
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Property (collectively, the "Leases"). Grantor hereby further assigns to
Noteholder all guaranties of tenants' performance under the Leases. Prior to a
Default, Grantor shall have the right, without joinder of Noteholder, to enforce
the Leases, unless Noteholder directs otherwise.
3.3 Warranties Concerning Leases and Rents. Grantor represents and
warrants that:
(a) Grantor has good title to the Leases and Rents and authority to assign
them, and no other person or entity has any right, title or interest
therein;
(b) all existing Leases are valid, unmodified and in full force and
effect, except as indicated herein, and no default exists thereunder;
(c) unless otherwise provided herein, no Rents have been or will be
assigned, mortgaged or pledged;
(d) no Rents have been or will be anticipated, waived, released,
discounted, set off or compromised; and
(e) except as indicated in the Leases, Grantor has not received any funds
or deposits from any tenant for which credit has not already been made
on account of accrued Rents.
3.4 Grantor's Covenants of Performance. Grantor covenants to:
(a) perform all of its obligations under the Leases and give prompt notice
to Noteholder of any failure to do so;
(b) give immediate notice to Noteholder of any notice Grantor receives
from any tenant or subtenant under any Leases, specifying any claimed
default by any party under such Leases, excluding, however, notices of
default under residential leases;
(c) enforce the tenant's obligations under the Leases;
(d) defend, at Grantor's expense, any proceeding pertaining to the Leases,
including, if Noteholder so requests, any such proceeding to which
Noteholder is a party; and
(e) neither create nor permit any encumbrance upon its interest as lessor
of the Leases, except this Mortgage and any other encumbrances
permitted by this Mortgage.
3.5 Prior Approval for Actions Affecting Leases. Grantor shall not, without
the prior written consent of Noteholder:
(a) receive or collect Rents more than one month in advance;
(b) encumber or assign future Rents;
(c) waive or release any obligation of any tenant under the Leases except
for prudent business reasons;
(d) cancel, terminate or modify any of the Leases; cause or permit any
cancellation, termination or surrender of any of the Leases; or
commence any proceedings for dispossession of any tenant under any of
the Leases, except upon default by the tenant thereunder;
(e) renew or extend any of the Leases, except pursuant to terms in
existing Leases; or
(f) permit any assignment of the Leases except for prudent business
reasons.
3.6 Settlement for Termination. Grantor agrees that no settlement for damages
for termination of any of the Leases under the United States Bankruptcy Code, or
under any other federal, state or local statute, shall be made without the prior
written consent of Noteholder, and any check in payment of such damages will be
made payable to both Grantor and Noteholder. Grantor hereby assigns any such
payment to Noteholder to be applied to the Indebtedness as Noteholder may elect
and agrees to endorse any check for such payment to the order of Noteholder.
3.7 Noteholder in Possession. Noteholder's acceptance of this assignment shall
not, prior to entry upon and taking possession of the Mortgaged Property by
Noteholder, be deemed to constitute Noteholder a "mortgagee in possession," nor
obligate Noteholder to appear in or defend any proceedings relating to any of
the Leases or to the Mortgaged Property, take any action hereunder, expend any
money, incur any expenses, or perform any obligation or liability under the
Leases, or assume any obligation for any deposits delivered to Grantor by any
tenant and not delivered to Noteholder. Noteholder shall not be liable for any
injury or damage to any person or property in or about the Mortgaged Property
which occurred or accrued prior to the date Noteholder takes possession of the
Mortgaged Property.
3.8 Appointment of Attorney. Grantor hereby irrevocably appoints Noteholder
its attorney-in-fact, coupled with an interest, empowering Noteholder to
subordinate any Leases to this Mortgage.
3.9 Indemnification. Grantor hereby indemnifies and holds Noteholder (which
shall include the directors, officers, partners, employees, representatives and
agents of Noteholder and any persons or entities owned or controlled by, owning
or controlling, or under common control or affiliated with Noteholder) harmless
from all liability, damage or expense imposed on or incurred by Noteholder from
any claims under the Leases, including, without limitation, any claims by
Grantor with respect to payments of Rents made directly to Noteholder after
Default and claims by any tenant for security deposits or for rental payments
more than one (1) month in advance and not delivered to Noteholder. All amounts
indemnified against hereunder, including, without limitation, attorneys' fees,
if paid by Noteholder shall bear interest at the maximum lawful rate and shall
be payable by Grantor in accordance with Paragraph 2.3 hereof. The foregoing
indemnities shall not terminate upon the foreclosure, release or other
termination of this Mortgage but will survive foreclosure of this Mortgage or
conveyance in lieu of foreclosure and the repayment of the Indebtedness and the
discharge and release of this Mortgage and the other Loan Documents, to the
extent the claim accrued prior to such foreclosure.
3.10 Records. Upon request by Noteholder, Grantor shall deliver to Noteholder
executed originals of all Leases and copies of all records relating thereto.
3.11 Merger. There shall be no merger of the leasehold estates, created by the
Leases, with the fee estate of the Land without the prior written consent of
Noteholder.
3.12 Right to Rely. Grantor hereby irrevocably authorizes and directs the
tenants under the Leases to pay Rents to Noteholder upon written demand by
Noteholder without further consent of Grantor, and the tenants may rely upon any
written statement delivered by Noteholder to the tenants. Any such payment to
Noteholder shall constitute payment to Grantor under the Leases. The provisions
of this Paragraph are intended solely for the benefit of the tenants and shall
never inure to the benefit of Grantor or any person claiming through or under
Grantor, other than a tenant who has not received such notice. The assignment of
Rents set forth in Paragraph 3.1 is not contingent upon any notice or demand by
Noteholder to the tenants.
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ARTICLE IV
EVENTS OF DEFAULT
Defaults. The term "Default" as used in this Mortgage shall mean the
occurrence of any of the following events:
4.1 Intentionally Omitted.
4.2 Non-Performance of Covenants. The failure of Grantor to timely and
properly observe, keep or perform any covenant, agreement, warranty or condition
required herein or in any other Loan Document to be observed, kept or performed
subject to the applicable cure period set forth in Section 9.03 of the Loan
Agreement; or
4.3 False Representation. Any representation contained herein or in any other
Loan Document or otherwise made by Grantor or any other person or entity to
Noteholder in connection with the Indebtedness is false or misleading in any
material respect; or
4.4 Bankruptcy or Insolvency. If the owner of the Mortgaged Property or any
person obligated to pay the Indebtedness: (a) becomes insolvent, or makes a
transfer in fraud of creditors, or makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts as they become
due; (b) generally is not paying its debts as such debts become due; (c) has a
receiver, trustee or custodian appointed for, or take possession of, all or
substantially all of the assets of such party or any of the Mortgaged Property,
either in a proceeding brought by such party or in a proceeding brought against
such party and such appointment is not discharged or such possession is not
terminated within sixty (60) days after the effective date thereof or such party
consents to or acquiesces in such appointment or possession; (d) files a
petition for relief under the United States Bankruptcy Code or any other present
or future federal or state insolvency, bankruptcy or similar law (all of the
foregoing hereinafter collectively referred to as "Applicable Bankruptcy Law")
or an involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not dismissed within
sixty (60) days after the filing thereof, or an order for relief naming such
party is entered under any Applicable Bankruptcy Law, or any composition,
rearrangement, extension, reorganization or other relief of debtors now or
hereafter existing is requested or consented to by such party; (e) fails to have
discharged within a period of sixty (60) days any attachment, sequestration or
similar writ levied upon any property of such party; or (f) fails to pay within
thirty (30) days any final money judgment against such party; or
4.5 Execution on Mortgaged Property. The Mortgaged Property or any part
thereof is taken on execution or other process of law in any action against
Grantor; or
4.6 Loan Agreement. A Default occurs under the Loan Agreement; or
4.7 Action by Other Lienholder. The holder of any lien or security interest on
the Mortgaged Property (without hereby implying the consent of Noteholder to the
existence or creation of any such lien or security interest) declares a default
thereunder or institutes foreclosure or other proceedings for the enforcement of
its remedies thereunder; or
4.8 Transfer of Mortgaged Property. Without the prior written consent of
Noteholder, Grantor sells, leases, exchanges, assigns, transfers, conveys or
otherwise disposes of all or any part of the Mortgaged Property or any interest
therein (except for the disposition of worn-out or obsolete personal property or
fixtures under the circumstances described in Subparagraph 2.2(g) hereof), or
legal or equitable title to the Mortgaged Property, or any interest therein, is
vested in any other party, in any manner whatsoever, by operation of law or
otherwise, it being understood that the consent of Noteholder required hereunder
may be refused by Noteholder in its sole discretion or may be predicated upon
any terms, conditions and covenants deemed advisable or necessary in the sole
discretion of Noteholder, including, without limitation, the right to change the
interest rate, date of maturity or payments of principal and/or interest on the
Note, to require payment of any amount as additional consideration as a transfer
fee or otherwise and to require assumption of the Note and this Mortgage; or
4.9 Other Liens. Without the prior written consent of Noteholder, Grantor
creates, places or permits to be created or placed, or through any act or
failure to act, acquiesces in the placing of, or allows to remain, any deed of
trust, mortgage, voluntary or involuntary lien, whether statutory,
constitutional or contractual (except for the lien for ad valorem taxes on the
Mortgaged Property which are not delinquent), security interest, encumbrance or
charge, or conditional sale or other title retention document, against or
covering the Mortgaged Property, or any part thereof, other than the Permitted
Encumbrances, regardless of whether the same are expressly or otherwise
subordinate to the lien or security interest created in this Mortgage, or
acquires any fixtures, equipment or other property forming a part of the
Mortgaged Property pursuant to a lease, license or similar agreement; or
4.10 Destruction of Mortgaged Property. The Mortgaged Property is so
demolished, destroyed or damaged that, in the judgment of Noteholder, it cannot
be restored or rebuilt with available funds to a profitable condition within a
reasonable period of time; or
4.11 Condemnation. So much of the Mortgaged Property is taken in condemnation,
or sold in lieu of condemnation, or the Mortgaged Property is so diminished in
value due to any injury or damage to the Mortgaged Property, that the remainder
thereof cannot, in the judgment of Noteholder, continue to be operated
profitably for the purpose for which it was being used immediately prior to such
taking, sale or diminution; or
4.12 Intentionally Omitted.
4.13 Intentionally Omitted.
4.14 Intentionally Omitted.
ARTICLE V
REMEDIES AND RELATED RIGHTS
If a Default shall occur, Noteholder may exercise any one or more of the
following remedies and shall, in addition to any other rights, have the
following related rights, without notice (unless notice is required by
Applicable Laws):
5.1 Acceleration. Upon the occurrence of a Default, Noteholder shall have the
option of declaring all Indebtedness in its entirety to be immediately due and
payable, and the liens and security interests evidenced hereby shall be subject
to foreclosure in any manner provided for herein or provided for by applicable
law as Noteholder may elect.
5.2 Possession. Upon the occurrence of a Default, or any event or circumstance
which, with the lapse of time or the giving of notice, or both, would constitute
a Default hereunder, Noteholder is authorized prior or subsequent to the
institution of any foreclosure proceedings to enter upon the Mortgaged Property,
or any part thereof, and to take possession of the Mortgaged Property and of all
books, records and accounts relating thereto and to exercise without
interference from Grantor any and all rights which Grantor has with respect to
the management, possession, operation, protection or preservation of the
Mortgaged Property, including the right to rent the same for the account of
Grantor and to deduct from such rents all reasonable costs, expenses and
liabilities of every character incurred by Noteholder in collecting such rents
and in managing, operating, maintaining, protecting or preserving the Mortgaged
Property and to apply the remainder of such rents to the Indebtedness in such
manner as Noteholder may elect in its sole discretion. All such reasonable
costs, expenses and liabilities incurred by Noteholder in collecting such rents
and in managing, operating, maintaining or preserving the Mortgaged Property, if
not paid out of rents as hereinabove provided, shall constitute a demand
obligation owing by Grantor and shall be subject to and covered by Paragraph 2.3
hereof. If necessary to obtain the possession provided for above, Noteholder may
invoke any and all legal remedies to dispossess Grantor, including, without
limitation, one or more actions for forcible entry and detainer, trespass to try
title and restitution. In connection with any action taken by Noteholder
pursuant to this Paragraph,
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Noteholder shall not be liable for any loss sustained by Grantor resulting from
any failure to rent the Mortgaged Property, or any part thereof, or from any
other act or omission of Noteholder in managing the Mortgaged Property unless
such loss is caused by the gross negligence or willful misconduct and bad faith
of Noteholder, nor shall Noteholder be obligated to perform or discharge any
obligation, duty or liability under any Lease covering the Mortgaged Property or
any part thereof or under or by reason of this instrument or the exercise of
rights or remedies hereunder. Grantor shall and does hereby agree to indemnify
Noteholder for, and to hold Noteholder (which shall include the directors,
officers, partners, employees, representatives and agents of Noteholder and any
persons or entities owned or controlled by, owning or controlling or under
common control or affiliated with Noteholder) harmless from, any and all
liability, loss or damage which may or might be incurred by Noteholder under any
Lease or under or by reason of this Mortgage or the exercise of rights or
remedies hereunder and from any and all claims and demands whatsoever which may
be asserted against Noteholder by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms, covenants or
agreements contained in any Lease. Should Noteholder incur any such liability,
the amount thereof, including costs, expenses and reasonable attorneys' fees,
shall be subject to and covered by Paragraph 2.3 hereof. Nothing in this
Paragraph shall impose any duty, obligation or responsibility upon Noteholder
for the control, care, management or repair of the Mortgaged Property, nor for
the carrying out of any of the terms and conditions of any such Lease; nor shall
it operate to make Noteholder responsible or liable for any waste committed on
the Mortgaged Property by the tenants or by any other parties or for any
dangerous or defective condition of the Mortgaged Property, or for any
negligence in the management, upkeep, repair or control of the Mortgaged
Property resulting in loss or injury or death to any tenant, licensee, employee
or stranger. Grantor hereby assents to, ratifies and confirms any and all
actions of Noteholder with respect to the Mortgaged Property taken under this
Paragraph and agrees that the foregoing indemnity shall not terminate upon
release, foreclosure or other termination of this Mortgage.
5.3 Foreclosure. Upon the occurrence of a Default, Trustee, his successor or
substitute, is authorized and empowered and it shall be his special duty at the
request of Noteholder to sell the Mortgaged Property or any part thereof
situated in the State of Texas at the courthouse of any county in the State of
Texas in which any part of the Mortgaged Property is situated, at public vendue
to the highest bidder for cash. The sale shall take place at such area of the
courthouse as shall be properly designated from time to time by the
commissioners court (or, if not so designated by the commissioners court, at the
courthouse door) of the specified county, between the hours of 10 o'clock a.m.
and 4 o'clock p.m. (the commencement of such sale to occur within three hours
following the time designated in the hereinafter described notice of sale as the
earliest time at which such sale shall occur, if required by Applicable Laws) on
the first Tuesday in any month after having given notice of such sale at least
twenty-one (21) days before the day of sale of the time, place and terms of said
sale (including the earliest time at which such sale shall occur) in accordance
with the statutes of the State of Texas then in force governing sales of real
estate under powers conferred by deeds of trust. Notice of a sale of all or part
of the Mortgaged Property by Trustee shall be given by posting written notice
thereof at the courthouse door (or other area in the courthouse as may be
designated for such public notices) of the county in which the sale is to be
made, and by filing a copy of the notice in the office of the county clerk of
the county in which the sale is to be made at least twenty-one (21) days
preceding the date of the sale, and if the Mortgaged Property to be sold is in
more than one county, a notice shall be posted at the courthouse door and filed
with the county clerk of each county in which the Mortgaged Property is
situated. In addition, Noteholder shall, at least twenty-one (21) days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
Grantor and each debtor obligated to pay the Indebtedness or any portion thereof
according to the records of Noteholder. Service of such notice shall be
completed upon deposit of the notice, enclosed in a postpaid certified mail
wrapper, properly addressed to Grantor and each such debtor at the most recent
address as shown by the records of Noteholder, in a post office or official
depository under the care and custody of the United States Postal Service. The
affidavit of any person having knowledge of the facts to the effect that such
service was completed shall be prima facie evidence of the fact of service. Any
sale made by Trustee hereunder may be as an entirety or in such parcels as
Noteholder may request, and any sale may be adjourned by announcement at the
time and place appointed for such sale without further notice except as may be
required by law. The sale by Trustee of less than the whole of the Mortgaged
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Mortgaged Property shall be sold; and, if the proceeds of such
sale of less than the whole of the Mortgaged Property shall be less than the
aggregate of the Indebtedness and the expense of executing this trust as
provided herein, this Mortgage and the lien hereof shall remain in full force
and effect as to the unsold portion of the Mortgaged Property just as though no
sale had been made; provided, however, that Grantor shall never have any right
to require the sale of less than the whole of the Mortgaged Property but
Noteholder shall have the right, at its sole election, to request Trustee to
sell less than the whole of the Mortgaged Property. After each sale, Trustee
shall make to the purchaser or purchasers at such sale good and sufficient
conveyances in the name of Grantor, conveying the property so sold to the
purchaser or purchasers in fee simple with general warranty of title, and shall
receive the proceeds of said sale or sales and apply the same as herein
provided. Payment of the purchase price to Trustee shall satisfy the obligation
of purchaser at such sale therefor, and such purchaser shall not be responsible
for the application thereof. The power of sale granted herein shall not be
exhausted by any sale held hereunder by Trustee or his substitute or successor,
and such power of sale may be exercised from time to time and as many times as
Noteholder may deem necessary until all of the Mortgaged Property has been duly
sold and all Indebtedness has been fully paid. In the event any sale hereunder
is not completed or is defective in the opinion of Noteholder, such sale shall
not exhaust the power of sale hereunder and Noteholder shall have the right to
cause a subsequent sale or sales to be made hereunder. Any and all statements of
fact or other recitals made in any deed or deeds given by Trustee or any
successor or substitute appointed hereunder as to nonpayment of the
Indebtedness, or as to the occurrence of any Default, or as to Noteholder having
declared all of such Indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and of the properties to
be sold having been duly given, or as to the refusal, failure or inability to
act of Trustee or any substitute or successor, or as to the appointment of any
substitute or successor Trustee, or as to any other act or thing having been
duly done by Noteholder or by Trustee or any substitute or successor, shall be
taken as prima facie evidence of the truth of the facts so stated and recited.
Trustee, his successor or substitute, may appoint or delegate any one or more
persons as agent to perform any act or acts necessary or incident to any sale
held by Trustee, including, without limitation, the posting of notices and the
conducting of sales, but in the name and on behalf of Trustee, his successor or
substitute.
5.4 Judicial Foreclosure. This Mortgage shall be effective as a mortgage as
well as a deed of trust and upon the occurrence of a Default may be foreclosed
as to any of the Mortgaged Property in any manner permitted by the laws of the
State of Texas or of any other state in which any part of the Mortgaged Property
is situated, and any foreclosure suit may be brought by Trustee or by
Noteholder. In the event a foreclosure hereunder shall be commenced by Trustee,
or his substitute or successor, Noteholder may at any time before the sale of
the Mortgaged Property direct Trustee to abandon the sale, and may then
institute suit for the collection of the Indebtedness, and/or for the
foreclosure of this Mortgage. It is agreed that if Noteholder should institute a
suit for the collection of the Indebtedness and/or for the foreclosure of this
Mortgage, Noteholder may at any time before the entry of a final judgment in
said suit dismiss the same, and require Trustee, his substitute or successor to
sell the Mortgaged Property in accordance with the provisions of this Mortgage.
5.5 Intentionally Omitted.
5.6 Proceeds of Sale. The proceeds of any sale held by Trustee or any receiver
or public officer in foreclosure of the liens evidenced hereby shall be applied:
FIRST, to the payment of all necessary costs and expenses incident to such
foreclosure sale, including but not limited to, all court costs and charges of
every character in the event foreclosed by suit, attorneys' fees and a
reasonable fee to Trustee acting under the provisions of Paragraph 5.3 if
foreclosed by power of sale as provided in said paragraph, not exceeding five
percent (5%) of the proceeds of such sale;
SECOND, to the payment in full of the Indebtedness (including, without
limitation, the principal and interest due and unpaid on the Note, attorneys'
fees and any other amounts due and unpaid and owed to Noteholder under this
Mortgage) in such order as Noteholder may elect in its sole direction; and
THIRD, the remainder, if any there shall be paid to Grantor or to such
other party or parties as may be entitled thereto by applicable law.
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5.7 Noteholder as Purchaser. Noteholder shall have the right to become the
purchaser at any sale held by any Trustee or substitute or successor or by any
receiver or public officer, and any Noteholder purchasing at any such sale shall
have the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the Indebtedness owing to such Noteholder.
5.8 Intentionally Omitted.
5.9 Partial Foreclosure. In the event of a Default in the payment of any part
of the Indebtedness, Noteholder shall have the right to proceed with foreclosure
of the liens and security interests evidenced hereby without declaring the
entire Indebtedness due, and in such event any such foreclosure sale may be made
subject to the unmatured part of the Indebtedness; and any such sale shall not
in any manner affect the unmatured part of the Indebtedness, but as to such
unmatured part this Mortgage shall remain in full force and effect just as
though no sale had been made. The proceeds of any such sale shall be applied as
provided in Paragraph 5.6 except that the amount paid under subparagraph SECOND
thereof shall be only the matured portion of the Indebtedness and any proceeds
of such sale in excess of those provided for in subparagraphs FIRST and SECOND
(modified as provided above) shall be applied to installments of principal of
and interest on the Note in the inverse order of maturity. Several sales may be
made hereunder without exhausting the right of sale for any unmatured part of
the Indebtedness.
5.10 Remedies Cumulative. All remedies herein expressly provided for are
cumulative of any and all other remedies existing at law or in equity and are
cumulative of any and all other remedies provided for in any of the other Loan
Documents, or any part thereof, or otherwise benefiting Noteholder, and Trustee
and Noteholder shall, in addition to the remedies herein provided, be entitled
to avail themselves of all such other remedies as may now or hereafter exist at
law or in equity for the collection of the Indebtedness and the enforcement of
the covenants herein and the foreclosure of the liens and security interests
evidenced hereby, and resort to any remedy provided for hereunder or under any
such Loan Documents or provided for by law shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies.
5.11 Resort to Any Security. Noteholder may resort to any security given by
this Mortgage or to any other security now existing or hereafter given to secure
the payment of the Indebtedness, in whole or in part, and in such portions and
in such order as may seem best to Noteholder in its sole and absolute
discretion, and any such action shall not in any way be considered as a waiver
of any of the rights, benefits, liens or security interests evidenced by this
Mortgage.
5.12 Waiver. To the full extent Grantor may do so, Grantor agrees that Grantor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force pertaining to the rights and remedies of
sureties or providing for any appraisement, valuation, stay, extension or
redemption, and Grantor, for Grantor and Grantor's heirs, devisees,
representatives, successors and assigns, and for any and all persons ever
claiming any interest in the Mortgaged Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of intention to mature or declare due the whole of the
Indebtedness, notice of election to mature or declare due the whole of the
Indebtedness and all rights to a marshaling of the assets of Grantor, including,
without limitation, the Mortgaged Property, or to a sale in inverse order of
alienation in the event of foreclosure of the liens and security interests
hereby created. Grantor shall not have or assert any right under any statute or
rule of law pertaining to the marshaling of assets, sale in inverse order of
alienation, the exemption of homestead, the administration of estates of
decedents or other matters whatever to defeat, reduce or affect the right of
Noteholder under the terms of this Mortgage to a sale of the Mortgaged Property
for the collection of the Indebtedness without any prior or different resort of
collection, or the right of Noteholder under the terms of this Mortgage to the
payment of such Indebtedness out of the proceeds of sale of the Mortgaged
Property in preference to every other claimant whatever. If any law referred to
in this Paragraph and now in force, of which Grantor or Grantor's heirs,
devisees, representatives, successors and assigns and such other persons
claiming any interest in the Mortgaged Property might take advantage despite
this Paragraph, shall hereafter be repealed or cease to be enforced, such law
shall not thereafter be deemed to preclude the application of this Paragraph.
5.13 Delivery of Possession After Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Mortgaged Property by, through or under Grantor are
occupying or using the Mortgaged Property, or any part thereof, each and all
shall immediately become the tenant of the purchaser at such sale, which tenancy
shall be a tenancy from day-to-day, terminable at the will of either landlord or
tenant, at a reasonable rental per day based upon the value of the property
occupied, such rental to be due daily to the purchaser. In the event the tenant
fails to surrender possession of said property upon demand, the purchaser shall
be entitled to institute and maintain an action for forcible entry and detainer
of said property in the appropriate court having jurisdiction.
5.14 Intentionally Omitted.
ARTICLE VI
MISCELLANEOUS
6.1 Defeasance. If all of the Indebtedness and all other amounts due
Noteholder hereunder are paid as the same become due and payable and if this
Mortgage is kept and performed, then and in that event only, all rights under
this Mortgage shall terminate and the Mortgaged Property shall become wholly
clear of the liens, security interests, conveyances and assignments evidenced
hereby, which shall be released by Noteholder in due form at Grantor's cost.
6.2 Successor Trustee. Trustee may resign by an instrument in writing
addressed to Noteholder, or Trustee may be removed at any time with or without
cause by an instrument in writing executed by Noteholder. In case of the death,
resignation, removal or disqualification of Trustee or if for any reason
Noteholder shall deem it desirable to appoint a substitute or successor Trustee
to act instead of the herein named Trustee or any substitute or successor
Trustee, then Noteholder shall have the right and is hereby authorized and
empowered to appoint a successor Trustee, or a substitute Trustee, without
formality other than appointment and designation in writing executed by
Noteholder and the authority hereby conferred shall extend to the appointment of
other successor and substitute Trustees successively until the Indebtedness has
been paid in full or until the Mortgaged Property is sold hereunder. In the
event the Indebtedness is owned by more than one person or entity, the holders
of not less than a majority in the amount of such Indebtedness shall have the
right and authority to make the appointment of a successor or substitute Trustee
provided for in the preceding sentence. Such appointment and designation by
Noteholder or by the holder or holders of not less than a majority of the
Indebtedness shall be full evidence of the right and authority to make the same
and of all facts therein recited. If Noteholder is a national banking
association or corporation and such appointment is executed in its behalf by an
officer of such national banking association or corporation, such appointment
shall be conclusively presumed to be executed with authority and shall be valid
and sufficient without proof of any action by the board of directors or any
superior officer of the association or corporation. Upon the making of any such
appointment and designation, all of the estate and title of Trustee in the
Mortgaged Property shall vest in the named successor or substitute Trustee and
he shall thereupon succeed to and shall hold, possess and execute all the
rights, powers, privileges, immunities and duties herein conferred upon Trustee;
but nevertheless, upon the written request of Noteholder or of the successor or
substitute Trustee, Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee all of the
estate and title in the Mortgaged Property of Trustee so ceasing to act,
together with all the rights, powers, privileges, immunities and duties herein
conferred upon Trustee, and shall duly assign, transfer and deliver any of the
properties and moneys held by said Trustee hereunder to said successor or
substitute Trustee. All references herein to Trustee shall be deemed to refer to
Trustee (including any successor or substitute appointed and designated as
herein provided) from time to time acting hereunder. Grantor hereby ratifies and
confirms any and all acts which the herein named Trustee or his successor or
successors, substitute or substitutes, in this trust, shall do lawfully by
virtue hereof.
6.3 Liability and Indemnification of Trustee. Trustee shall not be liable for
any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever (including,
without limitation, Trustee's negligence), except for Trustee's gross negligence
or willful misconduct. Trustee shall have the right to rely on any instrument,
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document or signature authorizing or supporting any action taken or proposed to
be taken by him hereunder, believed by him in good faith to be genuine. All
moneys received by Trustee shall, until used or applied as herein provided, be
held in trust for the purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to the extent required by
law), and Trustee shall be under no liability for interest on any moneys
received by him hereunder. Grantor will reimburse Trustee for, and indemnify and
save him harmless against, any and all liability and expenses (including,
without limitation, reasonable attorneys' fees) which may be incurred by him in
the performance of his duties hereunder (Trustee shall include the directors,
officers, partners, employees, representatives and agents of Trustee and any
persons or entities owned or controlled by, owning or controlling or under
common control or affiliated with Trustee). The foregoing indemnity shall not
terminate upon release, foreclosure or other termination of this Mortgage;
provided, however, such indemnity shall only apply to claims which accrue prior
to or in connection with such foreclosure sale or other termination of this
Mortgage.
6.4 Waiver by Noteholder. Noteholder may at any time and from time to time in
writing (a) waive compliance by Grantor with any covenant herein made by Grantor
to the extent and in the manner specified in such writing; (b) consent to
Grantor doing any act which hereunder Grantor is prohibited from doing, or
consent to Grantor failing to do any act which hereunder Grantor is required to
do, to the extent and in the manner specified in such writing; (c) release any
part of the Mortgaged Property, or any interest therein, from the lien and
security interest of this Mortgage without the joinder of Trustee; or (d)
release any party liable, either directly or indirectly, for the Indebtedness or
for any covenant herein or in any of the other Loan Documents now or hereafter
securing the payment of the Indebtedness, without impairing or releasing the
liability of any other party. No such act shall in any way impair the rights of
Noteholder hereunder except to the extent specifically agreed to by Noteholder
in such writing.
6.5 Actions by Noteholder. The lien, security interest and other security
rights of Noteholder hereunder shall not be impaired by any indulgence,
moratorium or release granted by Noteholder, including but not limited to (a)
any renewal, extension, increase or modification which Noteholder may grant with
respect to any of the Indebtedness; (b) any surrender, compromise, release,
renewal, extension, exchange or substitution which Noteholder may grant in
respect of the Mortgaged Property, or any part thereof or any interest therein;
or (c) any release or indulgence granted to any endorser, guarantor or surety of
any of the Indebtedness. The taking of additional security by Noteholder shall
not release or impair the lien, security interest or other security rights of
Noteholder hereunder or affect the liability of Grantor or of any endorser or
guarantor or other surety or improve the rights of any permitted junior
lienholder in the Mortgaged Property.
6.6 Rights of Noteholder. Noteholder may waive any Default without waiving any
other prior or subsequent Default. Noteholder may remedy any Default without
waiving the Default remedied. Neither the failure by Noteholder to exercise, nor
the delay by Noteholder in exercising, any right, power or remedy upon any
Default shall be construed as a waiver of such Default or as a waiver of the
right to exercise any such right, power or remedy at a later date. No single or
partial exercise by Noteholder of any right, power or remedy hereunder shall
exhaust the same or shall preclude any other or further exercise thereof, and
every such right, power or remedy hereunder may be exercised at any time and
from time to time. No modification or waiver of any provision hereof nor consent
to any departure by Grantor therefrom shall in any event be effective unless the
same shall be in writing and signed by Noteholder and then such waiver or
consent shall be effective only in the specific instances, for the purpose for
which given and to the extent therein specified. No notice to nor demand on
Grantor in any case shall of itself entitle Grantor to any other or further
notice or demand in similar or other circumstances. Acceptance by Noteholder of
any payment in an amount less than the amount then due on any of the
Indebtedness shall be deemed an acceptance on account only and shall not in any
way affect the existence of a Default hereunder.
6.7 Notification of Account Debtors. Noteholder may at any time after Default
by Grantor notify the account debtors or obligors of any accounts, chattel
paper, negotiable instruments or other evidences of indebtedness included in the
Personal Property to pay Noteholder directly.
6.8 Reproduction as Financing Statement. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement relating to this
Mortgage shall be sufficient as a financing statement.
6.9 Fixture Filing. This Mortgage shall be effective as a financing statement
filed as a fixture filing with respect to all fixtures included within the
Mortgaged Property and is to be filed for record in the real property records in
the Office of the County Clerk for the county or counties where the Mortgaged
Property (including said fixtures) is situated. This Mortgage shall also be
effective as a financing statement covering minerals or the like (including oil
and gas) and accounts subject to Subsection 9.103(e) of the Business Code and is
to be filed for record in the real property records of the county where the
Mortgaged Property is situated. The mailing address of Grantor is set forth on
the first page of this Mortgage and the address of Noteholder from which
information concerning the security interest may be obtained is the address of
Noteholder set forth in Paragraph 1.1 of this Mortgage.
6.10 Filing and Recordation. Grantor will cause this Mortgage and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating hereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as Trustee or
Noteholder shall reasonably request, and will pay all such recording, filing,
re-recording and refiling taxes, fees and other charges.
6.11 Dealing with Successor. In the event the ownership of the Mortgaged
Property or any part thereof becomes vested in a person other than Grantor,
Noteholder may, without notice to Grantor, deal with such successor or
successors in interest with reference to this Mortgage and to the Indebtedness
in the same manner as with Grantor, without in any way vitiating or discharging
Grantor's liability hereunder or for the payment of the Indebtedness; provided,
however, nothing in this Paragraph shall be construed as permitting any transfer
of the Mortgaged Property which would constitute a Default under this Mortgage.
No sale of the Mortgaged Property, no forbearance on the part of Noteholder and
no extension of the time for the payment of the Indebtedness given by Noteholder
shall operate to release, discharge, modify, change or affect, in whole or in
part, the liability of Grantor hereunder or for the payment of the Indebtedness
or the liability of any other person hereunder or for the payment of the
Indebtedness, except as agreed to in writing by Noteholder.
6.12 Place of Payment. The Indebtedness shall be payable at the place
designated in the Note, or if no such designation is made, at the office of
Noteholder at the address indicated in this Mortgage, or at such other place as
Noteholder may designate in writing.
6.13 Subrogation. To the extent that proceeds of the Note are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Mortgaged Property, such proceeds have been advanced by
Noteholder at Grantor's request and Noteholder shall be subrogated to any and
all rights, security interests and liens owned or held by any owner or holder of
such outstanding liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests, charges or encumbrances
are released; provided, however, that the terms and provisions of this Mortgage
shall govern the rights and remedies of Noteholder and shall supersede the
terms, provisions, rights and remedies under and pursuant to the instruments
creating the liens, security interests, charges or encumbrances to which
Noteholder is subrogated hereunder.
6.14 Application of Indebtedness. If any part of the Indebtedness cannot be
lawfully secured by this Mortgage or if any part of the Mortgaged Property
cannot be lawfully subject to the lien and security interest hereof to the full
extent of the Indebtedness, then all payments made shall be applied on said
Indebtedness first in discharge of that portion thereof which is unsecured by
this Mortgage.
6.15 Usury. This Mortgage has been executed under, and shall be construed and
enforced in accordance with, the laws of the State of Texas, except as such laws
are preempted by federal law. This Mortgage and all of the other Loan Documents
are intended to be performed in accordance with, and only to the extent
permitted by, all applicable usury laws. If any provision hereof or of any of
the other Loan Documents or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision is
contained shall be affected thereby and shall be enforced to the greatest extent
permitted by Applicable Laws. It is expressly stipulated and agreed to be the
intent of Grantor and Noteholder to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable on the
Indebtedness. If the applicable law is ever revised, repealed or judicially
11
<PAGE>
interpreted so as to render usurious any amount called for under the Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the Indebtedness, or if Noteholder's
exercise of the option to accelerate the maturity of the Indebtedness, or if any
prepayment of the Indebtedness results in the payment of any interest in excess
of that permitted by law, then it is the express intent of Grantor and
Noteholder that all excess amounts theretofore collected by Noteholder be
credited on the principal balance of the Note (or, if the Note and all of such
other Indebtedness have been paid in full, refunded), and the provisions of the
Note and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectable hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to comply with the then Applicable
Laws, but so as to permit the recovery of the fullest amount otherwise called
for hereunder or thereunder. All sums paid, or agreed to be paid, for the use,
forbearance , detention, taking, charging, receiving or reserving on the
Indebtedness shall, to the extent permitted by Applicable Laws, be amortized,
prorated, allocated and spread throughout the full term of such Indebtedness
until payment in full so that the rate or amount of interest on account of such
Indebtedness does not exceed the usury ceiling from time to time in effect and
applicable thereto for so long as debt is outstanding under the Indebtedness. To
the extent that Noteholder is relying on Chapter 303 of the Texas Finance Code
to determine the maximum rate ("Maximum Rate") payable on the Indebtedness,
Noteholder will utilize the weekly ceiling from time to time in effect as
provided in such Chapter 303. To the extent federal law permits Noteholder to
contract for, charge or receive a greater amount of interest, Noteholder will
rely on federal law instead of such article, as amended, for the purpose of
determining the Maximum Rate. Additionally, to the extent permitted by
applicable law now in effect, Noteholder may, at its option and from time to
time, implement any other method of computing the Maximum Rate under such
article, as amended, or under other applicable law by giving notice, if
required, to Grantor as provided by applicable law now or hereafter in effect.
In no event shall the provisions of Chapter 346 of the Texas Finance Code (which
regulates certain revolving credit loan accounts and revolving triparty
accounts) apply to the Indebtedness. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not the intention
of Noteholder to accelerate the maturity of any interest that has not accrued at
the time of such acceleration or to collect unearned interest at the time of
such acceleration.
6.16 Notice. Any notice, request, demand or other communication required or
permitted hereunder, or under the Note, or under any of the other Loan Documents
(unless otherwise expressly provided therein) shall be given in writing as set
forth in the Loan Agreement. Service of a notice required by Texas Property Code
ss.51.002 shall be considered complete when the requirements of that statute are
met.
6.17 Heirs, Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the heirs, devisees,
representatives, successors and assigns of Grantor including all successors in
interest of Grantor in and to all or any part of the Mortgaged Property, and
shall inure to the benefit of Trustee and Noteholder and their respective heirs,
successors, substitutes and assigns and shall constitute covenants running with
the Land. All references in this Mortgage to Grantor, Trustee or Noteholder
shall be deemed to include all such heirs, devisees, representatives,
successors, substitutes and assigns.
6.18 Severability. A determination that any provision of this Mortgage is
unenforceable or invalid shall not affect the enforceability or validity of any
other provision and any determination that the application of any provision of
this Mortgage to any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision as it may apply to
any other persons or circumstances.
6.19 Gender and Number. Within this Mortgage, words of any gender shall be
held and construed to include any other gender, and words in the singular number
shall be held and construed to include the plural and words in the plural number
shall be held and construed to include the singular, unless in each instance the
context otherwise requires.
6.20 Counterparts. This Mortgage may be executed in any number of counterparts
with the same effect as if all parties hereto had signed the same document. All
such counterparts shall be construed together and shall constitute one
instrument, but in making proof hereof it shall only be necessary to produce one
such counterpart.
6.21 Joint and Several. Where two or more persons or entities have executed
this Mortgage, unless the context clearly indicates otherwise, the term
"Grantor" as used in this Mortgage means the grantors hereunder or either or any
of them and the obligations of Grantor hereunder shall be joint and several.
6.22 Reporting Requirements. Grantor agrees to comply with any and all
reporting requirements applicable to the transaction evidenced by the Note and
secured by this Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority
(including, but not limited to, The International Investment Survey Act of 1976,
The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign
Investment in Real Property Tax Act of 1980 and the Tax Reform Act of 1984) and
further agrees upon request of Noteholder to furnish Noteholder with evidence of
such compliance.
6.23 Headings. The Paragraph headings contained in this Mortgage are for
convenience only and shall in no way enlarge or limit the scope or meaning of
the various and several Paragraphs hereof.
6.24 Consent of Noteholder. Except where otherwise provided herein, in any
instance hereunder where the approval, consent or the exercise of judgment of
Noteholder is required, the granting or denial of such approval or consent and
the exercise of such judgment shall be within the reasonable discretion of
Noteholder.
6.25 Modification or Termination. The Loan Documents may only be modified or
terminated by a written instrument or instruments executed by the party against
which enforcement of the modification or termination is asserted. Any alleged
modification or termination which is not so documented shall not be effective as
to any party. Grantor agrees that it shall be bound by any modification of this
Mortgage or any of the other Loan Documents made by Noteholder and any
subsequent owner of the Mortgaged Property, with or without notice to or consent
of Grantor, and no such modification shall impair the obligations of Grantor
under this Mortgage or under any other Loan Document.
6.26 Negation of Partnership. Nothing contained in the Loan Documents is
intended to create any partnership, joint venture or association between Grantor
and Noteholder, or in any way make Noteholder a co-principal with Grantor with
reference to the Mortgaged Property, and any inferences to the contrary are
hereby expressly negated.
6.27 Entire Agreement. The Loan Documents constitute the entire understanding
and agreement between Grantor and Noteholder with respect to the transactions
arising in connection with the Indebtedness and supersede all prior written or
oral understandings and agreements between Grantor and Noteholder with respect
thereto. Grantor hereby acknowledges that, except as incorporated in writing in
the Loan Documents, there are not, and were not, and no persons are or were
authorized by Noteholder to make, any representations, understandings,
stipulations, agreements or promises, oral or written, with respect to the
transaction which is the subject of the Loan Documents.
6.28 Construction Mortgage. If this Mortgage is a construction mortgage (as
that term is defined in Subsection 9.313(a)(3) of the Business Code) it secures
an obligation incurred for the construction of improvements on the Land
including the acquisition cost of the Land. In such event it is understood and
agreed that funds to be advanced upon the Note are to be used in the
construction of certain improvements on the Land in accordance with the Loan
Documents.
6.29 Renewal and Extension.
(a) The Note hereby secured is given in modification, renewal and
extension (but not in novation) of the amount left owing and unpaid by Grantor
upon that promissory note in the original principal sum of $500,000.00 dated
October 15, 1997, executed by Grantor and payable to the order of Texas Bank
more fully described and secured by a Deed of Trust dated October 15, 1997,
entered into by Grantor in favor of Texas Bank and recorded under Denton County
Clerk's File No. 97-R0073136, in the Real property Records of Denton County,
Texas, said Promissory Note being secured by the lien therein and thereby
created upon and against the
12
<PAGE>
Mortgaged Property which lien (along with any vendor's lien held by Bank to
secure, in whole, or in part, repayment fo the Note) are hereby renewed,
extended and carried forward in fully force and effect to secure payment of the
Indebtedness.
(b) The Note hereby secured is also given in modification, renewal and
extension (but not in novation) of the amount left owing and unpaid by Grantor
upon that promissory note in the original principal sum of $250,000.00 dated
October 15, 1997, executed by Grantor and payable to the order of Texas Bank
more fully described and secured by a Deed of Trust dated October 15, 1997,
entered into by Grantor in favor of Texas Bank and recorded under Denton County
Clerk's File No. 97-R0073137, in the Real property Records of Denton County,
Texas, said Promissory Note being secured by the lien therein and thereby
created upon and against the Mortgaged Property which lien (along with any
vendor's lien held by Bank to secure, in whole, or in part, repayment fo the
Note) are hereby renewed, extended and carried forward in fully force and effect
to secure payment of the Indebtedness.
EXECUTED as of June 26, 1998.
INTERNATIONAL ISOTOPES, INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
STATE OF TEXAS ss.
ss.
COUNTY OF ____ ss.
This instrument was acknowledged before me on ___ day of ________, 19__,
by _________, as ___________________ of International Isotopes, Inc., a Texas
corporation, on behalf of said corporation.
[S E A L]
__________________________________
Notary Public, State of Texas
My Commission Expires: __________________________________
___________________ Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF ____ ss.
This instrument was acknowledged before me on ___ day of _______, 19__, by
________, as ______________________ of International Isotopes, Inc., a Texas
corporation, on behalf of said corporation.
[S E A L]
__________________________________
Notary Public, State of Texas
My Commission Expires: __________________________________
___________________ Printed Name of Notary Public
13
<PAGE>
EXHIBIT "A"
TO
DEED OF TRUST, SECURITY AGREEMENT AND
ASSIGNMENT OF RENTS AND LEASES
EXECUTED BY INTERNATIONAL ISOTOPES, INC.
AS GRANTOR
14
PROMISSORY NOTE
$2,500,000.00 Dallas, Texas July 10, 1998
FOR VALUE RECEIVED, the undersigned, International Isotopes Inc., a Texas
corporation ("Maker"), promises to pay to the order of First Southwest Company,
a Texas corporation ("Payee"), the sum of Two Million Five Hundred Thousand and
no/100 Dollars ($2,500,000.00) (the "Committed Sum"), or so much thereof as
shall be disbursed and remain outstanding, together with interest on the unpaid
Principal Debt from time to time remaining at a rate per annum which shall from
day to day be equal to the lesser of (a) the Highest Lawful Rate, or (b) a rate
per annum (calculated on the basis of actual days elapsed, but computed as if
each calendar year consisted of 360 days) equal to the sum of 1.75% plus the
Prime Rate in effect from day to day. Each change in the rate to be charged
hereunder shall become effective without notice to Maker on the effective date
of each change in the Prime Rate or the Highest Lawful Rate, as the case may be.
As used herein, the term "Prime Rate" means a per annum interest rate equal to
the highest "prime rate" as published by The Wall Street Journal, Southwest
Edition, in its "Money Rates" section. On any day when The Wall Street Journal
is not published or a "prime rate" is not published under the Money Rates
section thereof, then the "prime rate" published for the preceding publication
date of The Wall Street Journal shall continue to be applicable until the next
publication of the "prime rate" in such Money Rates section of The Wall Street
Journal; the term "Highest Lawful Rate" means, at any given time during which
indebtedness shall be outstanding hereunder, the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted for,
taken, reserved, charged, or received on the indebtedness evidenced by this note
under the laws of the United States and the State of Texas applicable thereto
which are presently in effect or, to the extent allowed by law, under such
applicable laws of the United States and the State of Texas which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow, in any case after taking into account, to the extent
required by applicable law, any and all relevant payments or charges under this
note and any documents executed in connection herewith; the term "Principal
Debt" means the unpaid principal balance of all Advances; and the term "Advance"
means the disbursement to Maker of amounts loaned hereunder and evidenced
hereby.
The Principal Debt shall be due and payable in full on or before October
30, 1998, unless extended by a written agreement executed by Maker and Payee.
Accrued interest on this note shall be due and payable monthly in arrears, the
first such payment to be due and payable on August 10, 1998, and with subsequent
monthly payments of interest to be due and payable on the 10th day of September,
1998, and at maturity. All past due principal of and accrued interest on this
note shall bear interest from maturity (stated, by acceleration, or otherwise)
until paid at the lesser of (i) the Highest Lawful Rate or (ii) a rate equal to
the sum of the Prime Rate plus 3%.
1. Advances. Prior to maturity, Maker shall be entitled to borrow amounts
under this note from time to time in one or more Advances, in an aggregate
amount not to exceed the Committed Sum, by providing to Payee a written
application for an Advance at least three (3) Business Days (hereinafter
defined) prior to the date of the requested Advance. Each Advance shall be in an
amount not less than $100,000 and, if more, in even multiples of $100,000.
<PAGE>
2. Prepayments. The Principal Debt may be prepaid in whole or in part at
any time without premium or penalty, but only if all accrued interest on this
note is paid to the date of such prepayment. No prepayments of Principal Debt
may be reborrowed hereunder, and the amount of such prepayment shall reduce the
Committed Sum hereunder by the amount of such prepayment. The Principal Debt may
never exceed the amount of the Committed Sum, as same may be reduced from time
to time pursuant to the further provisions of this paragraph 2.
3. Events of Default and Remedies. Without notice or demand (which are
hereby waived), the entire unpaid principal balance of and all accrued interest
on this note shall immediately become due and payable at the option of the
holder hereof upon the occurrence of any one or more of the following events of
default (individually or collectively, herein called a "Default"):
(a) The failure or refusal of Maker to pay all or any part of the
principal of or accrued interest on this note as and when same becomes due
and payable in accordance with the terms hereof;
(b) Maker or any guarantor shall (i) become insolvent within the
meaning of the Bankruptcy Code of the United States, as amended, (ii) admit
in writing its inability to pay or otherwise fail to pay its debts
generally as they become due, (iii) voluntarily seek, consent to, or
acquiesce in the benefit or benefits of any Debtor Relief Law, or (iv) be
made the subject of any proceeding provided for by any Debtor Relief Law
that could suspend or otherwise affect any of the rights of the holder
hereof. As used herein, "Debtor Relief Laws" means the Bankruptcy Code of
the United States, as amended, and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, or similar debtor relief laws from time to time
in effect affecting the rights of creditors generally; or
(c) The occurrence of a "Default" under the terms of, and as defined
in, that certain "Pledge Agreement" (herein so called) of even date
herewith executed and delivered by Ira Lon Morgan as security for the
indebtedness evidenced by this note.
Upon the occurrence of a Default, the holder of this note may (a) terminate
its commitment to lend hereunder, (b) offset against this note any sum or sums
owed by the holder hereof to Maker or any guarantor, (c) foreclose any or all
liens or security interests given to secure the repayment of the indebtedness
evidenced by this note, including, but not limited to, the Pledge Agreement, and
(d) proceed to protect and enforce its rights either by suit in equity and/or by
action at law, or by other appropriate proceedings, whether for the specific
performance of any covenant or agreement contained in this note or any document
or instrument executed and delivered by Maker or any guarantor in connection
with this note or in aid of the exercise of any power or right granted by this
note or any document or instrument executed and delivered by Maker or any
guarantor in connection with this note or to enforce any other legal or
equitable right of the holder of this note.
2
<PAGE>
4. Cumulative Rights. No delay on the part of the holder of this note in
the exercise of any power or right under this note, or under any document or
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any other power or right constitute a
waiver of any subsequent, additional or remaining power or right. Enforcement by
the holder of this note of any security for the payment hereof shall not
constitute any election by it of remedies so as to preclude the exercise of any
other remedy available to it.
5. Waiver. Maker, and each surety, endorser, guarantor, pledgor, and other
party ever liable for the payment of any sum of money payable on this note,
jointly and severally waive demand, presentment, protest, notice of nonpayment,
notice of intention to accelerate, notice of acceleration, notice of protest,
and any and all lack of diligence or delay in collection or the filing of suit
hereon which may occur, and agree that their liability on this note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, or by any release or change in any security for the payment of this
note, and hereby consent to any and all renewals, extensions, indulgences,
releases, or changes, regardless of the number of such renewals, extensions,
indulgences, releases, or changes.
6. Attorneys' Fees and Costs. In the event a Default shall occur, and in
the event that thereafter this note is placed in the hands of an attorney for
collection, or in the event this note is collected in whole or in part through
legal proceedings of any nature, then and in any such case Maker promises to pay
all costs of collection, including, but not limited to, reasonable attorneys'
fees incurred by the holder hereof on account of such collection.
7. Payments. The principal of and accrued interest on this note shall be
due and payable in lawful money of the United States of America, in Dallas,
Texas, at the office of Payee, 1700 Pacific Avenue, Suite 500, in funds which
are or will be available for immediate use by Payee on the day such payment is
due. In any case where a payment of principal or interest hereon is due on a
non-Business Day, Maker shall be entitled to delay such payment until the next
succeeding Business Day, but interest shall continue to accrue until the payment
is, in fact, made. As used herein, the term "Business Day" means each day which
is not a Saturday, Sunday or a legal holiday in the State of Texas.
IN WITNESS WHEREOF, the undersigned has executed this note as of the day
and year first above written.
INTERNATIONAL ISOTOPES INC.
By: /s/ T.L. Thompson
-------------------------
Title: Executive Vice President
-------------------------
T.L. Thompson
Ira Lon Morgan
Chairman & Treas.
Ira Lon Morgan
3
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<CIK> 0001038277
<NAME> International Isotopes
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> JUN-30-1998
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<CASH> 2,529,692
<SECURITIES> 0
<RECEIVABLES> 545,743
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<INVENTORY> 2,138,773
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<PP&E> 15,984,273
<DEPRECIATION> 93,105
<TOTAL-ASSETS> 24,352,520
<CURRENT-LIABILITIES> 2,917,034
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0
0
<COMMON> 65,386
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<TOTAL-LIABILITY-AND-EQUITY> 24,352,520
<SALES> 871,014
<TOTAL-REVENUES> 871,014
<CGS> 388,963
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<INCOME-PRETAX> (1,559,843)
<INCOME-TAX> 15,000
<INCOME-CONTINUING> (1,574,843)
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