UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 001-23407
SURREY, INC.
(Exact name of registrant as specified in its charter)
Texas 74-2138564
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13110 Trails End Road
Leander, Texas 78641
(Address of principal executive offices)
(512) 267-7172
(Registrant's telephone number, including area code)
Check whether the registrant: (1) 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 ___
On May 1, 1998, the registrant had 2,472,727 outstanding shares of common
stock, no par value.
Transitional Small Business Disclosure Format (check one);
Yes ___ No _X_
<PAGE>
SURREY, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Operations for the Three Months Ended
March 31, 1998 and March 31, 1997
Balance Sheet as of March 31, 1998 and December 31, 1997
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and March 31, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II - OTHER INFORMATION
SIGNATURES
EXHIBITS
<PAGE>
PART I: ITEM 1. FINANCIAL STATEMENTS
Surrey, Inc.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
------------------------
1998 1997
------- -------
Net sales $ 1,902 $ 1,847
Cost of sales 1,365 1,408
------- -------
Gross profit 537 439
Operating expenses:
Sales and marketing 166 100
General and administrative 378 282
------- -------
Total operating expenses 544 382
Income (loss) from operations (7) 57
Other:
Interest expense (32) (55)
Other income 25 2
------- -------
Income (loss) before income taxes (14) 4
Income tax (benefit) provision (5) 1
------- -------
Net income (loss) $ (9) $ 3
======= =======
Basic and diluted earnings per share $ 0.00 $ 0.00
======= =======
Shares used in computing earnings per share:
Basic 2,473 2,245
======= =======
Diluted 2,473 2,245
======= =======
SEE ACCOMPANYING NOTES.
<PAGE>
Surrey, Inc.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1998 1997
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 1,073 $ 3,066
Accounts receivable 1,163 1,427
Inventories, net 1,508 1,252
Prepaid expenses and other current assets 277 39
Deferred income taxes 38 38
Income taxes receivable 47 42
------- -------
Total current assets 4,106 5,864
Property and equipment, net 2,159 1,510
======= =======
Total assets $ 6,265 $ 7,374
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 598 $ 561
Accrued expenses 106 308
Notes payable -- 895
Current maturities of long-term debt 97 96
Current maturities of capital lease obligations 67 66
------- -------
Total current liabilities 868 1,926
Long-term debt, less current maturities 1,135 1,153
Capital lease obligations, less current maturities 83 85
Deferred income taxes 49 49
Commitments and contingencies
Shareholders' equity:
Common stock; no par value 4,098 4,120
Common stock warrants 65 65
Retained deficit (33) (24)
------- -------
Total shareholders' equity 4,130 4,161
======= =======
Total liabilities and shareholders' equity $ 6,265 $ 7,374
======= =======
SEE ACCOMPANYING NOTES.
<PAGE>
Surrey, Inc.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (9) $ 3
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 61 52
Changes in operating assets and liabilities:
Accounts receivable 264 (60)
Inventories (256) (37)
Prepaid expenses and other current assets (238) 2
Trade accounts payable 37 227
Accrued expenses (202) (15)
Income taxes receivable/payable (5) 1
------- -------
Net cash provided by (used in) operating activities (348) 173
INVESTING ACTIVITIES
Acquisition of property and equipment (680) (17)
------- -------
Net cash used in investing activities (680) (17)
FINANCING ACTIVITIES
Payment of notes payable (895) (116)
Payment of notes payable to shareholders -- (7)
Payment of long-term debt (28) (21)
Principal payments on capital lease obligations (20) (37)
Payment of deferred financing costs (22) (25)
------- -------
Net cash provided by financing activities (965) (206)
Net increase (decrease) in cash (1,993) (50)
Cash and cash equivalents, beginning of period 3,066 159
------- -------
Cash and cash equivalents, end of period $ 1,073 $ 109
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 35 $ 55
Income taxes $ -- $ --
Acquisition of property and equipment via issuance of capital $ 22 $ 17
leases
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Surrey, Inc.
Notes to Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial information presented as of any date other than December 31 has
been prepared from the books and records without audit. Financial information as
of December 31 has been derived from the audited financial statements of the
Company, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated, have been included.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, EARNINGS PER SHARE. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement No. 128
requirements.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended
March 31
------------------
1998 1997
------- -------
<S> <C> <C>
Numerator:
Net income (loss) $ (9) $ 3
------- -------
Numerator for basic and diluted earnings per share - income
available to common stockholders $ (9) $ 3
======= =======
Denominator:
Denominator for basic earnings per share - weighted-
average shares 2,473 2,245
------- -------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 2,473 2,245
======= =======
Basic earnings per share $ 0.00 $ 0.00
======= =======
Diluted earnings per share $ 0.00 $ 0.00
======= =======
</TABLE>
<PAGE>
Options to purchase 305,000 shares of common stock at $4.00 to $4.40 per share,
warrants to purchase 675,000 shares of common stock at $4.80 per share, and a
warrant to purchase 62,500 Units (consisting of two shares of common stock and
one redeemable common stock purchase warrant) at $9.75 per Unit were outstanding
during 1998 but were not included in the computation of diluted earnings per
share because the exercise prices were greater than the average market price of
the common shares; therefore, the effect would be antidilutive.
3. CONTINGENCIES
The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made; however, the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on its financial position or
results of operations.
4. SUBSEQUENT EVENT
In April 1998, the Company entered into a loan agreement with a financial
institution whereby the Company will have available an additional borrowing
capacity of $3.3 million. The Company used $1.2 million of the available credit
to refinance debt guaranteed by the United States Small Business Association.
The remainder of the available credit will be used for plant construction and
expansion. The related notes bear interest at either the financial institution's
prime rate or a LIBOR based rate and mature in 2000 and 2005. The debt is
collateralized by accounts receivable, inventory and property and equipment.
<PAGE>
PART I: ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's level
of operation and financial condition. This discussion should be read with the
financial statements appearing in Part I, Item 1 of this report.
RESULTS OF OPERATIONS
NET SALES. Net sales increased to $1,902,000 for the three months ended
March 1998 from $1,847,000 for the three months ended March 1997, an increase of
3.0%. Such increase is attributed primarily to the increase in the Company's
sales force from one individual to three full-time sales personnel. All three
new hires occurred in the second half of 1997. Sales from these increased sales
efforts began to be recognized in first quarter 1998. The Company currently
expects that the trend in increased sales from its new sales staff should
continue throughout 1998.
GROSS PROFIT. Gross profit increased for the three months ended March 1998
to $537,000 from $439,000 for the comparable three month period in 1997. Gross
profit margin for the same period increased significantly from 23.8% in 1997 to
28.2% in 1998. This increase in gross profit margin is attributable to the
Company's continued focus on selling higher margin products. This strategy is
expected to continue for 1998 as the new high-end candle products come on line
and the Company continues to focus on high-end contract manufacturing products.
OPERATING EXPENSES. Operating expenses increased significantly in the
first three months of 1998 by 42.4%, and also increased as a percentage of net
sales; $544,000 (or 28.6% of net sales) in 1998, as compared to $382,000 (or
20.7% of net sales) in 1997. Operating expenses increased due to a number of
factors: first, as a result of the Company's increased obligations as a publicly
reporting company and in connection with its first annual meeting of public
shareholders, the Company's legal and professional expenses increased by
$65,000; second, salaries and related payroll taxes increased by $75,000 due to
the hiring of three full time sales personnel, a graphic designer and an
administrative assistant These fixed expenses are expected to decline as a
percentage of sales due to expected sales increases in the latter half of 1998
due to selling efforts by the Company's new hires.
INTEREST EXPENSE. Interest expense of $32,000 (1.7% of net sales) in March
1998 fell significantly as compared to $55,000 (3.0% of net sales) in March
1997. This decrease was primarily due to the payoff of all of the Company's
short term borrowings for working capital purposes in January 1998. For the
comparable period in 1997, these short term loans were outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity, other than proceeds of the
Company's 1997 initial public offering ("IPO"), are cash flow from operations,
bank borrowings, and capital lease financing. In April of 1998, the Company
entered into a loan agreement with Chase Bank of Texas, National Association
("Lender") to provide (a) a construction/term loan in the principal amount of
$2,300,000 ("Term Loan") with a final maturity in April 2005, and (b) a
revolving line of credit to be used for working capital purposes in the amount
of the lesser of 80% of eligible accounts receivable or $1,000,000 ("Revolving
Note") which would allow the Company to borrow, repay, and reborrow until its
final maturity in April 2000. As of May 8, 1998, approximately $1.7 million has
been drawn under the term Loan and no draws had been made under the Revolving
Note.
<PAGE>
The interest on each of the Term Loan and the Revolving Note will, at the
Company's option, float at either the lender's Prime Rate or the LIBOR Rate
(London Interbank Offering Rate) plus the LIBOR margin, which will range from
1.75% to 2.25% depending on the Company's debt to tangible net worth ratio.
Currently, the Company has elected to pay interest at the LIBOR Rate. The
current rate of interest on the loans is equal to 7.84%. The Company and Lender
have also agreed to enter into an interest rate risk management program for the
Term Loan, pursuant to which the Company and Lender will enter into one or more
ISDA Agreements (International Swap Dealers Association) intended to hedge the
interest rate fluctuations on the Term Loan. Overdue amounts on the loans are
payable at a past due rate of interest. The loans are secured by a lien on the
Company's plant, equipment and inventory, as well as accounts receivable.
Interest on each of the Revolving Note and Term Loan is payable monthly.
The Company is required to prepay the Revolving Note and maintain a zero balance
for thirty consecutive days during each year the Revolving Note is outstanding.
Principal on the Term Loan is due and payable in monthly installments beginning
January 8, 1999 of approximately $9,500 per month on or prior to April 2001, and
approximately $12,700 per month thereafter. Additional interest of $8,625 was
deemed accrued on the date of the Term Loan and is payable on demand.
Among other requirements, the loan agreement currently contains the
following covenants, which are tested quarterly: the Company must maintain (a) a
current ratio of not less than 1.50 to 1.00; (b) a debt to tangible net worth
ratio not greater than 1.50 to 1.00; and (c) a fixed charge coverage ratio of
not less than 1.20 to 1.00. The loan agreement also limits capital expenditures
(other than approved leases) to $100,000. The loan agreement restricts the
Company from making any dividends or distributions on its capital stock, or
repurchasing or issuing any capital stock (other than pursuant to the terms of
the Company's Warrants, provided no default would occur under the bank loans),
or paying any bonus or other non-salary compensation, without prior written
consent of Lender.
The Company used approximately $1,198,000 of the loan proceeds to repay
its outstanding loans to Norwest Bank of Texas and anticipates using
approximately $1,102,000 to finance the expansion of its plant and facility.
Disbursement of construction funds are subject to (a) compliance by the Company
and its contractor within the terms of the agreements with the Lender and (b)
the Lender receiving an appraisal of the property as improved, of approximately
$2,700,000. The Company currently anticipates that it will make periodic
payments on such loans out of future operating revenues of the Company or, if
required, proceeds of the IPO. See also Part II, Item 2.
The Company leases certain pieces of its manufacturing equipment pursuant
to capital leases. Annual payments at March 31, 1998, aggregated $82,000 under
short term capital leases and $96,000 under long term capital leases. The leases
currently in effect have maturity dates ranging through 2002. Such leases, some
of which are personally guaranteed by the current and former CEOs of the
Company, provide that if no event of default exists thereunder the Company may
purchase the equipment subject to the lease at the expiration of the lease or
may renew the lease.
The Company has received a commitment letter from Key Capital Corporation,
Inc., in which Key Capital Corporation, Inc. committed to enter into an
operating equipment lease with the Company for one traditional soap line, two
poured soap lines, one high speed wrapping machine and one candle making line.
Such lease, if signed, will be for a period of seven years. The Company expects
to sign such lease in June of 1998; however, there can be no assurance that the
lease will be signed on these or any terms. The Company's bank loan restricts
the aggregate amount allowable under this Agreement to $1,500,000. Annual
payments under the proposed lease are expected to be approximately $168,000. The
Company currently anticipates that it will pay such annual lease expense out of
future operating revenues of the Company or, if required, proceeds of the IPO.
<PAGE>
The Company believes that the net proceeds from the IPO, together with its
current cash balance, cash provided by future operations and its current bank
loans will be sufficient to meet its working capital and anticipated capital
expenditure requirements at least over the next 12 months. Management expects
that, in the future, cash in excess of current requirements will be invested in
short-term interest bearing securities. See also Part II, Item 2.
FORWARD LOOKING INFORMATION
Statements contained in this report regarding the Company's future
operations, growth strategy, future performance and results and the anticipated
liquidity are forward-looking and therefore are subject to certain risks and
uncertainties, including those discussed herein. In addition, any
forward-looking information regarding the operations of the Company will be
affected by the Company's ability to successfully complete its expansion in a
timely fashion, to efficiently manage and operate its facility as expanded, the
Company's ability to successfully increase its marketing and sales efforts in
order to take advantage of its increased production facilities, and continued
receipt of large orders from the Company's significant customers. There can be
no assurance that the Company will be successful in completing its proposed
expansion, or, if competed, that it will be successful in efficiently managing
its growth in order to maximize potential production.
PART II: OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company and its client Bath & Body Works are defendants in a lawsuit
filed in the Los Angeles Superior Court on April 2, 1997. The plaintiff, Seretha
F. Ebraham, claimed, among other things, that a liquid potpourri product
manufactured by the Company for Bath & Body Works failed to properly warn the
plaintiff of the potential dangers of the product and that she sustained burns
from the liquid potpourri as a result of such insufficient warning. The
plaintiff seeks total damages of $5,250,000. The Company's products liability
insurer at the time of the occurrence is defending the claim and the Company
currently believes that such insurance is adequate to cover damages, if any,
resulting from such lawsuit. A jury trial has been set for August 25, 1998.
Other than the above lawsuit, the Company is involved in legal proceedings
arising in the normal course of its business, none of which is expected to
result in any material loss to the Company.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company undertook an initial public offering ("IPO") in December 1997
(Registration Number 333-35757). The Company issued an aggregate of 675,000
Units, each Unit being comprised of two shares of Common Stock and one Warrant.
Each Warrant is convertible into one share of Common Stock. The Units were sold
by Stuart, Coleman & Co., Inc. (the "Underwriter"). The Common Stock and
Warrants trade on the Nasdaq SmallCap Market under the symbols SOAP and SOAPW,
respectively. The aggregate offering price of the Units sold to the public by
the Underwriter was $5,484,375 or $8.125 per Unit.
The Company initially anticipated using approximately $800,000 of the net
proceeds of the IPO for the expansion for the Company's plant, unless financing
was available for the plant expansion. The Company currently anticipates that
the total cost of the expansion will be approximately $1,100,000. The Company
entered into a construction agreement with Bruce Van Waes d/b/a Van & Van Austin
to construct the planned additional 39,102 square foot addition at an estimated
cost of approximately $940,000.
<PAGE>
In April 1998, the Company entered into a new bank loan with Chase Bank of
Texas, National Association to refinance all of its then current bank debt and
to finance substantially all of the costs relating to the Company's expansion of
its plant. Therefore, the portion of the IPO proceeds to be made available for
the expansion of the facility are now available to the Company for working
capital, as set forth in the Company's registration statement and Annual Report
on Form 10-KSB.
The Company also initially intended to use approximately $900,000 of the
net proceeds of the IPO for capital equipment leasing payments, unless revenues
from operations were available to pay such capital lease payments. As of March
31, 1998, the Company had expended approximately $300,000 of the IPO proceeds
for downpayments on such leases. The Company has received a commitment letter
from Key Corporate Capital, Inc. to enter into an operating equipment lease with
the Company to provide certain manufacturing equipment related to its expansion.
The proceeds of such operating equipment lease will be available to repay such
downpayment amounts. The Company currently expects that it will be able to make
payments due under such lease and its loans with Chase Bank out of its operating
revenues. As a result, the portion of net proceeds originally intended to make
payments on the capital equipment lease may also be available for general
corporate purposes as deemed appropriate by the Board of Directors of the
Company. See also Part I, Item 2. Liquidity and Capital Resources.
Since the IPO, the Company used approximately $260,000 of the net proceeds
of the IPO to pay sales, marketing and new product development fees. Expenses
related to sales, marketing and new product development include the salary of a
design professional to assist with product packaging, additional salary and
commission related to hiring and promoting new personnel in the sales and
marketing areas, and travel expenses and other expenses related to the Company's
increased focus on the Japanese market.
The amounts actually expended over time for new product development and
capital expenditures may vary significantly depending upon a variety of factors,
including the ability of the Company to hire additional qualified personnel and
the resources needed to attract and retain such personnel, new product
opportunities that might become available, and the continued availability of the
Company's line of credit. See Part I, Item 2. Management's Discussion and
Analysis or Plan of Operations.
The Company intends, from time to time, to evaluate possible acquisitions
of or investments in business, products or technologies that are complementary
to the current product lines of the Company. The portion of the net proceeds of
the IPO which are added to the Company's working capital and general corporate
funds, as well as funds dedicated to new product development, together with
other internally generated funds, may, if appropriate, be used for such purpose;
however, such acquisitions may be subject to approval by the Company's Lender.
No such transactions are planned or being negotiated as of the date hereof.
Pending the use of the net proceeds from the IPO, the Company has invested
such net proceeds in short-term securities.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5 OTHER INFORMATION - None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
(a) Exhibit 10.3(a) Loan Agreement, April 8, 1998, between Company and
Chase Bank of Texas, National Association
("Lender").
Exhibit 10.3(b) Construction Loan Agreement, April 8, 1998,
between Company and Lender.
Exhibit 10.4 Security Agreement between Company and Lender
securing all obligations of the Company to Lender
under the Loan Agreement.
Exhibit 10.5 Promissory Note, in the face amount of
$2,300,000.00, due to Lender April 8, 2005
("Term Loan").
Exhibit 10.6 Promissory Note, in the face amount of
$1,000,000.00, due to Lender April 8, 2000
("Revolving Note").
(b) The Company filed no Reports on Form 8-K during the reporting
period.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SURREY, INC.
(Registrant)
Date: May 14, 1998 By: /s/MARTIN VAN DER HAGEN
------------------------------------
Martin van der Hagen
President
By: /s/ MARK VAN DER HAGEN
------------------------------------
Mark van der Hagen
Chief Financial Officer
EXHIBIT 10.3(a)
LOAN AGREEMENT
This Loan Agreement (the "Agreement") is made as of April 8, 1998,
by and between SURREY, INC. ("Borrower"), a Texas corporation, and CHASE BANK OF
TEXAS, NATIONAL ASSOCIATION ("Lender"), a national banking association. Borrower
has requested that Lender make loans to Borrower in the following manner and
subject to the following terms and conditions:
1. Certain Definitions. Unless a particular word or phrase is
otherwise defined or the context otherwise requires, capitalized words and
phrases used in this Agreement shall have the following meanings (all
definitions that are defined in this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
Accounts, Chattel Paper, Equipment, General Intangibles,
Instruments and Inventory shall have the respective meanings assigned to them in
the Texas Business and Commerce Code in force on the date hereof.
Adjusted LIBOR Interbank Rate shall mean, with respect to each
LIBOR Interest Period, a rate per annum equal to the quotient (converted to a
percentage) of (a) the LIBOR Interbank Rate with respect to such LIBOR Interest
Period divided by (b) one (1) minus the LIBOR Reserve Requirement in effect on
the first day of such LIBOR Interest Period.
Advance/Term Loans shall mean the Loans described in Paragraph
3 hereof. Advance/Term Loan shall mean any such Loan.
Advance/Term Note shall mean the promissory note of Borrower
described in Paragraph 3 hereof, and any and all renewals, extensions,
modifications, rearrangements and replacements thereof and any and all
substitutions therefor.
Affiliate shall mean any Person controlling, controlled by or
under common control with any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of any indicia of equity rights (whether issued and outstanding
capital stock, partnership interests or otherwise) or by any other means.
Agreement shall mean this Loan Agreement, as it may from time
to time be amended, modified, restated or supplemented.
Annual Financial Statements shall mean the annual financial
statements of a Person, including all notes thereto, which statements shall
include a balance sheet as of the end of such fiscal year and an income
statement, retained earnings statement, and a statement of cash flows for such
fiscal year, all setting forth in comparative form the corresponding figures
from the previous fiscal year, all prepared in conformity with GAAP and
accompanied by a report and unqualified opinion of independent certified public
accountants of recognized standing satisfactory to Lender, which shall state
that such financial statements, in the unqualified opinion of such accountants,
present
<PAGE>
fairly, in all material respects, the financial position of such Person as of
the date thereof and the results of its operations for the period covered
thereby in conformity with GAAP. The Annual Financial Statements for Borrower
shall be prepared on a consolidated basis. In connection with each set of Annual
Financial Statements, if Borrower ever acquires any Subsidiary or Subsidiaries
in accordance with the other provisions of this Agreement, annual consolidating
statements shall also be prepared by Borrower for delivery to Lender, and such
consolidating statements shall be prepared in accordance with GAAP only to the
extent normal and customary.
Applicable Margin shall mean the applicable per annum
percentage for LIBOR Rate Borrowings set forth below which corresponds to the
applicable Debt to Tangible Net Worth Ratio:
Debt to Per Annum Percentage for
Tangible Net Worth Ratio LIBOR Rate Borrowings
------------------------ ---------------------
Less than or equal to .75x 1.75%
More than .75x but less than 1x 2.00%
1x or greater 2.25%
The Applicable Margin shall initially be 1.75%. The Applicable Margin will be
adjusted (if necessary) quarterly based on the Debt to Tangible Net Worth Ratio
as of the end of each quarter, as reflected in the Quarterly Financial
Statements and Compliance Certificates required to be provided Lender under
Paragraphs 10(b)(2) and (3), with any change in the Applicable Margin becoming
effective ten (10) calendar days after receipt by Lender of such Quarterly
Financial Statements and Compliance Certificates.
Bankruptcy Code shall mean the United States Bankruptcy Code,
as amended, and any successor statute.
Base Rate shall mean for any day a rate per annum (rounded
upwards to the nearest 1/100 of 1%) equal to the lesser of (a) the Prime Rate
(computed on the basis of the actual number of days elapsed over a year of 360
days) in effect on such day or (b) the Ceiling Rate. For purposes of this
Agreement any change in the Base Rate due to a change in the Prime Rate shall be
effective on the effective date of such change in the Prime Rate.
Base Rate Borrowing shall mean that portion of the principal
balance of the Loans at any time bearing interest at the Base Rate.
Borrowing Authorization shall mean a certificate, in Proper
Form, of the Secretary or an Assistant Secretary of a corporation as to the
resolutions of the Board of Directors of such corporation authorizing the
execution, delivery and performance of the documents to be executed by such
corporation; the incumbency and signature of the officer of such corporation
executing such documents on behalf of such corporation, and the Organizational
Documents of such corporation.
<PAGE>
Borrowing Base shall mean, as at any date, the amount of the
Borrowing Base shown on the Borrowing Base Certificate then most recently
delivered pursuant to Paragraph 10(b) hereof, determined by the following
calculation:
80% of the Eligible Accounts of Borrower at said date which
are owed by account debtors.
Notwithstanding anything to the contrary set forth in the immediately preceding
sentence, Lender reserves the right to adjust downward to a level acceptable to
Lender in its sole discretion the eighty percent (80%) advance rate set forth
above if Borrower's average dilution percentage for all Accounts exceeds five
percent (5%). In the absence of a current Borrowing Base Certificate, Lender
shall determine the Borrowing Base from time to time in its discretion, taking
into account all information available to it, and the Borrowing Base from time
to time so determined shall be the Borrowing Base for all purposes of this
Agreement until a current Borrowing Base Certificate, in Proper Form, is
furnished to and accepted by Lender.
Borrowing Base Certificate shall mean a certificate, duly
executed by an appropriate officer or other responsible party acceptable to
Lender on behalf of Borrower, appropriately completed and in substantially the
form of Exhibit A hereto. Each Borrowing Base Certificate shall be effective
only as accepted by Lender (and with such revisions, if any, as Lender may
require as a condition to such acceptance).
Business Day shall mean any day on which Lender is open for
business.
Capital Expenditures shall mean, as to any Person,
expenditures in respect of fixed or capital assets by such Person, including the
capital portion of lease payments made in respect of capital lease obligations,
but excluding expenditures for the restoration, repair or replacement of any
fixed or capital asset which was destroyed or damaged, in whole or in part, to
the extent financed by the proceeds of an insurance policy maintained by such
Person. Expenditures in respect of replacements and maintenance consistent with
the business practices of a Person in respect of plant facilities, machinery,
fixtures and other like capital assets utilized in the ordinary course of
business are not Capital Expenditures to the extent such expenditures are not
capitalized in preparing a balance sheet of such Person in accordance with GAAP.
Capital Lease Obligations shall mean the obligations of
Borrower on a consolidated basis to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal Property
which obligations are required to be classified and accounted for as a capital
lease on a consolidated balance sheet of Borrower under GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial Accounting
Standards Board, as amended) and, for purposes of this Agreement, the amount of
such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP (including such Statement No. 13).
Cash Capital Expenditures shall mean for any period for which
Cash Capital Expenditures is calculated, all Capital Expenditures of Borrower on
a consolidated basis for such period, determined in accordance with GAAP,
consistently applied, less the amount of such Capital
<PAGE>
Expenditures which have been financed with or by outside sources of funds,
including without limitation, funds advanced under this Agreement.
Ceiling Rate shall mean, on any day, the maximum nonusurious
rate of interest permitted for that day by whichever of applicable federal or
Texas laws permits the higher interest rate, stated as a rate per annum. On each
day, if any, that applicable Texas law establishes the Ceiling Rate, the Ceiling
Rate shall be the "weekly ceiling" (as defined in Chapter 1D of Title 79, Texas
Revised Civil Statues - "Chapter 1D" - and ss.303 of the Texas Finance Code -
"Texas Finance Code" - as amended) for that day. Lender may from time to time,
as to current and future balances, implement any other ceiling under Chapter 1D
or the Texas Finance Code by notice to Borrower, if and to the extent permitted
by Chapter 1D or the Texas Finance Code. Without notice to Borrower or any other
person or entity, the Ceiling Rate shall automatically fluctuate upward and
downward as and in the amount by which such maximum nonusurious rate of interest
permitted by applicable law fluctuates.
Code shall mean the Internal Revenue Code of 1986, as amended,
as now or hereafter in effect, together with all regulations thereof or
thereunder by the Internal Revenue Service.
Collateral shall mean all Property, tangible or intangible,
real, personal or mixed, now or hereafter subject to the Security Documents.
Compliance Certificate shall have the meaning given to it in
Paragraph 10(b) hereof.
Consequential Loss shall mean, with respect to (a) Borrower's
payment of principal of a LIBOR Rate Borrowing on a day other than the last day
of the applicable LIBOR Interest Period, (b) Borrower's failure to borrow a
LIBOR Rate Borrowing on the date specified by Borrower for any reason, (c)
Borrower's failure to make any prepayment of the Loans (other than Base Rate
Borrowings) on the date specified by Borrower, or (d) any cessation of the LIBOR
Rate to apply to the Loans or any part thereof pursuant to Paragraph 5 hereof,
in each case whether voluntary or involuntary, any loss, expense, penalty,
premium or liability incurred by Lender, including any interest paid by Lender
to lenders of funds borrowed by it to make or carry the Loans. And
"Consequential Loss" shall mean, with respect to the termination or cancellation
of any LIBOR Rate Borrowing pursuant to Paragraph 5 hereof, in each case whether
voluntary or involuntary, any loss, expense, penalty, premium or liability
incurred by Lender on account of any reduction resulting from such premature
termination or cancellation of such borrowing in Lender's margins or spreads
between its cost of funds and the interest earned on the principal of the
borrowing so terminated or canceled, including an amount equal to the excess (if
any) of (x) interest that would have accrued on any such borrowing during the
remainder of the applicable LIBOR Interest Period had such borrowing not been
terminated or canceled early, over (y) the interest actually accrued on the
principal amount of that terminated or canceled borrowing for such remainder of
such LIBOR Interest Period.
Construction Loan Agreement shall mean the Construction Loan
Agreement dated concurrently herewith between Borrower and Lender as the same
may be amended, supplemented or restated.
<PAGE>
Controlled Group shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the applicable Person, are treated as a
single employer under Section 414 of the Code.
Credit Documents shall mean any and all papers now or
hereafter governing, evidencing, guaranteeing or securing or otherwise relating
to all or any part of the indebtedness evidenced by the Notes, including the
Notes, this Agreement, the Construction Loan Agreement, Borrowing Authorizations
with respect to all such Persons as Lender may require, the Security Documents,
all instruments, certificates and agreements now or hereafter executed or
delivered to Lender pursuant to any of the foregoing or in connection with the
Loans or any commitment regarding the Loans and all amendments, modifications,
renewals, extensions, increases and rearrangements of, and substitutions for,
any of the foregoing.
Current Accounts Receivable shall mean all Accounts, that as
of the date of any determination of Current Accounts Receivable: (a) are
evidenced by invoice and are due and payable not more than 30 days from the date
of the invoice or agreement evidencing same, provided that, subject to Lender's
written approval, Current Accounts Receivable may include Accounts that are due
and payable up to 60 days from the date of invoice; (b) have been billed within
30 days after the shipment of the goods or the providing of services giving rise
to the Account; (c) are not unpaid more than 90 days past date of invoice; (d)
arise from the performance of services by the obligee of the Account which have
been fully and satisfactorily performed or from the sale of goods in which the
obligee had the sole and complete ownership which have been sold to the account
debtor on an absolute sale basis on open account and not on consignment, on
approval or on a "forced buyback" or "sale or return" basis or subject to any
other repurchase or return agreement, and the goods have been shipped and
delivered to the account debtor (evidenced by such obligee's possession of
shipping and delivery receipts); (e) are valid obligations of the account
debtors thereunder and are not subject to set-off, counterclaim, defense,
allowance or adjustment (other than discounts for prompt payment shown on the
invoice) or to litigation, dispute, objection or complaint by the account debtor
concerning its liability on the Account, and the goods, the sale of which gave
rise to the Account, have not been returned, rejected, lost or damaged on
shipment; (f) arose in the ordinary course of business of the obligee thereon,
are stated to be payable in lawful money of the United States and are not
evidenced by Chattel Paper, a promissory note or any other Instrument of any
kind; and (g) no notice of bankruptcy, insolvency or financial embarrassment of
the account debtor has been received by the obligee of such Account.
Current Assets shall mean all assets, including without
limitation, the applicable Accounts, which would be included in "current assets"
in accordance with GAAP. Current Assets shall be determined on a consolidated
basis.
Current Liabilities shall mean all liabilities and other items
which in accordance with GAAP would be included as "current liabilities."
Current Liabilities shall be determined on a consolidated basis.
Current Ratio shall mean, as of any day, the ratio of Current
Assets to Current Liabilities.
<PAGE>
Debt to Tangible Net Worth Ratio shall mean, as of any day,
the ratio of (a) Indebtedness to (b) Tangible Net Worth.
Deed of Trust shall mean the Deed of Trust, Absolute
Assignment of Rents, Security Agreement and Financing Statement dated on or
about the date hereof executed by Borrower, in favor of David L. Mendez, Trustee
for the benefit of Lender, as the same may be amended, restated or supplemented
from time to time.
Default shall mean an Event of Default or an event which with
notice or lapse of time or both would, unless cured or waived, become an Event
of Default.
EBITDA shall mean for any period for which EBITDA is
calculated, Net Income of Borrower on a consolidated basis for such period plus
(a) taxes of Borrower on a consolidated basis for such period, (b) depreciation,
depletion, obsolescence and amortization of Property of Borrower on a
consolidated basis for such period, and (c) interest expense of Borrower on a
consolidated basis for such period. All components of EBITDA shall be determined
in accordance with GAAP, consistently applied.
Eligible Accounts shall mean, as at any date of determination
thereof, Current Accounts Receivable created by Borrower (but only to the extent
that such Current Accounts Receivable are Collateral hereunder and are subject
to a first priority perfected Lien in favor of Lender) in the ordinary course of
business arising out of the sale of goods or rendering of services by Borrower,
which are and at all times shall continue to be acceptable to Lender in all
respects. Standards of eligibility for Eligible Accounts may be fixed and
revised from time to time solely by Lender in Lender's exclusive judgment. In
general, without limiting the foregoing, an Eligible Account must comply with
the following requirements: (a) the applicable account debtor is not a foreign
country or any subdivision or agency or department thereof or located outside of
the fifty (50) states of the United States or Puerto Rico, unless the applicable
Current Account Receivable is insured or backed by credit insurance or a letter
of credit in form and substance reasonably acceptable to Lender in all respects;
(b) the applicable account debtor is not the United States of America or any of
its agencies, departments, commissions, boards or bureaus or is not otherwise
subject to the Federal Assignment of Claims Act; (c) the Account is subject to
no Lien whatsoever, except for the Liens created pursuant to the Security
Documents; (d) the Account has not arisen out of transactions with a Subsidiary,
employee, officer, agent, director, stockholder, partner, trustee or other owner
or holder of any indicia of equity rights (whether issued and outstanding
capital stock, partnership interests or otherwise) of Borrower or any Affiliate
of any such Person, (e) each of the representations and warranties set forth in
the Security Documents with respect to such Account is true and correct in all
material respects; (f) to the extent the total of the Eligible Accounts as
reflected in Borrower's aging of Accounts is different from the total reflected
in Borrower's general ledger, the lesser balance will be used as the total of
Eligible Accounts, and (g) Lender has not deemed such Account ineligible because
of Lender's reasonable belief in the uncertainty about the creditworthiness of
the account debtor or because Lender otherwise reasonably considers the
collateral value thereof to be impaired or its ability to realize such value to
be insecure; provided, however, (a) if more than twenty percent (20%) of any
account debtor's total Accounts with Borrower remain unpaid for more than 90
days after the date of invoice, the total Accounts owed to Borrower by such
account debtor shall be excluded from Eligible Accounts; (b) in the event that
the
<PAGE>
aggregate Accounts owed to Borrower by any account debtor (other than Wal-Mart
Stores, Inc. and any of its Affiliates) exceeds ten percent (10%) of the total
Accounts owed to Borrower by all account debtors, the Accounts owed by such
account debtor to Borrower in excess of such ten percent (10%) amount shall be
excluded from Eligible Accounts; and (c) in the event that the aggregate
Accounts owed to Borrower by Wal-Mart Stores, Inc. and any of its Affiliates
exceeds twenty-five percent (25%) of the total Accounts owed to Borrower by all
account debtors, the Accounts owed by Wal-Mart Stores, Inc. and its Affiliates
in excess of such twenty-five percent (25%) amount shall be excluded from
Eligible Accounts. In the event of any dispute under the foregoing criteria
about whether an Account is or has ceased to be an Eligible Account, the
decision of Lender shall be conclusive and binding. Nothing in this definition
of "Eligible Accounts" shall be construed to limit or release any right of
Lender to any Collateral.
Environmental Claim shall mean any third party (including
Governmental Authorities and employees) action, lawsuit, claim or proceeding
(including claims or proceedings at common law or under the Occupational Safety
and Health Act or similar laws relating to safety of employees) which seeks to
impose liability for (i) noise; (ii) pollution or contamination of the air,
surface water, ground water or land or the clean-up of such pollution or
contamination; (iii) solid, gaseous or liquid waste generation, handling,
treatment, storage, disposal or transportation; (iv) exposure to Hazardous
Substances; (v) the safety or health of employees; or (vi) the manufacture,
processing, distribution in commerce or use of any Hazardous Substances. An
"Environmental Claim" includes a common law action, as well as a proceeding to
issue, modify or terminate an Environmental Permit, or to adopt or amend a
regulation to the extent that such a proceeding attempts to redress violations
of an applicable permit, license, or regulation as alleged by any Governmental
Authority.
Environmental Liabilities includes all liabilities arising
from any Environmental Claim, Environmental Permit or Requirement of
Environmental Law under any theory of recovery, at law or in equity, and whether
based on negligence, strict liability or otherwise, including remedial, removal,
response, abatement, restoration (including natural resources), investigative,
monitoring, personal injury and damage to property or natural resources or
injuries to persons, and any other related costs, expenses, losses, damages,
penalties, fines, liabilities and obligations, and all costs and expenses
necessary to cause the issuance, reissuance or renewal of any Environmental
Permit, including reasonable attorneys' fees and court costs.
Environmental Permit shall mean any permit, license, approval
or other authorization under any applicable Legal Requirement relating to
pollution or protection of health or the environ ment, including laws,
regulations or other requirements relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous substances or toxic
materials or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
Hazardous Substances.
Environmental Matters shall mean matters relating to pollution
or protection of the environment, including emissions, discharges, releases or
threatened releases of Hazardous Substances into the environment (including
ambient air, surface water or ground water, or land
<PAGE>
surface or subsurface), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and all rules and regulations adopted by
the Internal Revenue Service or the U.S. Department of Labor thereunder.
Event of Default shall have the meaning assigned to it in
Paragraph 12 hereof.
Financing Statements shall mean all such Uniform Commercial
Code financing statements as Lender shall require, in Proper Form, duly executed
by Borrower or others to give notice of and to perfect or continue perfection of
Lender's Liens in all Collateral.
Fixed Charge Coverage Ratio shall mean as of any day that the
Fixed Charge Coverage Ratio is being calculated, the ratio of EBITDA less cash
taxes to the sum of (a) scheduled principal payments of Funded Indebtedness, (b)
interest expense, (c) Cash Capital Expenditures and (d) dividends paid. All
components of the Fixed Charge Coverage Ratio shall be computed for the Rolling
Four Quarters as of such day and determined on a consolidated basis in
accordance with GAAP, consistently applied.
Funded Indebtedness shall mean (a) all Indebtedness of
Borrower on a consolidated basis which by its terms matures more than one year
after the applicable date of calculation of Funded Indebtedness, and any
Indebtedness of Borrower on a consolidated basis maturing within one year from
such date which is renewable or extendable at the option of the obligor to a
date beyond one year from such date and (b) without duplication, Capital Lease
Obligations of Borrower on a consolidated basis. All components of Funded
Indebtedness shall be determined in accordance with GAAP, consistently applied.
GAAP shall mean, as to a particular Person, such accounting
practice as, in the opinion of the independent certified public accountants of
recognized national standing retained by such Person and acceptable to Lender,
conforms at the time to generally accepted accounting principles, consistently
applied. GAAP shall mean those principles and practices (a) which are recognized
as such by the Financial Accounting Standards Board, (b) which are applied for
all periods after the date hereof in a manner consistent with the manner in
which such principles and practices were applied to the most recent audited
financial statements of the relevant Person furnished to Lender, and (c) which
are consistently applied for all periods after the date hereof so as to reflect
properly the financial condition, and results of operations and changes in
financial position, of such Person. If any change in any accounting principle or
practice is required by the Financial Accounting Standards Board in order for
such principle or practice to continue as a GAAP or practice, all reports and
financial statements required hereunder may be prepared in accordance with such
change only after written notice of such change is given to Lender.
Governmental Authority shall mean any foreign governmental
authority, the United States of America, any State of the United States and any
political subdivision of any of the fore going, and any central bank, agency,
department, commission, board, bureau, court or other tribunal having
jurisdiction over Lender, Borrower or their respective Property.
<PAGE>
Hazardous Substance shall mean petroleum products and any
hazardous or toxic waste or substance defined or regulated as a hazardous
substance from time to time by any law, rule, regulation or order described in
the definition of "Requirements of Environmental Law".
Indebtedness shall mean and includes (a) all items which in
accordance with GAAP would be included on the liability side of a balance sheet
on the date as of which Indebtedness is to be determined (excluding capital
stock, surplus and surplus reserves) and (b) all guaranties, letter of credit
contingent reimbursement obligations, endorsements and other contingent
obligations in respect of, or any obligations to purchase or otherwise acquire,
Indebtedness of others; provided, that such term shall not mean or include any
Indebtedness in respect of which monies sufficient to pay and discharge the same
in full (either on the expressed date of maturity thereof or on such earlier
date as such Indebtedness may be duly called for redemption and payment) shall
be deposited with a depository, agency or trustee acceptable to Lender in trust
for the payment thereof.
Interest Option shall have the meaning ascribed to such term
in Paragraph 4(a) hereof.
Interest Payment Dates shall mean (a) for Base Rate
Borrowings, the first (1st) day of each calendar month and, if any Base Rate
Borrowing is converted to a LIBOR Rate Borrowing, the first day of the Interest
Period applicable to such borrowing, and (b) for LIBOR Rate Borrowings, the
first (1st) day of each calendar month, and at the end of each Interest Period
in the event that any LIBOR Rate Borrowings are not rolled over to a successive
Interest Period as a LIBOR Rate Borrowing.
Legal Requirement shall mean any law, statute, ordinance,
decree, requirement, order, judgment, rule, or regulation (or interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, whether presently existing or arising in the future. The
term "Legal Requirement" shall include Requirements of Environmental Law.
LIBOR Business Day shall mean a Business Day on which
transactions in United States Dollar deposits between banks may be carried on in
the London interbank dollar market.
LIBOR Interbank Rate shall mean, for each LIBOR Interest
Period, the rate of interest per annum, rounded, if necessary, to the next
highest whole multiple of one-sixteenth percent (1/16%), determined by Lender
based upon rates quoted at approximately 11:00 a.m. in the London interbank
market, on the date two (2) LIBOR Business Days prior to the first day of such
LIBOR Interest Period, for the offering to the Reference Bank by leading dealers
in the London interbank market selected by Lender in its sole discretion, acting
in good faith, at the time of determination and in accordance with the then
existing practice in the London interbank market, of deposits in United States
dollars for delivery on the first day of such LIBOR Interest Period and having a
maturity equal to the length of such LIBOR Interest Period and in an amount
equal (or as nearly equal as may be) to the LIBOR Rate Borrowing to which such
LIBOR Interest Period relates. Each determination by Lender of the LIBOR
Interbank Rate shall be conclusive and binding, absent manifest error, and may
be computed using any reasonable averaging and attribution method.
<PAGE>
LIBOR Interest Period shall mean, for each LIBOR Rate
Borrowing, a period commencing:
(a) on the date of such LIBOR Rate Borrowing, or
(b) on the last day of the immediately preceding LIBOR
Interest Period in the case of a roll-over to a
successive LIBOR Interest Period,
and ending on the numerically corresponding day one, two, three or six months
thereafter, as Borrower shall elect in accordance herewith; provided, (w) any
LIBOR Interest Period which would otherwise end on a day which is not a LIBOR
Business Day shall be extended to the next succeeding LIBOR Business Day, unless
such LIBOR Business Day falls in another calendar month, in which case such
LIBOR Interest Period shall end on the next preceding LIBOR Business Day; (x)
any LIBOR Interest Period which begins on the last LIBOR Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such LIBOR Interest Period) shall end on the
last LIBOR Business Day of the appropriate calendar month; (y) no LIBOR Interest
Period shall ever extend beyond the maturity date of the applicable Loan; and
(z) LIBOR Interest Periods shall be selected by Borrower in such a manner that
the LIBOR Interest Period with respect to any portion of the Loans which shall
become due shall not extend beyond such due date.
LIBOR Rate shall mean, for the entire term of each LIBOR
Interest Period, a rate per annum equal to the lesser of (a) the sum of (1) the
Adjusted LIBOR Interbank Rate in effect on the first day of such LIBOR Interest
Period plus (2) the Applicable Margin from time to time in effect during such
term, and (b) the Ceiling Rate.
LIBOR Rate Borrowing shall mean each portion of the principal
balance of the Loans at any time bearing interest at the LIBOR Rate.
LIBOR Reserve Requirement shall mean, on any day, for any
LIBOR Interest Period, the stated maximum rate (expressed as a decimal) for all
reserves (including basic, supplemental, marginal and emergency reserves)
required to be maintained during such LIBOR Interest Period under Regulation D
by any member bank of the Federal Reserve System against "Eurocurrency
liabilities," as currently defined in Regulation D, all as specified by any
Governmental Authority. Without limiting the effect of the foregoing, the LIBOR
Reserve Requirement shall reflect any other reserves required to be maintained
by such member banks by reason of any Regulatory Change against (a) any category
of liabilities which includes deposits by reference to which the Adjusted LIBOR
Interbank Rate is to be determined as provided in the definition of "LIBOR
Interbank Rate" or (b) any category of extensions of credit or other assets
which include LIBOR Rate Borrowings. Each determination of the LIBOR Reserve
Requirement by Lender shall be conclusive and binding, absent manifest error,
and may be computed using any reasonable averaging and attribution method.
Lien shall mean any mortgage, pledge, charge, encumbrance,
security interest, collateral assignment or other lien or restriction of any
kind, whether based on common law, constitutional provision, statute or
contract, and shall include reservations, exceptions, encroach ments, easements,
rights of way, covenants, conditions, restrictions, leases and other title
exceptions.
<PAGE>
Loans shall mean the loans described in and provided for by
Paragraph 2 and Paragraph 3 hereof.
Maturity Date shall mean the maturity of the Revolving Note,
which is currently April 8, 2000, as the same may hereafter be accelerated
pursuant to the provisions of any of the Credit Documents.
Net Income shall mean gross revenues and other proper income
credits, less all proper income charges (including taxes on income), all
determined in accordance with GAAP; provided, that there shall not be included
in such revenues (a) any earnings of any Subsidiary for any period prior to the
date such Subsidiary was acquired or any undistributed earnings of any
Subsidiary; (b) any gains resulting from the write-up of assets; or (c) any gain
which is classified as "extraordinary" in accordance with GAAP; and provided
further, that capital gains may be included in revenues only to the extent of
capital losses. Net Income shall be determined on a consolidated basis.
Notes shall mean the Revolving Note and the Advance/Term Note,
together with any and all renewals, extensions, modifications, rearrangements
and/or replacements of any thereof.
Organizational Documents shall mean, with respect to a
corporation, the certificate of incorporation, articles of incorporation and
bylaws of such corporation, including any and all modifications thereof as of
the date of the Credit Document referring to such Organizational Document and
any and all future modifications thereof which are consented to by Lender.
Parties shall mean all Persons other than Lender executing any
Credit Document.
Past Due Rate shall mean, on any day, a rate per annum equal
to the Ceiling Rate for that day, or only if applicable law imposes no maximum
nonusurious rate of interest for that day, then eighteen percent (18%) per
annum.
PBGC shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
Person shall mean any individual, corporation, partnership,
joint venture, joint stock association, business or other trust, unincorporated
organization, Governmental Authority or any other form of entity.
Plan shall mean an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by Borrower or any member
of a Controlled Group for employees of Borrower or (b) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which Borrower or any member of a
Controlled Group for employees of Borrower is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
Prime Rate means, on any day, the rate determined by Lender as
being its prime rate for that day. Without notice to Borrower or any other
Person, the Prime Rate shall automatically
<PAGE>
fluctuate upward and downward as and in the amount by which said prime rate
fluctuates, with each change to be effective as of the date of each change in
said prime rate. THE PRIME RATE IS A REFERENCE RATE AND DOES NOT NECESSARILY
REPRESENT THE LOWEST OR BEST RATE ACTUALLY CHARGED TO ANY CUSTOMER, AND LENDER
DISCLAIMS ANY STATEMENT, REPRESENTATION OR WARRANTY TO THE CONTRARY. LENDER MAY
MAKE COMMERCIAL LOANS OR OTHER LOANS AT RATES OF INTEREST AT, ABOVE OR BELOW THE
PRIME RATE.
Proper Form shall mean in form and substance satisfactory to
Lender.
Property shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
Quarterly Financial Statements shall mean the quarterly
financial statements of a Person, including a balance sheet as of the end of
such calendar quarter and an income statement for the fiscal year to date,
subject to normal year-end adjustments, prepared in accordance with GAAP and
certified as true and correct to the best knowledge of an appropriate officer or
other party acceptable to Lender on behalf of such Person. The Quarterly
Financial Statements for Borrower shall be prepared on a consolidated basis. In
connection with each set of Quarterly Financial Statements, if Borrower ever
acquires any Subsidiary or Subsidiaries in accordance with the other provisions
of this Agreement, quarterly consolidating statements shall also be prepared by
Borrower for delivery to Lender, and such consolidating statements will be
prepared in accordance with GAAP only to the extent normal and customary.
Rate Selection Date shall mean that Business Day which is (a)
in the case of Base Rate Borrowings, the date of such borrowing or (b) in the
case of LIBOR Rate Borrowings, the date three (3) LIBOR Business Days preceding
the first day of any proposed LIBOR Interest Period.
Rate Selection Notice shall have the meaning ascribed to it in
Paragraph 4(b)(1) hereof.
Reference Bank shall mean Lender or such other financial
institution as Lender may from time to time designate.
Regulation D shall mean Regulation D of the Board of Governors
of the Federal Reserve System from time to time in effect and shall include any
successor or other regulation relat ing to reserve requirements applicable to
member banks of the Federal Reserve System.
Regulatory Change shall mean, with respect to Lender, any
change on or after the date of this Agreement in any Legal Requirement
(including Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of banks including
Lender under any Legal Requirement (whether or not having the force of law) by
any Governmental Authority charged with the interpretation or administration
thereof.
<PAGE>
Request for Advance means a request for credit duly executed
by an appropriate officer or other responsible party acceptable to Lender on
behalf of Borrower, appropriately completed and substantially in the form of
Exhibit A attached hereto.
Requirements of Environmental Law shall mean all requirements
imposed by any law (including The Resource Conservation and Recovery Act and The
Comprehensive Environmental Response, Compensation, and Liability Act), rule,
regulation or order of any Governmental Authority in effect at the applicable
time which relate to (i) noise; (ii) pollution, protection or clean-up of the
air, surface water, ground water or land; (iii) solid, gaseous or liquid waste
generation, recycling, reclamation, treatment, storage, disposal or
transportation; (iv) exposure to Hazardous Substances; (v) the safety or health
of employees or (vi) regulation of the manufacture, processing, distribution in
commerce, use, discharge, release, threatened release, emission or storage of
Hazardous Substances.
Revolving Commitment shall mean the obligation of Lender under
this Agreement to make Revolving Loans in an aggregate principal amount at any
one time outstanding up to (but not exceeding) $1,000,000.00.
Revolving Loans shall mean the Loans described in Paragraph 2
hereof. Revolving Loan shall mean any such Loan.
Revolving Note shall mean the promissory note of Borrower
described in Paragraph 2 hereof, and any and all renewals, extensions,
modifications, rearrangements and replacements thereof and any and all
substitutions therefor.
Rolling Four Quarters shall mean, (a) as of any day prior to
the date that financial statements are initially required to be given to Lender
for Borrower's 1998 fiscal year end pursuant to this Agreement, the most
recently ended four (4) consecutive fiscal quarters of Borrower for which, as of
such day, (i) financial statements have actually been given to Lender (with
respect to any quarter occurring prior to the effective date of this Agreement)
or (ii) financial statements are required to have been given to Lender pursuant
to this Agreement (with respect to all quarters occurring after the effective
date of this Agreement) and (b) as of any day after the date that financial
statements are initially required to have been given to Lender for Borrower's
1998 fiscal year end pursuant to this Agreement, the then most recently ended
four (4) consecutive quarters of Borrower for which, as of such day, financial
statements are required to have been given to Lender pursuant to this Agreement.
Security Agreements shall mean, collectively, the Security
Agreement dated concurrently herewith, executed by Borrower in favor of Lender
as security for the Loans, covering all Accounts, Equipment, Inventory and
General Intangibles now or hereafter owned by Borrower, and any and all security
agreements hereafter executed in favor of Lender in connection with, or as
security for the payment or performance of, any Credit Document, as any of them
may from time to time be amended, modified, restated or supplemented.
Security Documents shall mean, collectively, this Agreement,
the Security Agreements, the Deed of Trust, all Financing Statements and any and
all other agreements, deeds
<PAGE>
of trust, mortgages, chattel mortgages, security agreements, pledges,
guaranties, assignments of production or proceeds of production, assignments of
income, assignments of contract rights, assignments of partnership interests,
assignments of royalty interests, assignments of performance, completion or
surety bonds, standby agreements, subordination agreements, undertakings and
other instruments and Financing Statements now or hereafter executed and
delivered in connection with, or as security for the payment or performance of,
any Credit Document, as any of them may from time to time be amended, modified,
restated or supplemented.
Subordinated Indebtedness means all Indebtedness of a Person
which has been subordinated on terms and conditions satisfactory to Lender, in
its sole discretion, to all Indebtedness of such Person to Lender, whether now
existing or hereafter incurred. Indebtedness shall not be considered as
"Subordinated Indebtedness" unless and until Lender shall have received copies
of the documentation evidencing or relating to such Indebtedness together with a
subordination agreement, in Proper Form, duly executed by the holder or holders
of such Indebtedness and evidencing the terms and conditions of subordination
required by Lender.
Subsidiary shall mean, as to a particular parent Person, any
other Person of which more than 10% of the indicia of equity rights (whether
outstanding capital stock, partnership interests or otherwise) is at the time
directly or indirectly owned or held by such parent Person, or by one or more of
its Affiliates.
Tangible Net Worth means the sum of (x) Subordinated
Indebtedness plus (y) total assets (valued at cost less normal depreciation),
less (a) all intangibles and (b) all liabilities including contingent and
indirect liabilities), all determined in accordance with GAAP. The term
"intangibles" shall include, without limitation, (1) deferred charges; (2) the
amount of any write-up in the book value of any assets contained in any balance
sheet resulting from revaluation thereof or any write-up in excess of the cost
of such assets acquired, and (3) the aggregate of all amounts appearing on the
assets side of any such balance sheet for franchises, licenses, permits,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
treasury stock, experimental or organizational expenses and other like
intangibles. The term "liabilities" shall include, without limitation, (1)
Indebtedness secured by Liens on Property of the Person with respect to which
Tangible Net Worth is being computed, whether or not such Person is liable for
the payment thereof; (2) deferred liabilities, and (3) Capital Lease
Obligations. Tangible Net Worth shall be determined on a consolidated basis.
Texas Credit Code shall mean Title 79, Texas Revised Civil
Statutes, 1925, as amended.
Unfunded Liabilities shall mean, with respect to any Plan, at
any time, the amount (if any) by which (a) the present value of all benefits
under such Plan exceeds (b) the fair market value of all Plan assets allocable
to such benefits, all determined as of the then most recent actuarial valuation
report for such Plan, but only to the extent that such excess represents a
potential liability of any member of the applicable Controlled Group to the PBGC
or a Plan under Title IV of ERISA.
<PAGE>
The words "hereof," "herein," and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement.
2. Revolving Loans.
(a) Lender agrees, subject to all of the terms and conditions
of this Agreement (including Paragraph 8 hereof), to make Revolving Loans under
this Paragraph to Borrower prior to the Maturity Date in an aggregate principal
amount at any one time outstanding up to, but not exceeding, the lesser of (i)
the Revolving Commitment or (ii) the Borrowing Base then in effect. All funds
advanced under any Revolving Loan shall be utilized by Borrower for working
capital purposes. Subject to the conditions set forth in this Agreement, any
such Revolving Loan repaid prior to the Maturity Date may be reborrowed pursuant
to the terms of this Agreement; provided, that any and all such Revolving Loans
shall be due and payable in full on the Maturity Date. Borrower and Lender agree
that Chapter 346 of the Texas Finance Code shall not apply to this Agreement,
the Revolving Note or any Loan obligation. The Revolving Loans shall be
evidenced by the Revolving Note dated concurrently herewith executed by
Borrower, payable to the order of Lender in the original principal amount of
$1,000,000.00. Lender shall in no event be obligated to fund more than one (1)
Revolving Loan per each Business Day. Each Loan shall be in a principal amount
equal to or greater than $10,000.00 or the amount by which the Revolving
Commitment exceeds the unpaid principal balance of the Revolving Note, whichever
is less. The Revolving Loan proceeds shall be made available to Borrower by
depositing them in an account designated by Borrower and maintained with Lender.
(b) If the aggregate outstanding amount of the Revolving Loans
ever exceeds either the Borrowing Base or the Revolving Commitment then in
effect, Borrower shall within two (2) Business Days after demand by Lender
prepay the Revolving Loans in such amounts as shall be necessary to cause the
aggregate outstanding amount of the Revolving Loans to be equal to or less than
the lesser of the Borrowing Base or the Revolving Commitment then in effect.
(c) Borrower shall also cause the outstanding principal
balance of the Revolving Note to be prepaid in full and reduced to a zero
balance for thirty (30) consecutive days at any time during each of the
following periods: (i) from the date of this Agreement until and including April
8, 1999; and (ii) from April 9, 1999 until and including the Maturity Date.
3. Advance/Term Loans. Lender agrees, subject to all of the terms
and conditions of this Agreement (including Paragraph 8 hereof), to make
Advance/Term Loans to Borrower at any time prior to the date eight (8) months
from the date of this Agreement, in an aggregate principal amount of no more
than $2,300,000.00 for the purposes, upon the terms and conditions and subject
to the limitations set forth in the Construction Loan Agreement. Both parties
hereto agree that, except to the extent overridden by the Construction Loan
Agreement, the terms and conditions of this Agreement shall govern the
Advance/Term Loans until payment in full of the amounts outstanding thereunder.
4. Interest Options for Loans.
<PAGE>
(a) Options Available. Subject to Paragraph 14 hereof, the
Notes shall bear interest on their respective outstanding principal balances at
the Base Rate; provided, that (1) all past due principal and interest under each
Note shall bear interest at the Past Due Rate which shall be payable on demand,
and (2) subject to the provisions hereof, Borrower shall have the option of
having all or any portion of the principal balance from time to time outstanding
under the Notes bear interest until their respective maturities at a rate per
annum equal to the LIBOR Rate (together with the Base Rate, individually herein
called an "Interest Option" and collectively called "Interest Options"). The
records of Lender with respect to Interest Options, LIBOR Interest Periods and
the amounts of Loans to which they are applicable shall be binding and
conclusive, absent manifest error. Interest on the Loans shall be calculated at
the Base Rate except where it is expressly provided pursuant to this Agreement
that the LIBOR Rate is to apply.
(b) Designation and Conversion of Interest Options. Borrower
shall have the right to designate or convert its Interest Options in accordance
with the provisions hereof. Provided no Default or Event of Default has occurred
and is continuing and subject to the provisions of the last sentence of
Paragraph 4(a) hereinabove and of Paragraph 5 hereof, Borrower may elect to have
the LIBOR Rate apply or continue to apply to all or any portion of the principal
balance of the Notes. Each change in Interest Options shall be a conversion of
the rate of interest applicable to the specified portion of the Loans, but such
conversion alone shall not change the outstanding principal balance of the
Notes. The Interest Options shall be designated or converted in the manner
provided below:
(1) Borrower shall give Lender notice by telephone,
promptly confirmed by written notice (the "Rate Selection Notice")
substantially in the form of Exhibit D attached hereto. Each such
telephone and written notice shall specify the amount and type of
borrowings which are the subject of the designation, if any; the
amount and type of borrowings into which such borrowings are to be
converted or for which an Interest Option is designated; the
proposed date for the designation or conversion (which, in the case
of conversion of LIBOR Rate Borrowings, shall be the last day of the
LIBOR Interest Period applicable thereto) and the LIBOR Interest
Period or Periods, if any, selected by Borrower. Such notice by
telephone shall be irrevocable and shall be given to Lender no later
than the applicable Rate Selection Date.
(2) No more than five (5) LIBOR Interest Periods shall
be in effect at any one time for all of the Loans. Each LIBOR Rate
Borrowing shall be in the amount of at least $400,000.
(3) Principal included in any borrowing shall not be
included in any other borrowing which exists at the same time.
(4) Each designation or conversion shall occur on a
Business Day (and, for LIBOR Rate Borrowings, on a LIBOR Business
Day).
(5) Except as provided in Paragraph 5 hereof, no LIBOR
Rate Borrowing shall be converted on any day other than the last day
of the applicable LIBOR Interest Period.
<PAGE>
(c) Accrual Computations. All interest and fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable, unless the effect of so computing shall be to cause the rate of
interest to exceed the Ceiling Rate, in which event, to the extent necessary to
avoid exceeding the Ceiling Rate, interest and fees shall be computed on the
basis of the actual days elapsed in the applicable calendar year in which they
accrued.
5. Special Provisions Applicable to LIBOR Rate Borrowings.
(a) Options Unlawful. If, after the date of this Agreement,
the adoption of any applicable Legal Requirement or any change in any applicable
Legal Requirement or in the interpretation or administration thereof by any
Governmental Authority or compliance by Lender with any request or directive
(whether or not having the force of law) of any Governmental Authority shall at
any time make it unlawful or impossible for Lender to permit the establishment
of or to maintain any LIBOR Rate Borrowing, the commitment of Lender to
establish or maintain the LIBOR Rate affected by such adoption or change shall
forthwith be canceled and Borrower shall forthwith, upon demand by Lender to
Borrower, (1) convert the LIBOR Rate with respect to which such demand was made
to the Base Rate; (2) pay all accrued and unpaid interest to date on the amount
so converted; and (3) pay any amounts required to compensate Lender for any
additional cost or expense which Lender may incur as a result of such adoption
of or change in such Legal Requirement or in the interpretation or
administration thereof and any Consequential Loss which Lender may incur as a
result of such conversion to the Base Rate. If, when Lender so notifies
Borrower, Borrower has given a Rate Selection Notice specifying one or more
borrowings of the type with respect to which such demand was made but the
selected LIBOR Interest Period or LIBOR Interest Periods has not yet begun, such
Rate Selection Notice shall be deemed to be of no force and effect, as if never
made, and the balance of the Loans specified in such Rate Selection Notice shall
bear interest at the Base Rate until a different available Interest Option shall
be designated in accordance herewith.
(b) Increased Cost of Borrowings. If the adoption of any
applicable Legal Requirement or any change in any applicable Legal Requirement
or in the interpretation or administration thereof by any Governmental Authority
or compliance by Lender with any request or directive (whether or not having the
force of law) from any Governmental Authority shall at any time as a result of
any portion of the principal balance of the Notes being maintained on the basis
of the LIBOR Rate:
(1) subject Lender (or make it apparent that Lender is
subject) to any tax (including any United States interest
equalization tax), levy, impost, duty, charge, fee (collectively,
"Taxes"), or any deduction or withholding for any Taxes on or from
the payment due under any LIBOR Rate Borrowing or other amounts due
hereunder, other than income and franchise taxes of the United
States and its political subdivisions; or
(2) change the basis of taxation of payments due from
Borrower to Lender under any LIBOR Rate Borrowing (otherwise than by
a change in the rate of taxation of the overall net income of
Lender); or
<PAGE>
(3) impose, modify, increase or deem applicable any
reserve requirement (excluding that portion of any reserve
requirement included in the calculation of the LIBOR Reserve
Requirement), special deposit requirement or similar requirement
(including state law requirements and Regulation D) imposed,
modified, increased or deemed applicable by any Governmental
Authority against assets held by Lender, or against deposits or
accounts in or for the account of Lender, or against loans made by
Lender, or against any other funds, obligations or other Property
owned or held by Lender; or
(4) impose on Lender any other condition regarding any
LIBOR Rate Borrowing;
and the result of any of the foregoing is to increase the cost to
Lender of agreeing to make or of making, renewing or maintaining
such borrowing on the basis of the LIBOR Rate, or reduce the amount
of principal or interest received by Lender, then, upon demand by
Lender, Borrower shall pay to Lender, from time to time as specified
by Lender, additional amounts which shall compensate Lender for such
increased cost or reduced amount. Lender will promptly notify
Borrower in writing of any event, upon becoming actually aware of
it, which will entitle Lender to additional amounts pursuant to this
paragraph. Lender's determination of the amount of any such
increased cost, increased reserve requirement or reduced amount
shall be conclusive and binding, absent manifest error, provided
that the calculation thereof is set forth in reasonable detail in
such notice.
Borrower shall have the right, if it receives from Lender any notice referred to
in the preceding paragraph, upon three (3) Business Days' notice to Lender,
either (i) to repay in full (but not in part) any borrowing with respect to
which such notice was given, together with any accrued interest thereon, or (ii)
to convert the LIBOR Rate in effect with respect to such borrowing to the Base
Rate; provided, that any such repayment or conversion shall be accompanied by
payment of (x) the amount required to compensate Lender for the increased cost
or reduced amount referred to in the preceding paragraph; (y) all accrued and
unpaid interest to date on the amount so repaid or converted, and (z) any
Consequential Loss which may be incurred as a result of such repayment or
conversion.
(c) Inadequacy of Pricing and Rate Determination. If for any
reason with respect to any LIBOR Interest Period Lender shall have determined
(which determination shall be conclusive and binding upon Borrower) that: (1)
Lender is unable through its customary general practices to determine a rate at
which the Reference Bank is offered deposits in United States dollars by prime
banks in the London interbank market in the appropriate amount for the
appropriate period, or by reason of circumstances affecting the London interbank
market generally, the Reference Bank is not being offered deposits in United
States dollars in the London interbank market, for the applicable LIBOR Interest
Period and in an amount equal to the amount of the LIBOR Rate Borrowing
requested by Borrower, or (2) the LIBOR Rate will not adequately and fairly
reflect the cost to Lender of making and maintaining any LIBOR Rate Borrowing
hereunder for any proposed LIBOR Interest Period, then Lender shall give
Borrower notice thereof and thereupon, (A) any Rate Selection Notice previously
given by Borrower designating a LIBOR Rate which has not commenced as of the
date of such notice from Lender shall be deemed for all purposes hereof to be
<PAGE>
of no force and effect, as if never given, and (B) until Lender shall notify
Borrower that the circumstances giving rise to such notice from Lender no longer
exist, each Rate Selection Notice requesting a LIBOR Rate shall be deemed a
request for a Base Rate Borrowing, and each outstanding LIBOR Rate Borrowing
then in effect shall be converted, without any notice to or from Borrower, upon
the termination of the LIBOR Interest Period then in effect, to a Base Rate
Borrowing.
(d) INDEMNIFICATION. BORROWER SHALL INDEMNIFY LENDER AGAINST
AND HOLD LENDER HARMLESS FROM ANY LOSS OR EXPENSE WHICH LENDER MAY INCUR OR
SUSTAIN AS A CONSEQUENCE OF ANY UNTIMELY PAYMENT (MANDATORY OR OPTIONAL) OR
DEFAULT BY BORROWER IN THE PAYMENT OF ANY PRINCIPAL AMOUNT OF OR INTEREST ON
EACH NOTE, OR ANY FAILURE BY BORROWER TO CONVERT OR TO BORROW ANY LIBOR RATE
BORROWING ON THE DATE SPECIFIED BY BORROWER, IN EACH CASE INCLUDING ANY INTEREST
PAYABLE BY LENDER TO THE LENDERS OF THE FUNDS OBTAINED BY IT IN ORDER TO MAKE OR
MAINTAIN ANY LIBOR RATE BORROWING (OR ANY PORTION THEREOF), AND, TO THE EXTENT
NOT COVERED ABOVE, ANY CONSEQUENTIAL LOSS. THIS AGREEMENT SHALL SURVIVE THE
PAYMENT OF EACH NOTE. A CERTIFICATE AS TO ANY ADDITIONAL AMOUNTS PAYABLE
PURSUANT TO THIS PARAGRAPH SUBMITTED BY LENDER TO BORROWER SHALL BE CONCLUSIVE
AND BINDING UPON BORROWER, ABSENT MANIFEST ERROR, PROVIDED THE CALCULATION
THEREOF IS SET FORTH IN REASONABLE DETAIL IN SUCH NOTICE.
(e) Rate Quotes and Lists of Business Days. If Borrower
requests quotes of the LIBOR Rate for different LIBOR Interest Periods being
considered for election by Borrower, Lender will use reasonable efforts to
provide such quotes to Borrower promptly. However, all such quotes provided
shall be representative only and shall not be binding on Lender, nor shall they
be determinative, directly or indirectly, of any LIBOR Rate or any component of
any such rate, nor will Borrower's failure to receive or Lender's failure to
provide any requested quote or quotes either (1) excuse or extend the time for
performance of any obligation of Borrower or for exercise of any right, option
or election of Borrower or (2) impose any duty or liability on Lender. If
Borrower requests a list of the Business Days or LIBOR Business Days in any
calendar month, Lender will use reasonable efforts to provide such list
promptly. However, any such list provided shall be understood to identify only
those days which Lender believes in good faith at the time such list is prepared
will be the Business Days or LIBOR Business Days for such month. Lender shall
have no liability for any failure to provide, delay in providing, error or
mistake in or omission from, any such quote or list.
(f) Payment Dates. Whenever any payment to be made hereunder
or under any Note shall be stated to be due on a day which is neither a Business
Day nor a LIBOR Business Day, such payment may be made on the next succeeding
Business Day, or, subject to the definition of LIBOR Interest Period in the case
of any payment of the Notes to which the LIBOR Rate applies, on the next
succeeding LIBOR Business Day, and such extension of time shall in each such
case be included in computing interest and commitment fees in connection with
such payment.
(g) LIBOR Funding Mechanism. Notwithstanding any provision of
this Agreement to the contrary, Lender shall be entitled to fund and maintain
its funding of all or any part of the Loans hereunder in any manner it sees fit,
it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if Lender had actually funded and
maintained each LIBOR Rate Borrowing during each LIBOR Interest Period through
the purchase
<PAGE>
of deposits having a maturity corresponding to such LIBOR Interest Period and
bearing an interest rate equal to the LIBOR Interbank Rate for such LIBOR
Interest Period.
(h) Obligations Survive Termination. Borrower's obligation to
pay increased costs and Consequential Loss with regard to each LIBOR Rate
Borrowing as specified in this Paragraph 5 shall survive termination of this
Agreement.
<PAGE>
6. Prepayments of Loans.
(a) Borrower shall have the right at any time and from
time to time to prepay all or any part of the Loans without premium
or penalty, in whole or in part, except as provided in this
Paragraph 6. Each partial prepayment of a Loan shall be applied
first to any prepayment charge (if applicable), second to accrued
interest, and third, to installments of principal thereof in inverse
order of their maturities. Amounts prepaid on the Advance/Term Note
may not be reborrowed. Prepayments shall be subject to the following
additional conditions:
(i) In giving notice of prepayment as
hereinafter provided, Borrower shall specify, for the
purpose of subsections (ii) and (iii) immediately
following, the manner of application of such prepayment
as between any outstanding Base Rate Borrowings and
LIBOR Rate Borrowings; provided, that any prepayment of
any LIBOR Rate Borrowing shall be in the amount of at
least $100,000.00 and in subsequent $100,000.00
increments and in no event shall any LIBOR Rate
Borrowing be less than $100,000.00 after giving effect
to any partial payment of any LIBOR Rate Borrowing.
(ii) Prepayments applied to any LIBOR Rate
Borrowing may be made on any LIBOR Business Day,
provided, that the Borrower shall have given Lender at
least five (5) LIBOR Business Days' prior irrevocable
written or telephonic notice of such prepayment,
specifying the principal amount to be prepaid, and the
particular LIBOR Rate Borrowing to which such prepayment
is to be applied and the prepayment date; provided, that
if such prepayment is made on any day other than the
last day of the Interest Period corresponding to the
LIBOR Rate Borrowing to be prepaid, Borrower shall pay
directly to Lender, on the last day of such Interest
Period, the Consequential Loss of Lender as a result of
such prepayment.
(iii) Prepayments applied to any Base Rate
Borrowing may be made in any amount and on any Business
Day, provided that the Borrower shall have given the
Lender irrevocable written or telephonic notice of such
prepayment no later than 12:00 noon, Austin, Texas time,
on the Business Day of such prepayment, specifying the
principal amount to be prepaid and the prepayment date.
(b) Notice of any prepayment having been given with
regard to a LIBOR Rate Borrowing, the principal amount specified in
such notice, together with interest thereon to the date of
prepayment, shall be due and payable on such prepayment date.
7. Collateral for Loans. All Loans shall at all times be secured by
the Security Agreement, the Deed of Trust and all other Security Documents.
<PAGE>
8. Conditions Precedent.
(a) The obligation of Lender to make any Loan is subject to
the accuracy of all representations and warranties of Borrower in this Agreement
or any other Credit Document on the date thereof (and Lender's receipt of
evidence of such accuracy), to the performance by Borrower of its obligations
under the Credit Documents (and Lender's receipt of evidence of such
performance) and to the satisfaction of the following conditions: (i) with
respect to a Revolving Loan, Lender shall have received, no later than 10:00
a.m. Austin, Texas time on the date of a requested Revolving Loan, a duly
completed, executed and proper Request for Advance; (ii) with respect to an
Advance/Term Loan, all conditions to advance contained in the Construction Loan
Agreement shall have been satisfied; (iii) prior to the date of the Loan, there
shall have occurred, in the reasonable opinion of Lender, no material adverse
change in the assets, liabilities, financial condition, business or affairs of
Borrower; (iv) no Default or Event of Default shall have occurred and be
continuing; (v) the making of the Loan shall not be prohibited by, or subject
Lender to any penalty or onerous condition under, any applicable Legal
Requirement; (vi) all of the Credit Documents have been executed and delivered,
and shall be valid, enforceable and in full force and effect; (vii) all fees and
expenses owed to Lender under any of the Credit Documents as of the date thereof
shall have been paid in full; and (viii) Lender shall have received such other
documents as it may reasonably require. Delivery of any Request for Advance or
any Construction Request for Advance (as defined in the Construction Loan
Agreement) to Lender shall constitute a representation by Borrower that the
representations and warranties made by Borrower under this Agreement and the
other Credit Documents are true and correct as of the date of delivery of such
Request for Advance, and Lender shall not be obligated to make any advance if
such representations and warranties are not true and correct as of such date.
(b) In addition to the conditions described in Paragraph 8(a)
hereof, the obligation of Lender to make the initial Advance/Term Loan and the
initial Revolving Loan is subject to the receipt by Lender of each of the
following, in Proper Form: (1) the Notes and the other Credit Documents; (2) a
duly executed Borrowing Authorization with respect to Borrower; (3) a
certificate from the Secretary of State or other appropriate official of the
State of Texas as to the continued existence and good standing of Borrower; (4)
a certificate from the appropriate public official of each jurisdiction other
than the State of Texas as to the due qualification to do business and good
standing of Borrower where such qualification is necessary to conduct Borrower's
business in such jurisdiction; (5) original certificates of insurance addressed
to Lender reflecting the insurance required by the Credit Documents (with copies
of all such insurance policies if requested by Lender); and (6) evidence
reasonably satisfactory to Lender as to the perfection and priority of the Liens
created by the Security Documents, and to the further condition that, at the
time thereof, all legal matters incident to the transactions herein contemplated
shall be satisfactory to Lender's legal counsel other than the filing of this
Agreement after the date of Agreement with the Securities and Exchange
Commission and other than the filing of the Financing Statements, neither of
which, however, affect the enforceability of this Agreement or the other Credit
Documents.
<PAGE>
9. Representations and Warranties. Borrower represents and warrants
that:
(a) (i) Borrower is duly organized, validly existing and in
good standing under the laws of the state of its organization and has full legal
right, power and authority to carry on its business as presently conducted and
to execute, deliver and perform its obligations under the Credit Documents
executed by it, (ii) Borrower is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business it conducts
makes such qualification necessary or desirable and (iii) Borrower's execution,
delivery and performance of the Credit Documents executed by it have been duly
authorized by all necessary action under Borrower's Organizational Documents and
otherwise.
(b) Borrower's execution, delivery and performance of the
Credit Documents do not and will not require (i) any consent of any other Person
or (ii) any consent, license, permit, authorization or other approval (including
foreign exchange approvals) of any court, arbitrator, administrative agency or
other Governmental Authority, or any notice to, exemption by, any registration,
declaration or filing with or the taking of any other action in respect of, any
such court, arbitrator, administrative agency or other Governmental Authority
other than the filing of this Agreement after the effective date hereof under
the Securities Exchange Act of 1934 and other than the filing of Financing
Statements, neither of which, however, affect the enforceability of this
Agreement or the other Credit Documents.
(c) Neither execution or delivery of any Credit Document, nor
the fulfillment of or compliance with its terms and provisions will (i) violate
any Legal Requirement or the Organizational Documents of Borrower or (ii)
conflict with or result in a breach of the terms, conditions or provisions of,
or cause a default under, any agreement, instrument, franchise, license or
concession to which Borrower is a party or bound.
(d) Each Credit Document has been duly and validly executed,
issued and delivered by Borrower. They are in proper legal form for prompt
enforcement and they are the Borrower's valid and legally binding obligations,
enforceable in accordance with their terms. Borrower's obligations under them
rank and will rank at least equal in priority of payment with Borrower's other
debt (except only for debt preferred by operation of law or debt disclosed in
writing to Lender before execution and delivery of this Agreement).
(e) All information supplied to Lender, and all statements
made to Lender by or on behalf of Borrower before, concurrently with or after
execution of this Agreement are and will be true, correct, complete, valid and
genuine in all material respects when supplied or made. Borrower's financial
statements furnished to Lender fairly present the financial condition of
Borrower as of its date and for the period then ended. No material adverse
change has occurred in the financial conditions reflected in any such statements
since their dates, and all assets listed on such statements are subject to
Borrower's management, control and disposition and, except as shown therein, are
available to satisfy any claims rightfully made pursuant to the Credit
Documents.
<PAGE>
(f) Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
except for taxes which are being diligently con tested in good faith and for
payment of which adequate reserves have been set aside.
(g) There is no condemnation or other action, suit or
proceeding pending, or, to the best of Borrower's knowledge, threatened, against
or affecting Borrower or the Collateral, at law or in equity, or before or by
any Governmental Authority, which might result in any material adverse change in
Borrower's business or financial condition or in the Collateral or in other
Property of Borrower or any interest in it.
(h) Borrower is not in default with respect to any order,
writ, injunction, decree or demand of any court or other Governmental Authority,
in the payment of any Indebtedness for borrowed money or under any agreement or
other papers evidencing or securing any such debt.
(i) Borrower is not a party to any contract or agreement which
materially and adversely affects any of its businesses, properties, assets or
financial conditions.
(j) Borrower is now solvent, and no bankruptcy or insolvency
proceedings are pending or contemplated by or, to Borrower's knowledge, against
Borrower. Borrower's liabilities and obligations under the Credit Documents to
which it is a party do not and will not render Borrower insolvent, cause
Borrower's liabilities to exceed Borrower's assets or leave Borrower with too
little capital to properly conduct all of its business as now conducted or
contemplated to be conducted.
(k) No representation or warranty contained in any Credit
Document and no statement contained in any certificate, schedule, list,
financial statement or other papers furnished to Lender by or on behalf of
Borrower contains, or will contain, any untrue statement of material fact, or
omits, or will omit, to state a material fact necessary to make the statements
contained therein not misleading.
(l) Except as disclosed to Lender in writing, none of the
proceeds of the Notes will be used for the purpose of purchasing or carrying,
directly or indirectly, any margin stock or for any other purpose which would
make such credit a "purpose credit" within the meaning of Regula tion U of the
Board of Governors of the Federal Reserve System.
(m) Borrower possess all material permits, licenses, patents,
trademarks, tradenames and copyrights required to conduct their businesses.
(n) Borrower and the Collateral are in compliance with all
material applicable Legal Requirements and Borrower manages and operates (and
will continue to manage and operate) its businesses in accordance with good
industry practices.
(o) With respect to each Plan, Borrower and each member of a
Controlled Group for the employees of Borrower have fulfilled their obligations,
including obligations under the minimum funding standards of ERISA and the Code
and are in compliance in all material respects with the provisions of ERISA and
the Code. No event has occurred which could result in a liability
<PAGE>
of Borrower or any member of a Controlled Group for the employees of Borrower to
the PBGC or a Plan (other than to make contributions in the ordinary course).
Since the effective date of Title IV of ERISA, there have not been any nor are
there now existing any events or conditions that would cause the Lien provided
under Section 4068 of ERISA to attach to any property of Borrower or any member
of a Controlled Group for the employees of Borrower. There are no Unfunded
Liabilities with respect to any Plan. No "prohibited transaction" has occurred
with respect to any Plan.
(p) To the best knowledge and belief of Borrower, (i) Borrower
(and its properties, assets, business and operations) has been and is in
compliance with all applicable Requirements of Environmental Law and
Environmental Permits, (ii) Borrower (or any of its properties, assets, business
and operations) are not subject to any (A) Environmental Claims or (B)
Environmental Liabilities, in either case direct or contingent, and whether
known or unknown, arising from or based upon any act, omission, event, condition
or circumstance occurring or existing on or prior to the date hereof, and (iii)
Borrower has not received any notice of any violation or alleged violation of
any Requirements of Environmental Law or Environmental Permit or any
Environmental Claim in connection with their respective assets, properties,
business or operations. The liability (including without limitation any
Environmental Liability and any other damage to persons or property), if any, of
Borrower with respect to its properties, assets, business and operations which
is reasonably expected to arise in connection with Requirements of Environmental
Laws currently in effect and other environmental matters presently known by such
entity will not have a material adverse effect on the business, condition
(financial or otherwise), operations, properties or prospects of such entity or
on the ability of such entity to perform its material obligations under any
Credit Document to which it is a party. Borrower does not know of any event or
condition with respect to Environmental Matters with respect to any of their
respective properties which could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise), operations,
properties or prospects of the applicable entity or on the ability of such
entity to perform its material obligations under any Credit Document to which it
is a party. The provisions of this Section are cumulative of the provisions
relating to this subject matter in the other Credit Documents.
(q) Borrower currently has no Subsidiaries.
(r) Borrower's fiscal year is January 1 to December 31.
10. Affirmative Covenants. Borrower covenants and agrees that prior
to termination of this Agreement:
(a) Borrower shall (and shall cause each of its Subsidiaries
to) at all times (i) pay when due all taxes and governmental charges of every
kind upon it or against its income, profits or Property, unless and only to the
extent that the same shall be contested diligently in good faith and reserves
deemed adequate by Lender have been established therefor; (ii) to the extent
applicable, do all things necessary to preserve its existence, qualifications,
rights and franchises in all states where such qualification is necessary or
desirable; (iii) comply in all material respects with all applicable Legal
Requirements (including Requirements of Environmental Law) in respect of the
conduct of its business and the ownership of its Property; (iv) cause its
Property to be protected, maintained and kept in good repair and make all
replacements and additions to its Property as may be reasonably
<PAGE>
necessary to conduct its business properly and efficiently, and (v) pay
punctually and discharge when due, or renew or extend, any debt incurred by it
and discharge, perform and observe the covenants, provisions and conditions to
be performed, discharged and observed on its part in connection therewith, or in
connection with any agreement or other instrument relating thereto or in
connection with any mortgage, pledge or lien existing at any time upon any of
its property or assets; provided, however, that nothing contained in this
subparagraph (v) shall require payment, discharge, renewal or extension of any
such indebtedness or discharge, performance or observance of any such cove
nants, provisions and conditions so long as any claims which may be asserted
against Borrower with respect to any such indebtedness or any such covenants,
provisions and conditions shall be contested diligently and in good faith and
reserves with respect thereto deemed adequate by Lender shall be established.
(b) Borrower shall furnish or cause to be furnished to Lender
copies of each of the following: (1) as soon as available and in any within 90
days after the end of each fiscal year of Borrower, Annual Financial Statements
of Borrower; (2) as soon as available and in any event within 45 days after the
end of each calendar quarter (including the last calendar quarter), Quarterly
Financial Statements of Borrower; (3) on or before 45 days after the end of each
calendar quarter, a compliance certificate ("Compliance Certificate") in the
form of Exhibit B attached hereto, duly executed by an appropriate officer
acceptable to Lender on behalf of Borrower; (4) on the date hereof and within 20
days after the end of each calendar month, a Borrowing Base Certificate as at
the date hereof or the last day of such calendar month, as the case may be,
together with such related supporting information as Lender may reasonably
request; (5) on or before 45 days after the end of each calendar quarter, a
listing and aging of the Accounts of Borrower (with agings from the date of
invoice as opposed to days past-due), as well as an accounts payable aging from
Borrower, as of the end of such calendar month, prepared in reasonable detail
and containing such related information as Lender may reasonably request; (6)
from time to time, at any time upon the request of Lender, but at the cost of
Borrower, a report of an independent collateral field examiner (which may be, or
be affiliated with, Lender) with respect to the Accounts components included in
the Borrowing Base (provided, however, that so long as no Event of Default has
occurred and is continuing, Lender shall not require such a report more than one
time per calendar year); and (7) such other information relating to the
financial condition, operations, prospects or business of Borrower as from time
to time may be reasonably requested by Lender, including without limitation a
fixed asset report. Each delivery of a financial statement pursuant to this
Paragraph shall constitute a republication of the representations and warranties
contained in Paragraph 9.
(c) Borrower and its Subsidiaries on a consolidated basis
shall have and maintain:
(1) a Current Ratio of not less than 1.50 to 1.00 as
of the end of each calendar quarter;
(2) a Debt to Tangible Net Worth Ratio not greater
than 1.50 to 1.00 as of the end of each calendar quarter; and
<PAGE>
(3) a Fixed Charge Coverage Ratio of not less than
1.20 to 1.00, to be tested for compliance as of the end of
each calendar quarter on a Rolling Four Quarters basis.
(d) Borrower shall permit Lender to inspect its Property, to
examine its files, books and records and make and take away copies thereof, and
to discuss its affairs with its officers and accountants, all at such times and
intervals and to such extent as Lender may reasonably desire. Lender shall use
its best efforts to maintain the confidentiality of any and all information
furnished or provided to Lender by Borrower in connection with the Loans.
(e) Borrower shall promptly execute and deliver (or cause to
be executed and delivered), at Borrower's expense, any and all other and further
instruments which may be reasonably requested by Lender to cure any defect in
the execution and delivery of any Credit Document or more fully to describe
particular aspects of the agreements and undertakings set forth in the Credit
Documents.
(f) Borrower shall maintain books of record and account in
accordance with GAAP.
(g) Borrower shall (and shall cause each of its Subsidiaries
to) maintain insurance with such insurers, on such of its Property, in such
amounts and against such risks as is typically maintained by similar companies
in similar industries, and furnish Lender satisfactory evidence thereof promptly
upon request. These insurance provisions are cumulative of the insurance
provisions of the Security Documents. Lender shall be named as loss payee or
additional insured, as its interest appears, of such insurance covering any
Collateral and shall be provided with copies of the policies of insurance and a
certificate of the insurer that the insurance required by this Paragraph may not
be canceled, reduced or affected in any manner without thirty (30) days' prior
written notice to Lender.
(h) Borrower shall notify Lender immediately upon acquiring
knowledge of the occurrence of, or if Borrower causes or intends to cause, as
the case may be: (1) the institution of any lawsuit or administrative proceeding
affecting Borrower, the adverse determination under which could have a material
adverse effect on the business, condition (financial or otherwise), operations,
Property or prospects of Borrower or on its ability to perform its respective
obligations under any Credit Document to which it is a party; (2) any material
adverse change, either in any case or in the aggregate, in the assets,
liabilities, business, condition (financial or otherwise), operations, Property
or prospects of Borrower; (3) any Event of Default or any Default, together with
a detailed statement by an appropriate officer or other responsible party
acceptable to Lender on behalf of Borrower of the steps being taken to cure the
effect of such Event of Default or Default; (4) the receipt of any notice from,
or the taking of any other action by, the holder of any Indebtedness of Borrower
with respect to a claimed default, together with a detailed statement by an
appropriate officer or other responsible party acceptable to Lender on behalf of
Borrower specifying the notice given or other action taken by such holder and
the nature of the claimed default and what action Borrower is taking or proposed
to take with respect thereto; and (5) the occurrence of a material default or
event of default by Borrower under any agreement to which it is a party, which
default or event of default
<PAGE>
could reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, Property or prospects of
Borrower.
(i) Borrower shall cause each Person who is a landlord of any
property occupied and utilized by Borrower in connection with the operation and
conduct of their respective businesses to execute and deliver to Lender
landlord's subordination agreements in Proper Form, whereby each of such
landlords validly subordinate any and all Liens held by such landlords against
all or any portion of the Collateral to the Liens in favor of Lender. Borrower
represents and warrants to Lender that it does not currently occupy or use any
real property under any lease agreement.
11. Negative Covenants. Borrower further covenants and agrees that
prior to termination of this Agreement:
(a) Borrower will not create, incur, suffer or permit to
exist, or assume or guarantee, directly or indirectly, or become or remain
liable with respect to any Indebtedness, whether direct, indirect, absolute,
contingent or otherwise, except the following: (1) Indebtedness to Lender; (2)
Indebtedness secured by Liens permitted by Paragraph 11(b) hereof; (3)
Indebtedness existing on the date of this Agreement under Capital Lease
Obligations as reflected in Borrower's financial statements dated as of December
31, 1997 delivered to Lender in connection with its request for this credit
facility, and all renewals and extensions (but not increases) thereof; (4)
currently contemplated non-revolving Indebtedness of Borrower to Key Corporate
Capital, Inc., or its affiliates or assignees or other equipment lessors, under
equipment leases, in the aggregate amount of no more than $1,500,000.00, and all
renewals and extensions (but not increases) thereof; (5) Indebtedness incurred
in connection with the acquisition of machinery and equipment used in the
business of Borrower and not held as inventory for sale or lease, provided that
the aggregate amount of all such Indebtedness shall not exceed $200,000.00; and
(6) current accounts payable and unsecured current liabilities, not the result
of borrowing, to vendors, suppliers and persons for goods and services normally
required by it in the ordinary course of business and on ordinary trade terms;
provided, that no such Indebtedness shall be created or incurred if the creation
or incurring of such Indebtedness would result in a Default under the other
provisions of this Agreement, including without limitation under Paragraph
10(c).
(b) Borrower will not create or suffer to exist any Lien upon
any of its Property now owned or hereafter acquired, or acquire any Property
upon any conditional sale or other title retention device or arrangement or any
purchase money security agreement, or in any manner directly or indirectly sell,
assign, pledge or otherwise transfer any of its Accounts or contract rights;
provided, however, that Borrower may create or suffer to exist: (a) artisans' or
mechanics' Liens arising in the ordinary course of business, and Liens for
taxes, but only to the extent that payment of the foregoing shall not at the
time be due or Borrower is diligently and in good faith contesting the
indebtedness or obligation secured by such Liens and has set aside on its books
reserves with respect thereto deemed adequate by Lender; (b) Liens in effect on
the date hereof and disclosed to Lender in writing prior to the date hereof,
provided that neither the Indebtedness secured thereby nor the Property covered
thereby shall increase; (c) Liens in favor of Lender; and (d) purchase money
Liens against equipment and/or machinery purchased with the Indebtedness
permitted under Paragraph 11(a)(5) of this Agreement.
<PAGE>
(c) Borrower will not, in any single transaction or series of
transactions, directly or indirectly: (1) consolidate, terminate, liquidate or
dissolve; (2) be a party to any consolidation, termination, merger or
consolidation; (3) modify or amend any of its Organizational Documents; or (4)
other than sale of inventory in the ordinary course of business, sell, convey or
lease any of its assets having a value in excess of $50,000.00 (based on the
lower of cost or market value), provided, that in no event will Borrower sell,
convey or lease any of such assets if such assets are subject to a Lien in favor
of Lender, other than inventory in the ordinary course of business. Borrower
will not acquire all or substantially all of the assets of any Person or any
indicia of equity rights (whether issued and outstanding capital stock,
partnership interests or otherwise) of any other Person.
(d) Unless otherwise approved by Lender in writing, Borrower
will not: (1) redeem, retire or otherwise acquire, directly or indirectly, any
shares of its capital stock, other than the exercise by Borrower of its
redemption rights with respect to the redeemable common stock purchase warrants
issued by Borrower under the terms of the prospectus dated December 3, 1997, if
done in accordance with and at the price set forth in the prospectus, and as
long as no Default would occur under the other provisions of this Agreement,
including without limitation under Paragraph 10(c), as a result of Borrower
exercising such redemption rights; (2) pay any dividend, bonus or other
non-salary compensation; or (3) make any other distribution of any Property or
cash to officers, employees and/or stockholders. Notwithstanding the foregoing,
if the Borrower's Net Income for a fiscal year equals or exceeds $2,000,000.00,
Borrower shall be entitled during the following fiscal year to pay dividends to
its shareholders as long as no Default would occur under the other provisions of
this Agreement, including without limitation under Paragraph 10(c), as a result
of the payment of such dividends; provided, however, that if Borrower's Net
Income for any fiscal year thereafter is less than $2,000,000.00, such dividends
will thereafter be prohibited until Borrower again achieves Net Income of at
least $2,000,000.00 for a subsequent fiscal year.
(e) Borrower will not allow its President or its Chief
Financial Officer to be replaced, removed or otherwise changed without the prior
written consent of Lender.
(f) Borrower will not change the nature of its business or
enter into any business which is substantially different from the business in
which it is presently engaged.
(g) Borrower will not enter into any transaction or agreement
with any officer, director, partner, trustee or owner or holder of any indicia
of equity rights (whether issued and outstanding capital stock, partnership
interests or otherwise) of Borrower (or any Affiliate or Subsidiary of any such
Person) unless the same is upon terms substantially similar to those obtainable
from wholly unrelated sources.
(h) Borrower will not form, create or acquire any Subsidiary
without the prior written consent of Lender.
(i) Borrower will not change the address of its chief
executive office (which is Borrower's address for notice contained herein),
location, name or identity without notifying Lender of such change in writing at
least thirty (30) days before the effective date of such change and unless
Borrower shall have taken such actions, satisfactory to Lender, to have caused
an security interest in the Collateral to be at all times fully perfected and in
full force and effect.
<PAGE>
12. Event of Default. The occurrence of any of the following events
(including any required notice or passage of time) shall hereinafter be referred
to as an Event of Default:
(a) any part of the debt evidenced by any of the Notes is not
paid when due, whether by lapse of time or acceleration or otherwise, unless
such default is fully cured within three (3) Business Days after such due date;
(b) Borrower fails to perform, observe or comply with, or
defaults under, any of the terms, covenants, conditions or provisions of this
Agreement or any other Credit Document (other than any such failure or default
described in one or more of the other subparagraphs of this Paragraph) unless
such failure or default is fully cured within thirty (30) calendar days after
Lender has given Borrower written notice thereof (such cure period to run
concurrently with and not in addition to, any other grace or cure period
provided for in any of the other Credit Documents with respect to the same
default);
(c) Borrower fails to perform, observe or comply with, or
defaults under, Paragraphs 10(b), 10(c) or 10(h) of this Agreement.
(d) any representation or warranty made in any Credit Document
or in any other report or other paper now or hereafter provided to Lender
pursuant or incident to any Credit Document or the debt evidenced by any of the
Notes proves to have been untrue or misleading in any material respect as of the
date made or deemed made;
(e) Borrower: (i) voluntarily suspends transaction of
business; (ii) becomes insolvent or unable to pay its debts as they mature;
(iii) commences a voluntary case in bankruptcy or a voluntary petition seeking
reorganization or to effect a plan or other arrangement with creditors; (iv)
makes an assignment for the benefit of creditors; (v) applies for or consents to
the appointment of a receiver or trustee for any such person or entity or for
any substantial portion of its property; or (vi) makes an assignment to an agent
authorized to liquidate any substantial part of its assets;
(f) in respect of Borrower: (i) an involuntary case shall be
commenced with any court or other authority seeking liquidation, reorganization
or a creditor's arrangement of any such person or entity; (ii) an order of any
court or other authority shall be entered appointing any receiver or trustee for
any such person or entity or for any substantial portion of its property; or
(iii) a writ or warrant of attachment or any similar process shall be issued by
any court or other authority against any substantial portion of the property of
any such person or entity, and such petition seeking liquidation, reorganization
or a creditor's arrangement or such order appointing a receiver or trustee is
not vacated or stayed, or such writ, warrant of attachment or similar process is
not vacated, released or bonded off within sixty (60) days after its entry or
levy;
(g) the dissolution, liquidation or termination of Borrower;
(h) any action, suit or proceeding shall be commenced against
or affecting Borrower or involving the validity or enforceability of any Credit
Document, at law or in equity, or before any governmental authority, which in
Lender's reasonable judgment, impairs or would impair
<PAGE>
Lender's ability to collect the debt evidenced by any of the Notes when due or
the enforceability of any Credit Document;
(i) any one or more final judgments for the payment of money
in an aggregate amount of at least $50,000.00 shall be rendered against Borrower
and the same shall remain unstayed or undischarged for a period of sixty (60)
days;
(j) Borrower shall be prevented or relieved by any
governmental authority from performing or observing any material term, covenant
or condition of any Credit Document;
(k) any material adverse change shall occur in the assets,
financial condition, business, operations, affairs or circumstances of Borrower;
(l) Borrower shall fail to pay when due any principal of or
interest on any borrowed money obligation or the holder of such other borrowed
money obligation declares, or has the right to declare, such borrowed money
obligation due before its stated maturity because of default;
(m) Borrower shall be in default under or in violation of any
Legal Requirement of any Governmental Authority having jurisdiction over any
such party or any such party's property, which in Lender's reasonable judgment,
impairs or would impair Lender's ability to collect the debt evidenced by any of
the Notes when due or the enforceability of any Credit Document;
(n) Borrower shall claim, or any court shall find or rule,
that Lender does not have a valid Lien on any of the Collateral;
(o) except for the sale of Inventory in the ordinary course of
business, the sale, encumbrance or abandonment of any of the Collateral, the
making of any levy, seizure or attachment of or on any of the Collateral or the
loss, theft, substantial damage or destruction of any of any of the Collateral
which is not sufficiently covered by insurance that is otherwise payable to
Lender as loss payee and which, in Lender's reasonable judgment, impairs or
would impair Lender's ability to collect the debt evidenced by any of the Notes
when due or the enforceability of any Credit Document;
(p) Borrower shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay or
defraud any of its creditors, or made or suffered a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law, or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have not
been paid, or, while insolvent, shall have suffered or permitted any creditor to
obtain a lien upon any of its property through legal proceedings or distraint
which is not vacated with sixty (60) days from its date;
<PAGE>
(q) Borrower fails to pay when due any amount which he or it
is liable to pay to the PBGC or its successor or to a Plan, or notice of intent
to terminate any Plan is filed under ERISA, or PBGC commences proceedings under
ERISA to terminate any Plan or to cause a trustee to be appointed to administer
any Plan, or a proceeding is commenced by any fiduciary of any Plan to enforce
Section 515 or Section 4219(c)(5) of ERISA, or PBGC becomes entitled to obtain a
decree adjudicating that any Plan must be terminated;
(r) a default, an event of default or a similar event (however
denominated) shall occur under any Credit Document, unless such default, event
of default or similar event is fully cured within thirty (30) calendar days
after Lender has given Borrower written notice thereof (such cure period to run
concurrently with and not in addition to, any other grace or cure period
provided for in any of the other Credit Documents with respect to the same
default).
Upon the occurrence of any Default, and at any time thereafter prior to such
Default being cured to the reasonable satisfaction of Lender, Lender's
obligation, if any, to make Revolving Loans and Advance/Term Loans shall cease
and terminate. Upon the occurrence of any Event of Default, and at any time
thereafter, Lender shall have the right, at its option, (1) to terminate its
obligations to make further Revolving Loans (whereupon the Revolving Commitment
shall be terminated) and further Advance/Term Loans and to declare the unpaid
balance of the indebtedness evidenced by any or all of the Notes to be
immediately due and payable without notice (including notice of intent to
accelerate and notice of acceleration), protest or demand or presentment for
payment, all of which are hereby expressly waived by Borrower and (2) to enforce
or avail itself of any and all powers, rights and remedies available at law or
provided in this Agreement, the Notes, the other Credit Documents or any other
document executed pursuant hereto or in connection herewith. Notwithstanding any
provision in this Paragraph to the contrary, upon the occurrence of any Event of
Default, Lender shall have the right, immediately and without notice, to take
possession of and exercise possessory rights with regard to any property
securing payment of the indebtedness evidenced by the Notes. All powers, rights
and remedies of Lender set forth in this Paragraph shall be cumulative and not
exclusive of any other power, right or remedy available to Lender under the law
or under this Agreement, the Notes, the other Credit Documents or any other
document executed pursuant hereto or in connection herewith to enforce the
performance or observance of the covenants and agreements contained in this
Agreement, and no delay or omission of Lender to exercise any power, right or
remedy accruing to Lender shall impair any such power, right or remedy, or shall
be construed to be a waiver of the right to exercise any such power, right or
remedy. Every power, right or remedy of Lender set forth in this Agreement, the
Notes, the other Credit Documents or any other document executed pursuant hereto
or in connection herewith, or afforded by law may be exercised from time to
time, and as often as may be deemed expedient by Lender.
13. Lender's Right to Cure. If Borrower should fail to comply with
any of their agreements, covenants or obligations under any Credit Document,
then Lender (in Borrower's name or in Lender's own name) may perform them or
cause them to be performed for Borrower's account and at Borrower's expense, but
shall have no obligation to perform any of them or cause them to be performed.
Any and all expenses thus incurred or paid by Lender shall be Borrower's
obligations to Lender due and payable on demand, and each shall bear interest
from the date Lender pays it until the date Borrower repays it to Lender, at the
Past Due Rate. Upon making any such payment or incurring any such expense,
Lender shall be fully and automatically subrogated to all of the rights
<PAGE>
of the person, corporation or body politic receiving such payment. Any amounts
owing by Borrower to Lender pursuant to this or any other provision of this
Agreement shall be secured by all instruments securing the Notes. The amount and
nature of any such expense and the time when it was paid shall be fully
established by the affidavit of Lender or any of Lender's officers or agents.
The exercise of the privileges granted to Lender in this Paragraph shall in no
event be considered or constitute a cure of the default or a waiver of Lender's
right at any time after an Event of Default to declare the Notes to be at once
due and payable, but is cumulative of such right and of all other rights given
by this Agreement, the Notes and the Credit Documents and of all rights given
Lender by law.
14. Usury Not Intended; Savings Provisions. Notwithstanding any
provision to the contrary contained in any Credit Document, it is expressly
provided that in no case or event shall the aggregate of any amounts accrued or
paid pursuant to this Agreement which under applicable laws are or may be deemed
to constitute interest ever exceed the maximum nonusurious interest rate
permitted by applicable Texas or federal laws, whichever permit the higher rate.
In this connection, Borrower and Lender stipulate and agree that it is their
common and overriding intent to contract in strict compliance with applicable
usury laws. In furtherance thereof, none of the terms of this Agreement shall
ever be construed to create a contract to pay, as consideration for the use,
forbearance or detention of money, interest at a rate in excess of the maximum
rate permitted by applicable laws. Borrower shall never be liable for interest
in excess of the maximum rate permitted by applicable laws. If, for any reason
whatever, such interest paid or received during the full term of the applicable
indebtedness produces a rate which exceeds the maximum rate permitted by
applicable laws, Lender shall credit against the principal of such indebtedness
(or, if such indebtedness shall have been paid in full, shall refund to the
payor of such interest) such portion of said interest as shall be necessary to
cause the interest paid to produce a rate equal to the maximum rate permitted by
applicable laws. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of money shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread in equal parts throughout the
full term of the applicable indebtedness, so that the interest rate is uniform
throughout the full term of such indebtedness. The provisions of this Paragraph
shall control all agreements, whether now or hereafter existing and whether
written or oral, between Borrower and Lender.
15. Documentation Requirements. Each written instrument required by
this Agreement, the Notes or the other Credit Documents to be furnished to
Lender shall be duly executed by the person or persons specified (or where no
particular person is specified, by such person as Lender shall require), duly
acknowledged where reasonably required by Lender and, in the case of affidavits
and similar sworn instruments, duly sworn to and subscribed before a notary
public duly authorized to act by governmental authority; shall be furnished to
Lender in one or more copies as required by Lender; and shall in all respects be
in form and substance satisfactory to Lender and to its legal counsel.
<PAGE>
16. Credit Documents Cumulative. The benefits, rights and remedies
of Lender and the security contained herein or provided for in the Notes, the
other Credit Documents or any other document executed pursuant hereto or in
connection herewith are cumulative; provided, however, that to the extent of any
conflict between any provision of this Agreement and any provision contained in
the Notes, the other Credit Documents (other than the Construction Loan
Agreement) or any other document executed pursuant hereto or in connection
herewith, the provisions of this Agreement shall control.
17. Satisfaction of Conditions. Where evidence of the existence or
nonexistence of any circumstance or condition is required by this Agreement, the
Notes, the other Credit Documents or any other document executed pursuant hereto
or in connection herewith to be furnished to Lender, such evidence shall in all
respects be in form and substance reasonably satisfactory to Lender, and the
duty to furnish such evidence shall not be considered satisfied until Lender
shall have acknowledged that it is satisfied therewith.
18. Survival. All covenants, agreements, representations and
warranties made by Borrower in this Agreement, the Notes, the other Credit
Documents and any other document executed pursuant hereto or in connection
herewith, and in any certificates or other documents or instruments delivered
pursuant to this Agreement, the Notes, the other Credit Documents or any other
document executed pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement, the Notes, the other Credit Documents
and the other documents executed pursuant hereto or in connection herewith, and
shall continue in full force and effect until full payment of the indebtedness
evidenced by the Notes and/or secured by the Credit Documents, complete
performance of all of the obligations of Borrower under the Credit Documents and
final termination of Lender's obligations, if any, to make any further advances
under the Revolving Note or the Advance/Term Note or to provide any other
financial accommodation to Borrower (provided, however, that all reimbursement
obligations, indemnification and hold harmless obligations and other similar
obligations of Borrower under any of the Credit Documents shall survive such
payment, performance and termination). All such covenants, agreements,
representations and warranties shall be binding upon any successors and assigns
of Borrower, but any attempted assignment of any rights of Borrower hereunder
without the prior written consent of Lender shall be null and void. No Person
other than Borrower shall have any right or action hereon or any rights to Loans
at any time, the Loans shall not constitute a trust fund for the benefit of any
third parties and no third party shall under any circumstances have or be
entitled to any Lien or any trust impressed on any undisbursed Loans.
19. Borrower Agrees to Pay or Reimburse Lender's Expenses. To the
extent not prohibited by applicable law, Borrower will pay all reasonable costs
and expenses and reimburse Lender for any and all reasonable expenditures of
every character incurred or expended from time to time, regardless of whether an
Event of Default shall have occurred, in connection with:
(a) the preparation, negotiation, documentation, closing,
renewal, revision, modification, increase, review or restructuring of any Loan
or credit facility secured by the Credit Documents, including legal, accounting,
auditing, architectural, engineering and inspection services and disbursements,
or in connection with collecting or attempting to enforce or collect any Credit
Document;
<PAGE>
(b) Lender's evaluating, monitoring, administering and
protecting the Collateral, provided, however, that except with respect to any
such costs incurred in connection with Lender's monitoring of the construction
under the Construction Loan Agreement and except for any such costs which
Borrower is specifically required to pay under the provisions of the Credit
Documents, Borrower will only be obligated to pay these costs under this
Subparagraph (b) if an Event of Default shall have occurred;
(c) Lender's creating, perfecting and realizing upon Lender's
Liens on the Collateral, and all costs and expenses relating to Lender's
exercising any of its rights and remedies under any Credit Document or at law,
including all appraisal fees, consulting fees, filing fees, taxes, brokerage
fees and commissions, title review and abstract fees, litigation report fees,
UCC search fees, other fees and expenses incident to title searches, reports and
security interests, escrow fees, attorneys' fees, legal expenses, court costs,
other fees and expenses incurred in connection with any complete or partial
liquidation of the Collateral, and all fees and expenses for any professional
services relating to the Collateral or any operations conducted in connection
therewith. Provided, that no right or option granted by Borrower to Lender or
otherwise arising pursuant to any provision of any Credit Document shall be
deemed to impose or admit a duty on Lender to supervise, monitor or control any
aspect of the character or condition of the Collateral or any operations
conducted in connection therewith for the benefit of Borrower or any person or
entity other than Lender. BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD LENDER,
ITS SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS, ATTORNEYS, ADVISORS AND EMPLOYEES
(COLLECTIVELY "INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL
ENVIRONMENTAL LIABILITIES AND ANY AND ALL OTHER LOSS, LIABILITY, OBLIGATION,
DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY, EXPENSE, ACTION, SUIT, COST AND
DISBURSEMENT OF ANY KIND OR NATURE WHATSOEVER (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE INDEMNIFIED PARTIES GROWING OUT OF OR RESULTING FROM ANY
CREDIT DOCUMENT OR ANY TRANSACTION OR EVENT CONTEMPLATED THEREIN (EXCEPT THAT
SUCH INDEMNITY SHALL NOT BE PAID TO ANY INDEMNIFIED PARTY TO THE EXTENT THAT
SUCH LOSS, ETC. IS CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OR WILLFUL
MISCONDUCT OF ANY INDEMNIFIED PARTY). Any amount to be paid under this Paragraph
by Borrower to Lender shall be a demand obligation owing by Borrower to Lender
and shall bear interest from the date of expenditure until paid at the Past Due
Rate.
20. Amendments in Writing. This Agreement shall not be changed
orally but shall be changed only by agreement in writing signed by Borrower and
Lender. Any waiver or consent with respect to this Agreement shall be effective
only in the specific instance and for the specific purpose for which given. No
course of dealing between the parties, no usage of trade and no parol or
extrinsic evidence of any nature shall be used to supplement or modify any of
the terms or provisions of this Agreement.
21. Notices. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service or
by depositing it in a receptacle maintained by the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the respective parties at the addresses shown herein (and if so
given, shall be deemed given three (3) Business Days after mailing). Borrower's
address for notice may be changed at any time and from
<PAGE>
time to time, but only after thirty (30) days' advance written notice to Lender
and shall be the most recent such address furnished in writing by Borrower to
Lender. Lender's address for notice may be changed at any time and from time to
time, but only after thirty (30) days' advance written notice to Borrower and
shall be the most recent such address furnished in writing by Lender to
Borrower. Actual notice, however and from whomever given or received, shall
always be effective when received.
22. Gender; "Including" is Not Limiting; Section Headings. The
masculine and neuter genders used in this Agreement each includes the masculine,
feminine and neuter genders, and whenever the singular number is used, the same
shall include the plural where appropriate, and vice versa. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to." The headings used
is this Agreement are included for reference only and shall not be considered in
interpreting, applying or enforcing this Agreement.
23. Venue. This Agreement is performable in Travis County, Texas,
which shall be a proper place of venue for suit on or in respect of this
Agreement. Borrower irrevocably agrees that any legal proceeding in respect of
this Agreement shall be brought in the district courts of Travis County, Texas
or the United States District Court for the Western District of Texas, Austin
Division (collectively, the "Specified Courts"). Borrower hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Borrower hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to any
Credit Document brought in any Specified Court, and hereby further irrevocably
waives any claims that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Nothing herein shall affect the
right of Lender or Borrower to serve process in any manner permitted by
applicable law. Borrower and Lender agree that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. As
used in the preceding sentence, "final judgment" shall mean a judgment entered
by a court which is final as contemplated by the Texas Rules of Civil Procedure
or the Federal Rules of Civil Procedure, as applicable, and which is subject to
no further appeal. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
24. Rights Cumulative; Delay Not Waiver. Lender's exercise of any
right, benefit or privilege under any of the Credit Documents or any other
papers or at law or in equity shall not preclude the concurrent or subsequent
exercise of Lender's other present or future rights, benefits or privileges. The
remedies provided in this Agreement are cumulative and not exclusive of any
remedies provided by law, the Credit Documents or any other papers. No failure
by Lender to exercise, and no delay in exercising, any right under any Credit
Document or any other papers shall operate as a waiver thereof.
25. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this Agreement shall
not be affected thereby, and this Agreement shall be liberally
<PAGE>
construed so as to carry out the intent of the parties to it. Each waiver in
this Agreement is subject to the overriding and controlling rule that it shall
be effective only if and to the extent that (a) it is not prohibited by
applicable law and (b) applicable law neither provides for nor allows any
material sanctions to be imposed against Lender for having bargained for and
obtained it.
26. Entire Agreement. This Agreement, the Notes and the other Credit
Documents together embody the entire agreement and understanding between
Borrower and Lender with respect to the subject matter hereof and supersede all
prior conflicting or inconsistent agreements, consents and understandings
relating to such subject matter. Borrower acknowledges and agrees that there is
no oral agreement between Borrower and Lender which has not been incorporated in
this Agreement, the Note and the other Credit Documents.
THIS AGREEMENT, THE NOTES, THE OTHER CREDIT DOCUMENTS
AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES
SUBSTANTIALLY CONCURRENTLY HEREWITH CONSTITUTE A WRITTEN LOAN
AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES AND
LENDER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
AND LENDER.
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION
By: /s/ Cindy M. Matula
-----------------------------------
Name: Cindy M. Matula
---------------------------------
Title: Vice President
--------------------------------
Lender's Address:
700 Lavaca
Austin, Texas 78701
Attention: Manager, Commercial Lending Division
SURREY, INC., a Texas corporation
By: /s/ Mark van der Hagen
-----------------------------------
Name: Mark van der Hagen
---------------------------------
Title: Vice President
--------------------------------
Borrower's Address:
13110 Trails End Road
Leander, Texas 78641
<PAGE>
EXHIBITS:
A - Request for Advance
B - Borrowing Base Certificate
C - Compliance Certificate
D - Rate Selection Notice
<PAGE>
REQUEST FOR CREDIT
---------------
Chase Bank of Texas,
National Association
700 Lavaca
Austin, Texas 78701
Attn: Manager, Commercial Lending Division
Gentlemen:
The undersigned hereby certifies that he is the ____________________
of Surrey, Inc. ("Borrower"), and that as such is authorized to execute this
Request for Advance (the "Request") on behalf of Borrower pursuant to the Loan
Agreement (as it may be amended, supplemented or restated from time to time, the
"Loan Agreement") dated as of April 8, 1998 by and between Borrower and Chase
Bank of Texas, National Association. The Revolving Loan being requested hereby
is to be in the amount set forth in (b) below and is requested to be made on
_________________________, which is a Business Day. On behalf of Borrower, the
undersigned further certifies, represents and warrants as follows (each
capitalized term used herein having the same meaning given to it in the Loan
Agreement unless otherwise specified herein):
a. As of the date hereof:
(1) The current Borrowing Base is: $__________
(2) Aggregate outstanding amount
of Revolving Loans is: $__________
(3) The available Revolving Commitment [the
amount by which the lesser of (x) the amount
in (a)(1) above or (y) $1,000,000 exceeds
the amount in (a)(2) above],
if positive, is: $__________
b. If and only if the available Revolving Commitment is
positive, Borrower hereby requests under this Request a
Revolving Loan in the amount of $____________ (which is
no more than the available Revolving Commitment).
EXHIBIT A
<PAGE>
c. The representations and warranties made in each Credit
Document are true and correct in all respects on and as
of the time of delivery hereof, with the same force and
effect as if made on and as of the time of delivery
hereof.
d. No Default has occurred and is continuing or will occur
as a result of the requested Revolving Loan.
Thank you for your attention to this matter.
Very truly yours,
Print Name:______________________________
of Surrey, Inc.
EXHIBIT A
<PAGE>
BORROWING BASE CERTIFICATE
The undersigned hereby certifies that he is the ____________________
of Surrey, Inc. ("Borrower"), and that as such is authorized to execute this
Borrowing Base Certificate on behalf of Borrower pursuant to the Loan Agreement
(as it may be amended, supplemented or restated from time to time, the "Loan
Agreement") dated April 8, 1998 by and between Borrower and Chase Bank of Texas,
National Association. On behalf of Borrower, the undersigned further certifies,
represents and warrants as follows (each capitalized term used herein having the
same meaning given to it in the Loan Agreement unless otherwise specified
herein):
(1) As of ________________, the components of the Borrowing
Base are as follows:
Eligible Accounts of Borrower: $____________
(2) The Borrowing Base determined on the basis of the above
information is equal to the sum of ____ % of line (1)
above; or $___________.
(3) The Eligible Accounts are calculated in accordance with
the Loan Agreement and the schedule(s), if any, attached
hereto.
Dated ________________.
Very truly yours,
Print Name:______________________________
of Surrey, Inc.
EXHIBIT B
<PAGE>
COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the ____________________
of Surrey, Inc. ("Borrower"), and that as such is authorized to execute this
certificate on behalf of Borrower pursuant to the Loan Agreement (the "Loan
Agreement") dated as of April 8, 1998 by and between Borrower and Chase Bank of
Texas, National Association; and that a review of Borrower has been made under
his supervision with a view to determining whether Borrower has fulfilled all of
its obligations under the Loan Agreement and the other Credit Documents; and on
behalf of Borrower further certifies, represents and warrants as follows (each
capitalized term used herein having the same meaning given to it in the Loan
Agreement unless otherwise specified):
(a) Each Obligor has fulfilled its respective
obligations under the Credit Documents.
(b) Except as described on the continuation pages
attached hereto (if any), the representations and warranties made in
each Credit Document are true and correct in all respects on and as
of the time of delivery hereof, with the same force and effect as if
made on and as of the time of delivery hereof.
(c) The financial statements delivered to Lender
concurrently with this Compliance Certificate have been prepared in
accordance with GAAP consistently followed throughout the period
indicated and fairly present the financial condition and results of
operations of the applicable Persons as at the end of, and for, the
period indicated.
(d) No Default has occurred and is continuing. In this
regard, the compliance with the provisions of Paragraph 10(c) of the
Loan Agreement is as follows:
SECTION 10(c)(1) -- CURRENT RATIO
actual Current Ratio for Borrower as of the date hereof:
__.____ :1.00
required Current Ratio for Borrower as of the date
hereof:
less than 1.50:1.00
SECTION 10(c)(2) -- DEBT TO TANGIBLE NET WORTH RATIO
actual Debt to Tangible Net Worth Ratio for Borrower as
of the date hereof:
__.____ :1.00
required Debt to Tangible Net Worth Ratio for Borrower
as of the date hereof:
EXHIBIT C
<PAGE>
more than 1.50:1.00
SECTION 10(c)(3) -- FIXED CHARGE RATIO
actual Fixed Charge Ratio for Borrower as of the date
hereof:
__.____ :1.00
required Fixed Charge Ratio for Borrower as of the date
hereof:
less than 1.20:1.00
(e) Based on the actual Debt to Tangible Net Worth
Ratio shown above, the Applicable Margin to be effective after
Lender's review of the Quarterly Financial Statements delivered with
this Compliance Certificate is _______%.
(f) There has occurred no material adverse change in
the assets, liabilities, financial condition, business or affairs of
any Obligor since the date of the Loan Agreement.
DATED as of ______________.
Very truly yours,
__________________________________
Print Name: ______________________
____________________ of Surrey, Inc.
EXHIBIT C
<PAGE>
RATE SELECTION NOTICE
Surrey, Inc., a Texas corporation, and Chase Bank of Texas, National
Association, a national banking association, executed and delivered that certain
Loan Agreement (as amended, supplemented and restated, the "Loan Agreement")
dated as of April 8, 1998. Any term used herein and not otherwise defined herein
shall have the meaning herein ascribed to it in the Loan Agreement.
In accordance with the Loan Agreement, Borrower hereby notifies
Lender of the exercise of an Interest Option.
A. Current Revolving Loan borrowings
1. Interest Options now in effect: ______________
2. Amounts: $___________, $__________, $__________
3. Expiration of current Interest
Periods, if applicable: ______, 199_, _____, 199_, _____, 199_
B. Proposed Revolving Loan borrowing
1. Amount: $______________
2. Date Interest Option
is to be effective: _________, 199_
3. Interest Option to be applicable
(check one):
[ ] Base Rate
[ ] LIBOR Rate
4. LIBOR Interest Period (check one if applicable):
[ ] 1 month [ ] 3 months
[ ] 2 months [ ] 6 months
EXHIBIT D
<PAGE>
C. Current Advance/Term Loan borrowings
1. Interest Options now in effect: ______________
2. Amounts: $___________, $__________, $__________
3. Expiration of current Interest
Periods, if applicable: ______, 199_, _____, 199_, _____, 199_
D. Proposed Advance/Term Loan borrowing
1. Amount: $______________
2. Date Interest Option
is to be effective: _________, 199_
3. Interest Option to be applicable (check one):
[ ] Base Rate
[ ] LIBOR Rate
4. LIBOR Interest Period (check one if applicable):
[ ] 1 month [ ] 3 months
[ ] 2 months [ ] 6 months
Borrowers represents and warrants that the Interest Options and the
LIBOR Interest Period (if applicable) selected above comply with all provisions
of the Loan Agreement and that there exists no Event of Default or any event
which, with the passage of time, the giving of notice or both, would be an Event
of Default.
SURREY, INC., a Texas corporation
By:
-----------------------------------
Date:_____________, 199_ Name:
---------------------------------
Title:
--------------------------------
EXHIBIT D
EXHIBIT 10.3(b)
CONSTRUCTION LOAN AGREEMENT
April 8, 1998
Surrey, Inc.
13110 Trails End Road
Leander, Texas 78641
Attn: Mark van der Hagen
Re: Chase Bank of Texas, National Association $2,300,000.00
Advance/Term Loan to Surrey, Inc.
Dear Mr. van der Hagen:
RECITALS
Reference is hereby made to that certain promissory note of even
date herewith (the "Advance/Term Note") executed by Surrey, Inc. (the
"Borrower"), payable to the order of Chase Bank of Texas, National Association
(the "Lender"), a national banking association, in the original principal sum of
$2,300,000.00. The Advance Term Note has been issued pursuant to the terms of
the Loan Agreement (the "Loan Agreement") between Borrower and Lender dated on
or about the date hereof and is the Advance/Term Note described in the Loan
Agreement. The Advance/Term Note shall be governed by the terms of the Loan
Agreement, although the provisions of this Agreement shall control with respect
to advances under the Advance/Term Note. Capitalized terms used herein which are
not otherwise defined shall have the same meaning here as in the Loan Agreement.
The Advance/Term Note shall be secured, among other security, by the
security provided for in the Loan Agreement, including without limitation the
Deed of Trust and the Security Agreement. The Deed of Trust covers and affects,
among other property, certain real property (the "Property") in Travis County,
Texas, more particularly described in Exhibit A attached hereto, together with
all improvements now or hereafter located on the Property.
The proceeds to be advanced under and evidenced by the Advance/Term
Note shall be used solely for the following purposes: (1) up to $1,198,053.32
shall be used to refinance existing indebtedness secured by liens against the
Property, and (2) up to $1,101,946.68 shall be used for payment of, or to
reimburse Borrower for, a portion of the costs and expenses of construction of
the approximately 39,120 square feet of additional office/warehouse space (the
"Improvements") to
<PAGE>
Surrey, Inc.
Page 2
be constructed to the Borrower's existing manufacturing facilities located on
the Property and to reimburse the Borrower for the costs of the septic
improvements previously installed on the Property.
The Improvements shall be constructed by Bruce Van Waes d/b/a Van &
Van Austin, as contractor (the "Contractor"), and are contemplated in the
construction contract (the "Construction Contract") executed or to be executed
by and between the Contractor and the Borrower. The Improvements shall be
constructed in accordance with the plans and specifications (the "Plans and
Specifications") for such Improvements prepared by the Contractor, a copy of
which has been or will be furnished to and approved by the Lender. The Lender
may, at its option, retain a person or entity acceptable to the Lender (the
"Inspector"), at the Borrower' expense, for the purpose of approving the
Construction Contract and the Plans and Specifications; verifying the percentage
of completion of the Improvements; performing inspections as construction
progresses to verify that the Improvements are being constructed to completion
in a manner satisfactory to the Lender and in accordance with the approved Plans
and Specifications; certifying that the amount of each advance included in a
Construction Request for Advance (as defined below) does not exceed the value of
the work completed less prior advances and required retainage; certifying that
the undisbursed Advance/Term Note proceeds (together with other designated and
escrowed sources of funds) are sufficient to complete all of the Improvements;
and performing such other consulting tasks as the Lender shall direct from time
to time.
This Agreement evidences certain agreements among the parties
regarding the loans to be evidenced by the Advance/Term Note, including without
limitation, advances of funds to be made by the Lender against the Advance/Term
Note.
ADVANCE PROCEDURE UNDER ADVANCE/TERM NOTE
Subject to the provisions of this Agreement, from time to time
before the date eight (8) months from the date hereof, the Lender will advance
funds under the Advance/Term Note directly to the Borrower. The funds to be so
advanced will aggregate up to $2,300,000.00, shall be used solely to (1)
refinance up to $1,198,053.32 of the Borrower's existing indebtedness secured by
liens against the Property, and (2) to pay up to $1,101,946.68 of the costs to
construct the Improvements and reimburse the Borrower for the septic
improvements and shall constitute loan proceeds evidenced by the Advance/Term
Note, with interest on the Advance/Term Note being computed with respect to each
advance from the date of the advance. Notwithstanding any contrary provision
contained in this Agreement or in any other Credit Documents, in no event
whatsoever will the amount of funds to be advanced under the Advance/Term Note
be allowed to exceed (as determined by the Lender) the lesser of (a) one hundred
percent (100%) of the appraised value of the Property (assuming completion of
the Improvements) plus $345,000.00 (being the appraised value of certain
equipment covered by the Security Agreements), or (b) $2,300,000.00
The aggregate amount to be advanced under the Advance/Term Note for
construction of the Improvements currently constitutes the total projected costs
to construct the Improvements thereon.
<PAGE>
Surrey, Inc.
Page 3
As of today's date, no additional sums will be required to be paid directly by
the Borrower. If the cost to construct the Improvements increases or if the
aggregate amounts to be advanced under the Advance/Term Note are not adequate to
pay the total costs to construct the Improvements, such excess amounts must be
funded and paid out-of-pocket directly by the Borrower. As a condition to
receiving any advances of funds under the Advance/Term Note to reimburse the
Borrower for the costs to construct the septic improvements, the Borrower will
be required to furnish the Lender with paid invoices and other satisfactory
evidencing the funds which have been paid by the Borrower for the septic
improvements.
Each request for an advance under the Advance/Term Note
("Construction Request for Advance"), other than the initial advance to
refinance the Borrower's existing indebtedness secured by liens against the
Property, shall be submitted to the Lender in writing substantially in the form
of the Construction Request for Advance attached to this Agreement as Exhibit B
and hereby made a part hereof. Each Construction Request for Advance shall be
accompanied by vouchers and invoices satisfactory to the Lender for all labor
and materials for which payment is requested and by such other supporting
evidence as the Lender may require. The Lender reserves the right to delay the
time of advancing any funds requested under a Construction Request for Advance
if it determines that such delay is necessary or prudent to protect its rights,
interests or security. In those instances where a Construction Request for
Advance covers amounts to be paid to Contractor for work undertaken after the
date of this Agreement, it shall also be accompanied by an Application and
Certificate for Payment in the form of Exhibit C attached to this Agreement and
hereby made a part hereof, reflecting that, as to all such Applications and
Certificates for Payment other than for final payment of retainage after
completion of the Improvements, retainage of at least 10% of the amount of the
"total completed and stored to date" has been deducted in calculating the
"current payment due", duly sworn to and executed by the Contractor and duly
executed and certified by the Inspector (if required by the Lender) and the
Borrower. In addition, Lender absolutely reserves the right to retain such
additional funds as Lender is required to retain by law or which Lender
determines in its sole discretion are necessary to satisfy itself that there
will be no unpaid claims for labor or materials. Lender reserves the right to
retain such funds for such length of time as Lender may deem necessary to
satisfy itself that there will be no unpaid claims for labor or materials. (It
is understood that Lender shall have no duty to Borrower or to anyone else to
delay the time of advancing any funds or to retain any funds for any period, and
that Lender shall have no duty or obligation to Contractor to pay Contractor,
make any other payments or advances to Borrower, Contractor or anyone else or in
any other way to pay or protect Contractor, and all such acts by Lender shall be
solely for its own benefit and satisfaction.)
Within five (5) business days after receipt of a proper Construction
Request for Advance and approval thereof by the Inspector (if required by the
Lender) and the Lender, the Lender agrees with the Borrower that the Lender will
advance the amount requested (net of retainage), provided that all terms of this
Agreement are complied with and all conditions to that advance have been
satisfied. In any event, the Lender shall not be required to make more than one
(1) advance under the Advance/Term Note per calendar month.
<PAGE>
Surrey, Inc.
Page 4
CONDITIONS TO ADVANCES
The Lender shall have no obligation to make any advance under the
Advance/Term Note unless simultaneously with or before the advance:
1. The Lender has received and approved an appraisal (the
"Appraisal") of the Property (assuming completion of the
Improvements). Such Appraisal (a) must show the "market
value" of the Property (as defined in the Financial
Institutions Reform, Recovery and Enforcement Act of
1989) in the aggregate to be an amount satisfactory to
the Lender in its discretion, (b) shall be prepared by
an appraiser acceptable to the Lender in its discretion,
(c) shall utilize methodology acceptable to the Lender,
(d) shall otherwise be in form and substance acceptable
to the Lender, (e) shall comply with all regulatory
guidelines applicable to the Lender, and (f) shall
recite that the fair market value of the Property
(assuming completion of the Improvements) equals or
exceeds $2,705,883.00.
2. The Lender has received and approved, in its discretion,
all written evidence required by the Lender confirming
(a) the absence of any hazardous materials on or under
the Property and (b) that the current status of the
Property does not violate any applicable laws relating
to health or the environment.
3. The Inspector has provided a report to the Lender
stating the percentage of completion of the Improvements
(it being understood that the amount advanced to pay the
costs of construction of the Improvements will not
exceed the percentage of completion of the Improvements)
and certifying that the amount of each advance included
in a Construction Request for Advance does not exceed
the value of the work completed less prior advances and
required retainage;
4. The Lender has received a Construction Request for
Advance, for a advance under the Advance/Term Note, in
the form, signed and with supporting materials, as
required above.
5. The Lender has received and approved: (i) a copy of the
Plans and Specifications, satisfactory in all respects
to the Lender and the Inspector (if required by the
Lender), for complete construction of the Improvements,
initialed by the Borrower and the Contractor to evidence
their approval, (ii) a Contractor/Lender Agreement (the
"Contractor/Lender Agreement") executed by the
Contractor in the form required by the Lender and (iii)
a Design Professional/Lender Agreement (the "Design
Professional/Lender Agreement") executed by any
architect, engineer or design professional (other than
Contractor) engaged by the Borrower in connection with
the construction of the Improvements in the form
required by the Lender. (The Lender's
<PAGE>
Surrey, Inc.
Page 5
review and approval of all such materials referred to in
items (3) and (4) above and this paragraph shall be
solely for its own benefit.)
6. The Lender is satisfied that all subcontractors and all
bills incurred for labor and materials in connection
with the construction of the Improvements are being
currently paid the entire amount then due (less only any
applicable retainage). In this respect, prior to any
work being commenced or any materials delivered by any
subcontractor or materialman, the Borrower shall have
delivered to the Lender, executed affidavit/lien waivers
and subordination agreements in a form acceptable to the
Lender, from such subcontractor or materialman.
7. Except for work for which the Lender has been provided
lien waivers in the form required by the Lender, the
Borrower hereby warrants to the Lender that no materials
have been or will be furnished nor labor performed for
the construction of the Improvements before the signing,
notary, acknowledgment, delivery and recording of the
Deed of Trust.
8. The Lender is satisfied that the unadvanced proceeds
under the Advance/Term Note available to be advanced to
pay for the construction of the Improvements, together
with the requisite equity funds to be paid directly by
the Borrower, will be sufficient to pay for the
completion of all of the Improvements in accordance with
the Plans and Specifications therefor and all legal
requirements which apply to the Property; or if such
proceeds and equity funds are not adequate, additional
funds are deposited by the Borrower with the Lender in
order to provide sufficient funds to complete the
Improvements in accordance with the Plans and
Specifications and all legal requirements which apply to
the Property.
9. The Lender is satisfied, in its reasonable
determination, that the Improvements are being
constructed on schedule to be completed no later than
August 1, 1998 and in accordance with the Plans and
Specifications and applicable law. (It is understood,
however, that the Lender shall have no duty to the
Borrower or anyone else to make any inspection or
determination regarding construction, and all such
inspections, if any, shall be solely for the Lender's
own benefit and satisfaction).
10. After the location of any foundation for the
Improvements has been established and staked on the
ground and before any such foundation is poured, the
Lender shall have been provided with a current survey of
the Property by a state-licensed surveyor who is
acceptable to the Lender. Such survey shall contain a
surveyor's certificate satisfactory to the Lender and
shall reflect that the location of the Improvements and
all other improvements on the Property will be entirely
within the boundary lines of the Property and will not
encroach upon any flood plain or special flood hazard
area, set-back line, easement, right-of-way or adjoining
property or breach or violate any
<PAGE>
Surrey, Inc.
Page 6
covenant, condition or restriction affecting the
Property or any legal requirement, and that no adjoining
structure encroaches upon the Property. Upon completion
of the Improvements, if requested by the Lender, the
Borrower shall provide the Lender with an updated
"as-built" survey of the Property which meets the
requirements set forth in this paragraph.
11. The Lender is satisfied that each advance against the
Advance/Term Note will be secured by a first lien
against the Property, all Improvements and all other
personalty described in the Deed of Trust and the
Security Agreement.
12. The Lender is furnished a Mortgagee Title Insurance
Policy (the "Title Policy") in Texas Standard Form in
the full amount of the Advance/Term Note, issued by
Heritage Title Company of Austin, Inc. to the Lender
insuring that good and indefeasible fee simple absolute
title to the Property is vested in the Borrower,
insuring that the lien evidenced by the Deed of Trust is
a first priority lien, and containing only (a) the
normal "pending disbursement" and "completion of
improvements" exceptions and (b) such other exceptions
as shall be previously approved by the Lender in
writing. The form and substance of the Title Policy
shall in all respects be satisfactory to the Lender. The
Lender shall also have been furnished with legible
copies of all instruments reflecting exceptions in the
Title Policy.
13. The Lender is furnished with such insurance coverage and
policies or certificates as it requires from time to
time, issued by companies acceptable to the Lender,
including (without limitation) an original policy or
certificate of fire and extended coverage insurance of
the Improvements at least equal in amount to the
replacement cost of the Improvements, with an
endorsement naming the Lender as mortgagee insured and
prohibiting policy cancellation or modification without
30 days' prior written notice to the Lender. (Builder's
risk insurance will satisfy this requirement during
actual construction only, provided that the Lender is
named as mortgagee insured and the policy is in all
respects satisfactory to the Lender.)
14. If requested or required by the Lender, the Borrower
shall have provided the Lender with satisfactory
evidence, including without limitation, all
certificates, licenses, zoning variances, permits and no
action letters, that the Property, the Plans and
Specifications for the Improvements and the actual
construction of the Improvements have met and are
meeting the approval of the appropriate architectural
control committees (if any) and comply with any other
law, ordinance, order, rule, regulation, restriction,
zoning ordinance or other legal requirements which apply
to the Property.
<PAGE>
Surrey, Inc.
Page 7
15. The Lender has received the following items, all
properly executed, notarized, recorded (if necessary or
required by the Lender) and otherwise completed to the
satisfaction of the Lender:
a. The Advance/Term Note;
b. The Deed of Trust;
c. The Security Agreement;
d. This Agreement;
e. The Appraisal;
f. The applicable Construction Request for
Advance (other than for the initial advance
under the Advance/Term Note which will be
used to refinance the Borrower's existing
indebtedness secured by liens against the
Property);
g. The Title Policy;
h. The insurance certificates or policies
required by the Credit Documents;
i. The survey(s) of the Property at the time
required by this Agreement;
j. The Construction Contract;
k. The final Plans and Specifications
(acceptable to the Lender in all respects);
l. The approvals of the Plans and
Specifications from all architectural
control committees (if any) and all other
persons and entities having the right to
approve of such Plans and Specifications;
m. All applicable governmental building and
site permits;
n. All other information required under the
provisions of this Agreement or the other
Credit Documents;
<PAGE>
Surrey, Inc.
Page 8
o. Any other papers which the Lender may
reasonably require at any time.
16. The Lender is satisfied that no Event of Default or
Default has occurred.
17. Prior to the final advance of retainage under the
Advance/Term Note, the Lender shall have received the
following, on or before the date of such advance, in
form and substance satisfactory to the Lender:
a. Certificates of Occupancy issued by all
appropriate governmental authorities for all
portions of the Improvements;
b. If required by the Lender, an "as-built"
current survey showing the location of the
Improvements and complying with all other
survey requirements stated above;
c. If available, a complete set of "as-built"
plans and specifications for the
Improvements certified as accurate by the
Contractor;
d. An Affidavit of Bills Paid (in form and
substance satisfactory to the Lender) from
the Contractor and any subcontractors from
whom the Lender requests such an affidavit
in order to satisfy the Lender that the
construction of the Improvements has been
completed lien-free and that the costs of
all materials furnished and labor performed
in connection therewith have been paid in
full; and
e. An executed Certificate of Acceptance from
the Borrower (in form and substance
satisfactory to the Lender) whereby the
Borrower accept the Improvements as
substantially completed in accordance with
the approved plans and specifications
therefor and acknowledges that it has
received no notice of any claim for unpaid
construction costs with respect to the
Improvements.
EVENTS OF DEFAULT
The occurrence of any of the following, if not cured within any
applicable notice and/or cure period provided for in the Loan Agreement, shall
be an Event of Default hereunder:
1. Failure of the Borrower to perform, observe or comply
with any of the terms, covenants, conditions or
provisions of the Construction Contract.
2. A survey of the Property shall show that any
improvements located thereon are not entirely within the
boundary lines of the Property or encroach upon any
flood plain or special flood hazard area, set-back line,
easement, right-of-way, street or adjoining
<PAGE>
Surrey, Inc.
Page 9
property or that any legal requirement has been breached
or that any adjoining structure encroaches upon the
Property.
3. The Inspector or an architectural firm of recognized
standing shall at any time certify to the Lender in
writing that the Improvements are not at the date of
such certificate being constructed with reasonable
diligence and/or in accordance with the Plans and
Specifications and the Construction Contract.
4. Failure of the Borrower to complete the construction of
the Improvements in accordance with the Plans and
Specifications and receive a Certificate of Occupancy
therefor from the appropriate governmental authorities
on or before August 1, 1998.
5. Failure of Borrower to pay for and deliver to Lender
within a reasonable time after completion of the
Improvements, an endorsement to the Policy deleting all
exceptions under such policy relating to (a) liens
arising by reason of unpaid bills or claims for work
performed or materials furnished in connection with the
Improvements, and (b) the standard "pending
disbursements" limitations to the Policy.
6. An Event of Default shall have occurred under the Loan
Agreement.
RIGHTS SUBSEQUENT TO AN EVENT OF DEFAULT
At any time after an Event of Default which has not been waived by
the Lender in writing or cured to the Lender's satisfaction, the Lender shall
have the right, at its option, to exercise all rights and remedies available to
the Lender under the Loan Agreement, the other Credit Documents and applicable
law. In addition to these rights and remedies, upon the occurrence of (a) any
Event of Default or (b) any Default, the commitment of the Lender (if then
outstanding) to make advances against the Advance/Term Note shall cease until
the Lender declares that all such Events of Default and Defaults have been cured
to the Lender's satisfaction, or until the Lender shall have agreed in writing
to fund despite the default or waived the default. The Lender may, at its
option, continue or at any time recommence making one or more advances and in
any case all advances by the Lender shall be deemed to have been made pursuant
to a commitment (as such term is used and defined in the Uniform Commercial Code
as enacted and in force in the State of Texas) and pursuant to this Agreement.
OTHER AGREEMENTS AND REPRESENTATIONS
1. The Borrower shall allow the Lender to place a sign on
the Property indicating that the Lender is the lending
institution with respect to the construction of the
Improvements.
<PAGE>
Surrey, Inc.
Page 10
2. The Borrower shall permit the Lender and its duly
authorized agents free access to the Property and shall
make available for audit and inspection by the Lender,
at any time during regular business hours, all property,
equipment, books or other records relating to the
Property or construction of the Improvements.
3. If the Lender determines at any time that the unadvanced
proceeds under the Advance/Term Note will be
insufficient to pay for the completion of the
Improvements in accordance with the Plans and
Specifications therefor and all legal requirements which
apply to the Property, the Borrower shall deposit
additional funds with the Lender in an amount
satisfactory to the Lender to provide sufficient funds
to complete the Improvements in accordance with the
Plans and Specifications therefor and all legal
requirements which apply to the Property. Upon such an
event, the Lender shall not be obligated to make any
further advances of funds under the Advance/Term Note
until the Borrower shall have made such satisfactory
arrangements to the Lender to provide such additional,
sufficient funds.
4. No material change will be made in the Plans and
Specifications without the prior written consent of the
Lender. For purposes of this paragraph, a change shall
not be considered a material change unless it alone or
together with any other prior change (a) such change
alone increases or decreases the contract price for, or
other costs in respect of construction of the
Improvements, by more than $5,000.00, (b) such change,
together with all other changes, increases or decreases
the contract price for, or other costs in respect of
construction of the Improvements by more than
$20,000.00, (c) extends or is likely to extend (in the
reasonable judgment of the Lender) the completion date
of the Improvements past August 1, 1998 or (d) requires
the prior approval of any applicable subdivision
planning committee, architectural control committee or
any other person or entity according to the terms of any
restrictive covenants, zoning ordinances or other legal
requirements which apply to the Property.
5. The Borrower will prosecute the construction of the
Improvements in accordance with the plans and
specifications therefor, all applicable legal
requirements and the Credit Documents, and with
diligence and dispatch and without unreasonable
cessation of work thereon, and will complete such
construction before August 1,1998.
6. The Borrower has obtained (or will obtain prior to
receiving any funds under the Advance/Term Note) all
necessary approvals of the Plans and Specifications from
all subdivision planning committees or architectural
control committees, if any, having jurisdiction over the
Property and any other person or entity whose approval
of the Plans and Specifications is required under any
restrictions, zoning ordinances or other legal
requirements applicable to the Property. All of the
Plans and
<PAGE>
Surrey, Inc.
Page 11
Specifications comply with all restrictions, zoning
ordinances and other legal requirements applicable to
the Property.
7. As of the date hereof, the Borrower is in compliance
with all terms, covenants and provisions of this
Agreement and all other Credit Documents and no Default
or Event of Default exists.
MISCELLANEOUS AGREEMENTS
The Lender shall not be obligated to the Borrower to determine that
any subcontractor has not breached any of its agreements with the Borrower, nor
will the Lender for any reason assume (or be construed to have assumed) any of
the obligations of the Borrower to any subcontractor or of any subcontractor to
the Borrower.
This Agreement constitutes the entire agreement of the parties,
supersedes and cancels any prior understandings or written or oral agreements
between the parties concerning the matters covered herein, including without
limitation, advances hereunder, and can be modified or varied only by a written
instrument subscribed to by all of the parties hereto; provided, however, that
all written or oral representations made by the Borrower to the Lender with
respect to the subject matter hereof shall survive the execution of this
Agreement. The Lender has no commitment to lend sums to the Borrower other than
as specifically set forth herein and in the other Credit Documents.
If there are any conflicts or inconsistencies between this Agreement
and any of the other Credit Documents, this Agreement shall prevail and control.
This Agreement shall bind and benefit the parties hereto and their
respective heirs, legal representatives, successors and assigns. However, any
attempted assignment of any rights of the Borrower hereunder without the prior
written consent of the Lender shall be void.
Any notice, request or other communication required or permitted to
be given hereunder shall be given in accordance with the terms of the Loan
Agreement.
If this letter correctly states your understanding of our agreements
concerning the matters referred to herein, please indicate your acceptance
hereof and agreement hereto by executing copies of this letter in the space
provided below.
THIS CONSTRUCTION LOAN AGREEMENT, TOGETHER WITH ALL OTHER CREDIT
DOCUMENTS, CONSTITUTES A WRITTEN LOAN AGREEMENT AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES TO IT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
Surrey, Inc.
Page 12
Very truly yours,
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION
By: /s/ Cindy M. Matula
----------------------------------
Name: Cindy M. Matula
--------------------------------
Title: Vice President
-------------------------------
"Lender"
AGREED TO AND ACCEPTED BY BORROWER:
SURREY, INC.
a Texas corporation
By: /s/ Mark van der Hagen
----------------------------------
Name: Mark van der Hagen
--------------------------------
Title: Vice President
-------------------------------
"Borrower"
ATTACH:
Exhibit A - The Property
Exhibit B - Construction Request for Advance
Exhibit C - Application and Certificate for Payment
<PAGE>
EXHIBIT A
Lots Two (2), Three (3), Four (4), Five (5), and Eight (8), NORTH RIM
SUBDIVISION, a subdivision in Travis County, Texas, according to the map or plat
thereof, recorded in Volume 83, Page(s) 161A-164A of the Plat Records of Travis
County, Texas.
EXHIBIT 10.4
SECURITY AGREEMENT
SURREY, INC. ("Debtor"), a Texas corporation, whose address is 13110
Trails End Road, Leander, Texas 78641, and CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION ("Secured Party"), a national banking association, whose address is
700 Lavaca, Austin, Texas 78701, Attn: Manager, Commercial Lending Division,
agree as follows:
ARTICLE 1
CREATION OF SECURITY INTEREST
In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, Debtor hereby grants to
Secured Party a security interest in and mortgages, assigns, transfers,
delivers, pledges, sets over and confirms to Secured Party all of Debtor's
remedies, powers, privileges, rights, titles and interests (including all power
of Debtor, if any, to pass greater title than it has itself) of every kind and
character now owned or hereafter acquired, created or arising in and to the
following:
ACCOUNTS
(i) all accounts, receivables, accounts receivable, general
intangibles regardless of form (including all choses or
things in action, trade names, trademarks, patents,
patents pending, infringement claims, service marks,
licenses, copyrights, blueprints, draw ings, plans,
diagrams, schematics, computer programs, computer tapes,
computer discs, reports, catalogs, customer lists,
purchase orders, goodwill, route lists, monies due or
recoverable from pension funds, tax refunds and all
rights to any of the foregoing), book debts, contract
rights and rights to payment no matter how evidenced
(including those accounts listed on the Schedule or
Schedules which may from time to time be attached
hereto);
(ii) all chattel paper, notes, drafts, acceptances, payments
under leases of equipment or sale of inventory, and
other forms of obligations received by or belonging to
Debtor for goods sold or leased and/or services rendered
by Debtor;
(iii) all purchase orders, instruments and other documents
(including all documents of title) evidencing
obligations to Debtor, including those for or
representing obligations for goods sold or leased and/or
services rendered by Debtor;
(iv) all monies due or to become due to Debtor under all
contracts, including those for the sale or lease of
goods and/or performance of services by Debtor no matter
how evidenced and whether or not earned by performance;
(v) all accounts, receivables, accounts receivable, contract
rights, and general intangibles arising as a result of
Debtor's having paid accounts payable (or having had
goods sold
<PAGE>
to or leased to Debtor or services performed for Debtor
giving rise to accounts payable) which accounts payable
were paid for or were incurred by Debtor on behalf of
any third parties pursuant to an agreement or otherwise;
(vi) all goods, the sale and delivery of which give rise to
any of the foregoing, including any such goods which are
returned to Debtor for credit;
INVENTORY
all goods, merchandise, raw materials, work in process, finished
goods, and other tangible personal property of whatever nature now
owned by Debtor or hereafter from time to time existing or acquired,
wherever located and held for sale or lease, including those held
for display or demonstration or out on lease or consignment, or
furnished or to be furnished under contracts of service or used or
usable or consumed or consumable in Debtor's business or which are
finished or unfinished goods and all accessions and appurtenances
thereto, together with all warehouse receipts and other documents
evidencing any of the same and all containers, packing, packaging,
shipping and similar materials;
EQUIPMENT
all goods, equipment, machinery, furnishings, fixtures, furniture,
appliances, accessories, leasehold improvements, chattels and other
articles of personal property of whatever nature (whether or not the
same constitute fixtures) now owned by Debtor or hereafter acquired,
and all component parts thereof and all appurtenances thereto;
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, account receivables, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Debtor or
Secured Party in respect of the foregoing) and together with all general
intangibles now owned by Debtor or existing or hereafter acquired, created or
arising (whether or not related to any of the foregoing property). All of the
properties and interests described in this Article are herein collectively
called the "Collateral." The inclusion of proceeds does not authorize Debtor to
sell, dispose of or otherwise use the Collateral in any manner not authorized
herein. The Collateral includes all property of Debtor this day delivered to and
deposited with Secured Party, and all money and property of Debtor heretofore
delivered or which shall hereafter be delivered to or come into the possession,
custody or control of Secured Party in any manner or for any purpose whatever
during the existence of this Agreement, and whether held in a general or special
account, or deposited for safekeeping or otherwise, and all other property which
Debtor may hereafter become entitled to receive on account of such property, and
in the event Debtor receives any such property, Debtor will immediately deliver
same to Secured Party to be held by Secured Party in the same manner as the
property originally deposited as Collateral. It is expressly contemplated that
additional Collateral may from time to time be pledged to Secured Party
<PAGE>
as additional security for the Debt (hereinafter defined), and the term
"Collateral" as used herein shall be deemed for all purposes hereof to include
all such Collateral, together with all other property of the types described
above related to the Collateral.
ARTICLE 2
SECURED INDEBTEDNESS
2.1 This Agreement is made to secure all of the following present
and future debt and obligations:
(a) Note A. All indebtedness now or hereafter evidenced and to be
evidenced by (i) the promissory note dated concurrently herewith in the face
amount of TWO MILLION THREE HUNDRED THOUSAND DOLLARS AND NO/100 ($2,300,000.00),
bearing interest at the rate or rates therein stated, principal and interest
payable to the order of Secured Party on the dates therein stated, with final
payment due on April 8, 2005, executed by Debtor, and (ii) any and all past,
concurrent or future modifications, extensions, renewals, rearrangements,
replacements and increases of such note (collectively, the "Note A").
(b) Note B. All indebtedness now or hereafter evidenced and to be
evidenced by (i) the promissory note dated concurrently herewith in the face
amount of ONE MILLION DOLLARS AND NO/100 ($1,000,000.00), bearing interest at
the rate or rates therein stated, principal and interest payable to the order of
Secured Party on the dates therein stated, with final payment due on April 8,
2000, executed by Debtor, and (ii) any and all past, concurrent or future
modifications, extensions, renewals, rearrangements, replacements and increases
of such note (collectively, "Note B").
(c) All obligations and indebtedness of Debtor now or hereafter
created or incurred under the Loan Agreement dated concurrently herewith between
Debtor and Secured Party, as the same may be amended, supplemented, restated or
replaced from time to time.
(d) All obligations and indebtedness of Debtor now or hereafter
created or incurred under the Construction Loan Agreement dated concurrently
herewith between Debtor and Secured Party, as the same may be amended,
supplemented, restated or replaced from time to time (collectively, the "Loan
Agreement").
(e) All obligations and indebtedness of Debtor under (i) any ISDA
Master Agreement, or other similar agreement, however designated, now existing
or hereafter entered into between Debtor and Secured Party, as the same may be
amended, supplemented, restated or replaced from time to time and (ii) all
related writings or agreements now or hereafter executed by Debtor.
(f) All other obligations, if any, described or referred to in any
other place in this Agreement.
<PAGE>
(g) Any and all sums and the interest which accrues on them as
provided in this Agreement which Secured Party may advance or which Debtor may
owe Secured Party pursuant to this Agreement on account of Debtor's failure to
keep, observe or perform any of Debtor's covenants under this Agreement.
(h) All present and future debts and obligations under or pursuant
to (1) any papers ("Credit Documents") now or in the future governing,
evidencing, guaranteeing or securing or otherwise relating to payment of all or
any part of the debt evidenced by Note A, Note B and/or any of the other
indebtedness herein described, or (2) all supplements, amendments, restatements,
renewals, extensions, rearrangements, increases, expansions or replacements of
them.
(i) All other present and future debt or other obligations of Debtor
now or hereafter held or owned by Secured Party, whether direct or indirect,
primary or secondary, fixed or contingent, several, joint or joint and several,
and regardless of how incurred, evidenced, guaranteed or otherwise secured,
including any present or future debt under any credit or loan agreement, any
letter of credit application, any reimbursement, repurchase, reverse repurchase,
swap or other agreement which absolutely or contingently creates any financial
obligation, any guaranty or any other papers previously, concurrently or later
executed by Debtor, or accepted by Debtor as binding upon Debtor. Debtor and
Secured Party presently contemplate that Secured Party may at Secured Party's
election lend sums or extend other financial accommodations to Debtor or for
Debtor's account or benefit in the future and may acquire and become the owner
and holder of other debt or obligations of Debtor from time to time, but that
Secured Party has no obligation to do so. Debtor agrees that if Debtor should
thus become indebted to Secured Party in any such additional sums (except in
cases where Debtor and Secured Party have expressly agreed in writing to a
different rate, a different maturity or both) all such other or future debt
shall be due and payable on demand, the principal of such debt shall bear
interest at the Past Due Rate (as defined in Section 4.2 below) from the date of
its accrual, however it accrues, until paid, and all such other debt, both
principal and interest, shall be secured by this Agreement as well as by any and
all other security which Secured Party may now or hereafter hold for it.
2.2 The term "Note" means, collectively, Note A and Note B. The term
"Debt" means and includes every Note and all other debt and obligations
described or referred to in Section 2.1. The Debt includes interest and other
obligations accruing or arising after (a) commencement of any case under any
bankruptcy or similar laws by or against Debtor or any other person or entity
now or hereafter primarily or secondarily obligated to pay all or any part of
the Debt (Debtor and each such other person or entity being herein called an
"Obligor") or (b) the obligations of any Obligor shall cease to exist by
operation of law or for any other reason. The Debt also includes all reasonable
attorneys' fees and any other expenses incurred by Secured Party in enforcing
any of the Credit Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants as follows:
<PAGE>
(a) Debtor is the legal and equitable owner and holder of good and
marketable title to the Collateral free of any adverse claim and free of any
security interest or encumbrance except only for the security interest granted
hereby in the Collateral, those other security interests (if any) expressly
referred to or described in this Agreement, those security interests in favor of
Norwest Bank Texas, N.A. to be released contemporaneously with the execution of
this Agreement and those security interests permitted under the Loan Agreements
(such warranty to supersede any provision contained in this Agreement limiting
the liability of Debtor). Debtor agrees to defend the Collateral and its
proceeds against all claims and demands of any person at any time claiming the
Collateral, its proceeds or any interest in either. Debtor has not heretofore
signed any financing statement directly or indirectly affecting the Collateral
or any part of it which has not been completely terminated of record, and no
such financing statement signed by Debtor is now on file in any public office
except only those statements (if any) true and correct copies of which Debtor
has actually delivered to Secured Party.
(b) The location of Debtor is the address set forth at the beginning
of this Agreement and in this regard, Debtor's location is defined to mean (i)
Debtor's place of business if Debtor has only one such place of business; (ii)
Debtor's chief executive office if Debtor has more than one place of business;
or (iii) Debtor's residence if Debtor has no place of business.
(c) All of Debtor's books and records with regard to the Collateral
are maintained and kept at the address of Debtor set forth in this Agreement.
(d) Except for automobiles of Debtor which constitute Equipment, no
part of the Collateral is covered by a certificate of title or subject to any
certificate of title law.
(e) No part of the Collateral consists or will consist of consumer
goods, farm products, timber, minerals and the like (including oil and gas) or
accounts resulting from the sale thereof.
(f) Debtor has not changed its name, whether by amendment of its
organizational documents or otherwise, during the last five (5) years.
(g) Except as otherwise expressly permitted by this Agreement or the
Loan Agreement, the liens and security interests of this Agreement will
constitute valid and perfected first and prior liens and security interests on
the Collateral, subject to no other liens, security interests or charges
whatsoever. The Collateral is free from damage caused by fire or other casualty.
ARTICLE 4
COVENANTS
4.1 Debtor covenants and agrees with Secured Party as follows:
(a) Debtor shall furnish to Secured Party such instruments as may be
required by Secured Party to assure the transferability of the Collateral when
and as often as may be requested by Secured Party.
<PAGE>
(b) Debtor will cause to be paid before delinquency all taxes,
charges, liens and assessments heretofore or hereafter levied or assessed
against the Collateral, or any part thereof, or against Secured Party for or on
account of the Debt or the interest created by this Agreement; provided,
however, nothing contained herein shall require payment of such taxes and
assessments so long as any claims which may be asserted against Debtor with
respect to such taxes and assessments shall be contested diligently and in good
faith and reserves with respect thereto deemed adequate by Secured Party shall
be established. Debtor will furnish Secured Party with receipts showing payment
of such taxes and assessments (except to the extent being so contested) at least
ten (10) days before the applicable default date therefor.
(c) If the validity or priority of this Agreement or of any rights,
titles, security interests or other interests created or evidenced hereby shall
be attacked, endangered or questioned or if any legal proceedings are instituted
with respect thereto, Debtor will give prompt written notice thereof to Secured
Party and at Debtor'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, and Secured Party (whether or
not named as a party to legal proceedings with respect thereto) is hereby
authorized and empowered to take such additional steps as in its 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 Agreement and
the rights, titles, security interests and other interests created or evidenced
hereby, and all expenses so incurred of every kind and character shall
constitute sums advanced pursuant to Section 4.2 of this Agreement.
(d) Debtor will, on request of Secured Party, (i) promptly correct
any defect, error or omission which may be discovered in the contents of this
Agreement or in any other instrument executed in connection herewith or in the
execution or acknowledgment thereof; (ii) execute, acknowledge, deliver and
record or file such further instruments (including further security agree ments,
financing statements and continuation statements) and do such further acts as
may be necessary, desirable or proper to carry out more effectively the purposes
of this Agreement and such other instruments and to subject to the security
interests hereof and thereof any property intended by the terms hereof and
thereof to be covered hereby and thereby including specifically any renewals,
additions, substitutions, replacements or appurtenances to the then Collateral;
and (iii) execute, acknowledge, deliver, procure and record or file any document
or instrument (including specifically any financing statement) deemed advisable
by Secured Party to protect the security interest hereunder against the rights
or interests of third persons, and Debtor will pay all costs connected with any
of the foregoing.
(e) Notwithstanding the security interest in proceeds granted
herein, except for the sale of inventory in the ordinary course of business,
Debtor will not, except as otherwise expressly permitted herein, sell, lease,
exchange, lend, rent, assign, transfer or otherwise dispose of, or pledge,
hypothecate or grant any security interest in, or permit to exist any lien,
security interest, charge or encumbrance against, all or any part of the
Collateral or any interest therein or permit any of the foregoing to occur or
arise or permit title to the Collateral, or any interest therein, to be vested
in any other party, in any manner whatsoever, by operation of law or otherwise,
without the prior written
<PAGE>
consent of Secured Party. Except as permitted in the Loan Agreement, Debtor
shall not, without the prior written consent of Secured Party, (i) acquire any
such Collateral under any arrangement whereby the seller or any other person
retains or acquires any security interest in such Collateral or (ii) return or
give possession of any such Collateral to any supplier or any other person
except in the ordinary course of business.
(f) Debtor shall account fully and faithfully for and, if Secured
Party so elects, shall promptly pay or turn over to Secured Party (subject to
any prior rights of holders of purchase money security interests in any
equipment comprising a portion of the Collateral) the proceeds in whatever form
received from the sale or disposition or realization in any manner of any of the
Collateral, whether the Debt is mature or not; provided, however, (1) proceeds
from the sale of inventory in the ordinary course of business will not be
required to be delivered to Secured Party unless an Event of Default exists and
(2) proceeds from the sale of equipment will not be required to be delivered to
Secured Party unless an Event of Default exists, as long as such proceeds are
reinvested by Debtor in replacement equipment with a value at least equal to
that of the replaced equipment. Debtor shall at all times keep the Collateral
and its proceeds separate and distinct from other property of Debtor and shall
keep accurate and complete records of the Collateral and its proceeds. Debtor
shall, where applicable, at Debtor's own expense take all reasonable and
appropriate steps to enforce the collection of the Collateral and items
representing proceeds thereof.
(g) Debtor shall from time to time at the request of Secured Party
furnish Secured Party with a schedule of the Collateral constituting the
Collateral, containing such information as Secured Party may specify, and a list
of all those liable on checks, notes, drafts and other instruments representing
the proceeds of any of the Collateral. Secured Party shall also have the right
to make test verifications of the Collateral or any portion thereof.
(h) Debtor shall at all times keep accurate books and records
reflecting all facts concerning the Collateral including those pertaining to
Debtor's warranties, representations and agreements under this Agreement.
Immediately upon the execution of this Agreement, Debtor will make or allow
Secured Party to make written designation on Debtor's books and records to
reflect thereon the assignment to Secured Party of the Collateral covered by
this Agreement; provided, however, that the failure of Debtor and/or Secured
Party to make such a written designation shall not affect the rights of Secured
Party to any of the Collateral.
(i) If the Collateral is evidenced by promissory notes, trade
acceptances or other instruments for the payment of money, Debtor will, at the
request of Secured Party, immediately deliver them to Secured Party,
appropriately endorsed in blank, and regardless of the form of endorsement,
Debtor waives presentment, demand, notice of dishonor, protest and notice of
protest.
(j) Debtor will not use, or allow the use of, the Collateral in any
manner 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. Debtor will not do or suffer to be done any act whereby
the value of any part of the Collateral may be lessened.
<PAGE>
(k) Debtor agrees to provide, maintain and keep in force casualty,
liability and other insurance for that portion of the Collateral which is
tangible personal property as required by Secured Party. Debtor agrees that all
required insurance will be written on forms acceptable to Secured Party and by
companies having a Best's Insurance Guide Rating of not less than A or A+ and
which are otherwise acceptable to Secured Party, and that such insurance (other
than third party liability insurance) shall be written or endorsed so that all
losses are payable to Secured Party. Original certificates evidencing such
insurance and, if requested by Secured Party, copies of the insurance policies
evidencing such insurance shall be delivered by Debtor to Secured Party and held
by Secured Party. Each such policy shall expressly prohibit cancellation or
modification of insurance without thirty (30) days' written notice to Secured
Party. Debtor agrees to furnish due proof of payment of the premiums for all
such insurance to Secured Party promptly after each such payment is made and in
any case at least fifteen (15) days before payment becomes delinquent. Debtor
hereby assigns to Secured Party the exclusive right to collect any and all
monies that may become payable under any insurance policies covering any part of
the Collateral, or any risk to or about the Collateral. Foreclosure of this
Agreement shall automatically constitute foreclosure upon all policies of
insurance insuring any part of or risk to the Collateral and all claims
thereunder arising from post-foreclosure events. The successful bidder or
bidders for the Collateral at foreclosure, as their respective interests may
appear, shall automatically accede to all of Debtor's rights in, under and to
such policies and all post-foreclosure event claims, and such bidder(s) shall be
named as insured(s) on request, whether or not the bill of sale to any such
successful bidder mentions insurance. All proceeds of insurance which was paid
for by Debtor or by anyone other than Secured Party or another holder of any of
the Debt and which proceeds are actually received by Secured Party before
foreclosure shall be applied in payment of the Debt or, at the option of Secured
Party, shall be paid to Debtor or to such other person as is legally entitled to
them. Unless Secured Party or Secured Party's representative reserves at the
foreclosure sale the right to collect any uncollected insurance proceeds
recoverable for events occurring before foreclosure (in which event the
successful bidder at the sale, if not Secured Party, shall have no interest in
such proceeds and Secured Party shall apply them, if and when collected, to the
Debt in such order and manner as Secured Party shall then elect and remit any
remaining balance to Debtor or to such other person or entity as is legally
entitled to them), all proceeds of all such insurance which are not so reserved
by Secured Party at the foreclosure sale and are not actually received by
Secured Party until after foreclosure shall be the property of the successful
bidder or bidders at foreclosure, as their interests may appear, and Debtor
shall have no interest in them and shall receive no credit for them. Secured
Party shall have no duty to Debtor or anyone else to either require or provide
any insurance or to determine the adequacy or disclose any inadequacy of any
insurance. If Secured Party elects at any time or for any reason to purchase
insurance relating to the Collateral, it shall have no obligation to cause
Debtor or anyone else to be named as an insured, to cause Debtor's or anyone
else's interests to be insured or protected or to inform Debtor or anyone else
that his or its interests are uninsured or underinsured.
(l) Except as otherwise expressly permitted herein, the Collateral
is and shall remain in Debtor's possession or control at all times at Debtor's
risk of loss at Debtor's location as stated herein, where Secured Party may
inspect it at any time, except in connection with any sale thereof permitted
hereby and except for its temporary removal in connection with its ordinary use
or unless
<PAGE>
Debtor notifies Secured Party in writing and Secured Party consents in writing
in advance of its removal to another location.
(m) Immediately upon obtaining knowledge of the institution of any
proceedings arising out of injury or damage to the Collateral, or any portion
thereof, Debtor will notify Secured Party in writing of the pendency of such
proceedings. Secured Party may participate in any such proceedings, and Debtor
shall from time to time deliver to Secured Party all instruments requested by it
to permit such participation. Debtor shall, at its expense, diligently prosecute
any such proceedings, and shall consult with Secured Party, its attorneys and
experts, and cooperate with them in the carrying on or defense of any such
proceedings.
(n) Debtor shall furnish to Secured Party from time to time such
information relating to the Collateral or Debtor's financial condition and
affairs as Secured Party may from time to time request or as may be required
from time to time by any Credit Document.
(o) In the event any goods, the sale or other disposition of which
creates any of the Collateral described in Article 1 under the caption
"Accounts" (herein also sometimes collectively called "Accounts") which is
included in the Collateral, are returned to Debtor for credit, unless such
return would not cause the amounts outstanding under Note B to exceed the
Borrowing Base (as defined in the Loan Agreement), Debtor will promptly pay to
Secured Party the full amount of any advance made with respect to such Account,
and until such payment has been made, will hold such goods separate and apart
from Debtor's own property in trust for Secured Party and will immediately
notify Secured Party of such return.
(p) Debtor shall, within ten (10) days after Debtor has knowledge of
the applicable circumstances and in any event before any further advance of
funds by Secured Party secured hereby, notify Secured Party in writing in the
event any Account fails to constitute an "Eligible Account" (as defined in the
Loan Agreement) (and repay to Secured Party the amount of any advance made with
respect to such Account if the failure of such Account to constitute an Eligible
Account would cause the amounts outstanding under Note B to exceed the Borrowing
Base). Nothing in this paragraph shall be construed to limit or release any
right of Secured Party to any Collateral arising pursuant to Article 1 of this
Agreement.
(q) Debtor will not agree to a material modification of any of the
terms of any Account without the prior written consent of Secured Party.
(r) Until the occurrence of an Event of Default (as hereinafter
defined), Debtor may use the Collateral described in Article 1 under the caption
"Inventory" in any lawful manner not inconsistent with this Agreement or with
the terms or conditions of any policy of insurance thereon and may also sell or
lease such Collateral in the ordinary course of business. A sale in the ordinary
course of business does not include a transfer in partial or total satisfaction
of a debt. Until the occurrence of an Event of Default, Debtor may also use and
consume any raw materials or supplies, the use and consumption of which are
necessary to carry on Debtor's business.
<PAGE>
(s) Except as disclosed to Secured Party in writing, none of the
Collateral described in Article 1 under the caption "Equipment" is or shall be
wholly or partly affixed to real estate or other goods so as to become fixtures
on such real estate or accessions to such other goods. To the extent any of such
Collateral is or shall be wholly or partly affixed to real estate or other goods
so as to become fixtures on such real estate or accessions to such other goods,
Debtor has supplied to Secured Party a description of the real estate or other
goods to which such Collateral is or shall be wholly or partly affixed. Said
real estate is not subject to any lien or mortgage except as disclosed to
Secured Party in writing. Debtor will, on demand by Secured Party, furnish or
cause to be furnished to Secured Party a disclaimer or disclaimers, signed by
all persons having an interest in the applicable real estate or other goods to
which such Collateral is or shall be wholly or partly affixed, of any interest
in such Collateral which is before Secured Party's interest.
(t) The Collateral described in Article 1 under the caption
"Equipment" will be used in the business of Debtor.
(u) If Secured Party is a state or national bank and if any natural
person executing this Agreement is a "consumer" as defined in Regulation AA of
the Board of Governors of the Federal Reserve System, no security interest
created or evidenced by this Agreement shall extend to, cover or affect
"household goods" as also defined therein and no waiver of the rights of Debtor
contained in this or any other instrument shall extend to, or be effective as
to, any right the waiver of which is prohibited by Regulation AA. If Secured
Party is not a state or national bank and if any natural person executing this
Agreement is a "consumer" as defined in 16 C.F.R. ss. 444.1(d), as amended, no
lien or security interest created or evidenced by this Agreement shall extend
to, cover or affect "household goods" as defined in 16 C.F.R. ss. 444.1(a), as
amended and no waiver of the rights of Debtor contained in this or any other
instrument shall extend to, or be effective as to, any right the waiver of which
is prohibited by 16 C.F.R ss. 444.
4.2 If Debtor should fail to comply with any of its agreements,
covenants or obligations under this Agreement, the Note or any other Credit
Document, then Secured Party (in Debtor's name or in Secured Party's own name)
may perform them or cause them to be performed for Debtor's account and at
Debtor's expense, but shall have no obligation to perform any of them or cause
them to be performed. Any and all expenses thus incurred or paid by Secured
Party shall be Debtor's obligations to Secured Party due and payable on demand,
or if no demand is sooner made, then they shall be due on or before four (4)
years after the respective dates on which they were incurred, and each shall
bear interest from the date Secured Party pays it until the date Debtor repays
it to Secured Party, at the maximum nonusurious rate of interest from time to
time permitted by whichever of applicable Texas or federal law from time to time
permits the higher nonusurious interest rate (the "Ceiling Rate"), or, only if
applicable law imposes no maximum nonusurious rate, then at the same rate as is
provided for in Note A for interest on past due principal (the "Past Due Rate").
At all times, if any, that applicable Texas law establishes the Ceiling Rate,
the Ceiling Rate shall be the "weekly ceiling" as defined in Chapter 1D of Title
79, Revised Civil Statutes, 1925 - "Chapter 1D" - and ss.303 of the Texas
Finance Code - "Texas Finance Code" - as amended for that day. Upon making any
such payment or incurring any such expense, Secured Party shall be fully and
automatically subrogated to all of the rights of the person, corporation or body
politic receiving such
<PAGE>
payment. Any amounts owing by Debtor to Secured Party pursuant to this or any
other provision of this Agreement shall automatically and without notice be and
become a part of the Debt and shall be secured by this and all other instruments
securing the Debt. The amount and nature of any such expense and the time when
it was paid shall be fully established by the affidavit of Secured Party or any
of Secured Party's officers or agents. Without notice to Debtor or any other
person or entity, the Ceiling Rate and the Past Due Rate shall automatically
fluctuate upward and downward as and in any amount by which the maximum
nonusurious rate of interest permitted by such applicable law and the rate of
interest as provided for in Note A for interest on past due principal fluctuate,
respectively. The exercise of the privileges granted to Secured Party in this
Section shall in no event be considered or constitute a cure of the default or a
waiver of Secured Party's right at any time after an Event of Default to declare
the Debt to be at once due and payable, but is cumulative of such right and of
all other rights given by this Agreement, the Note and the Credit Documents and
of all rights given Secured Party by law.
ARTICLE 5
ASSIGNMENT OF PAYMENTS; CERTAIN POWERS OF SECURED PARTY
Debtor hereby authorizes and directs each account debtor and each
other person or entity obligated to make payment in respect of any of the
Collateral (each a "Collateral Obligor") to pay over to Secured Party, its
officers, agents or assigns, upon demand by Secured Party, all or any part of
the Collateral without making any inquiries as to the status or balance of the
Debt and without any notice to or further consent of Debtor. Debtor hereby
agrees to indemnify each Collateral Obligor and hold each Collateral Obligor
harmless from all expenses and losses which it may incur or suffer as a result
of any payment it makes to Secured Party pursuant to this paragraph. To
facilitate the rights of Secured Party hereunder, Debtor hereby authorizes
Secured Party, its officers, employees, agents or assigns, at any time while an
Event of Default exists:
(a) to notify Collateral Obligors of Secured Party's security
interest in the Collateral and to collect all or any part of the Collateral
without further notice to or further consent by Debtor, and Debtor hereby
constitutes and appoints Secured Party the true and lawful attorney of Debtor
(such agency being coupled with an interest), irrevocably, with power of
substitution, in the name of Debtor or in its own name or otherwise, to take any
of the actions described in the following clauses (b), (c), (d), (e), (f) and
(g);
(b) to ask, demand, collect, receive, receipt for, sue for, compound
and give acquittance for any and all amounts which may be or become due or
payable under the Collateral and to settle and/or adjust all disputes and/or
claims directly with any Collateral Obligor and to compromise, extend the time
for payment, arrange for payment in installments, otherwise modify the terms of,
or release, any of the Collateral, on such terms and conditions as Secured Party
may determine (without thereby incurring responsibility to or discharging or
otherwise affecting the liability of Debtor to Secured Party under this
Agreement or otherwise);
(c) to direct delivery of, receive, open and dispose of all mail
addressed to Debtor and to execute, sign, endorse, transfer and deliver (in the
name of Debtor or in its own name or other-
<PAGE>
wise) any and all receipts or other orders for the payment of money drawn on the
Collateral and all notes, acceptances, commercial paper, drafts, checks, money
orders and other instruments given in payment or in part payment thereof and all
invoices, freight and express bills and bills of lading, storage receipts,
warehouse receipts and other instruments and documents in respect of any of the
Collateral and any other documents necessary to evidence, perfect and realize
upon the security interests and obligations of this Agreement;
(d) in its discretion to file any claim or take any other action or
proceeding which Secured Party may deem necessary or appropriate to protect and
preserve the rights, titles and interests of Secured Party hereunder;
(e) to sign the name of Debtor to financing statements, drafts
against Collateral Obligors, assignments or verifications of any of the
Collateral and notices to Collateral Obligors;
(f) to station one or more representatives of Secured Party on
Debtor's premises for the purpose of exercising any rights, benefits or
privileges available to Secured Party hereunder or under any of the Credit
Documents or at law or in equity, including receiving collections and taking
possession of books and records relating to the Collateral; and
(g) to cause title to any or all of the Collateral to be transferred
into the name of Secured Party or any nominee or nominees of Secured Party.
The powers conferred on Secured Party pursuant to this Article 5 are conferred
solely to protect Secured Party's interest in the Collateral and shall not
impose any duty or obligation on Secured Party to perform any of the powers
herein conferred. No exercise of any of the rights provided for in this Article
5 shall constitute a retention of collateral in satisfaction of the indebtedness
as provided for in Section 9.505 of the Uniform Commercial Code of Texas.
ARTICLE 6
EVENTS OF DEFAULT
If any Event of Default occurs under the Loan Agreement, then that
shall constitute an Event of Default (herein so called) under this Agreement.
ARTICLE 7
REMEDIES IN EVENT OF DEFAULT
7.1 Upon the occurrence of an Event of Default, and at any time
thereafter:
(a) Secured Party shall have the option of declaring, without notice
to any person, all Debt to be immediately due and payable.
(b) Secured Party is authorized, in any legal manner and without
breach of the peace, to take possession of the Collateral (Debtor hereby WAIVING
all claims for damages arising from or
<PAGE>
connected with any such taking) and of all books, records and accounts relating
thereto and to exercise without interference from Debtor any and all rights
which Debtor has with respect to the management, possession, operation,
protection or preservation of the Collateral, including the right to sell or
rent the same for the account of Debtor and to deduct from such sale proceeds or
such rents all costs, expenses and liabilities of every character incurred by
Secured Party in collecting such sale proceeds or such rents and in managing,
operating, maintaining, protecting or preserving the Collateral and to apply the
remainder of such sales proceeds or such rents on the Debt in such manner as
Secured Party may elect. Before any sale, Secured Party may, at its option,
complete the processing of any of the Collateral and/or repair or recondition
the same to such extent as Secured Party may deem advisable and any sums
expended therefor by Secured Party shall be reimbursed by Debtor. Secured Party
may take possession of Debtor's premises to complete such processing, repairing
and/or reconditioning, using the facilities and other property of Debtor to do
so, to store any Collateral and to conduct any sale as provided for herein, all
without compensation to Debtor. All costs, expenses, and liabilities incurred by
Secured Party in collecting such sales proceeds or such rents, or in managing,
operating, maintaining, protecting or preserving such properties, or in
processing, repairing and/or reconditioning the Collateral if not paid out of
such sales proceeds or such rents as hereinabove provided, shall constitute a
demand obligation owing by Debtor and shall bear interest from the date of
expenditure until paid at the Past Due Rate, all of which shall constitute a
portion of the Debt. If necessary to obtain the possession provided for above,
Secured Party may invoke any and all legal remedies to dispossess Debtor,
including specifically one or more actions for forcible entry and detainer. In
connection with any action taken by Secured Party pursuant to this paragraph,
Secured Party shall not be liable for any loss sustained by Debtor resulting
from any failure to sell or let the Collateral, or any part thereof, or from
other act or omission of Secured Party with respect to the Collateral unless
such loss is caused by the willful misconduct and bad faith of Secured Party,
nor shall Secured Party be obligated to perform or discharge any obligation,
duty, or liability under any sale or lease agreement covering the Collateral or
any part thereof or under or by reason of this instrument or the exercise of
rights or remedies hereunder.
(c) Secured Party may, without notice except as hereinafter
provided, sell the Collateral or any part thereof at public or private sale
(with or without appraisal or having the Collateral at the place of sale) for
cash, upon credit, or for future delivery, and at such price or prices as
Secured Party may deem best, and Secured Party may be the purchaser of any and
all of the Collateral so sold and may apply upon the purchase price therefor any
of the Debt and thereafter hold the same absolutely free from any right or claim
of whatsoever kind. Upon any such sale Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right of whatsoever kind, including any equity or right of
redemption, stay or appraisal which Debtor has or may have under any rule of law
or statute now existing or hereafter adopted. To the extent notice is required
by applicable law, Secured Party shall give Debtor written notice at the address
set forth herein (which shall satisfy any requirement of notice or reasonable
notice in any applicable statute) of Secured Party's intention to make any such
public or private sale. Such notice (if any is required by applicable law) shall
be personally delivered or mailed, postage prepaid, at least ten (10) calendar
days before the date fixed for a public sale, or at least (10) calendar days
before the date after which the private sale or other disposition is to be made,
unless the Collateral is of a type customarily sold
<PAGE>
on a recognized market, is perishable or threatens to decline speedily in value.
Such notice (if any is required by applicable law), in case of public sale,
shall state the time and place fixed for such sale or, in case of private sale
or other disposition other than a public sale, the time after which the private
sale or other such disposition is to be made. Any public sale shall be held at
such time or times, within the ordinary business hours and at such place or
places, as Secured Party may fix in the notice of such sale. At any sale the
Collateral may be sold in one lot as an entirety or in separate parcels as
Secured Party may determine. Secured Party shall not be obligated to make any
sale pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at any time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by Secured Party
until the selling price is paid by the purchaser thereof, but Secured Party
shall incur no liability in case of the failure of such purchaser to take up and
pay for the Collateral so sold, and in case of any such failure, such Collateral
may again be sold upon like notice. Each and every method of disposition
described in this Section shall constitute disposition in a commercially
reasonable manner. Each Obligor, to the extent applicable, shall remain liable
for any deficiency.
(d) Secured Party shall have all the rights of a secured party after
default under the Uniform Commercial Code of Texas and in conjunction with, in
addition to or in substitution for those rights and remedies:
(i) Secured Party may require Debtor to assemble the Collateral and
make it available at a place Secured Party designates which is mutually
convenient to allow Secured Party to take possession or dispose of the
Collateral; and
(ii) it shall not be necessary that Secured Party take possession of
the Collateral or any part thereof before the time that any sale pursuant to the
provisions of this Article is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
(iii) before application of proceeds of disposition of the
Collateral to the Debt, such proceeds shall be applied to the reasonable
expenses of retaking, holding, preparing for sale or lease, selling, leasing and
the like and the reasonable attorneys' fees and legal expenses incurred by
Secured Party, each Obligor, to the extent applicable, to remain liable for any
deficiency; and
(iv) the sale by Secured Party of less than the whole of the
Collateral shall not exhaust the rights of Secured Party hereunder, and Secured
Party is specifically empowered to make successive sale or sales hereunder until
the whole of the Collateral shall be sold; and, if the proceeds of such sale of
less than the whole of the Collateral shall be less than the aggregate of the
Debt, this Agreement and the security interest created hereby shall remain in
full force and effect as to the unsold portion of the Collateral just as though
no sale had been made; and
<PAGE>
(v) in the event any sale hereunder is not completed or is defective
in the opinion of Secured Party, such sale shall not exhaust the rights of
Secured Party hereunder and Secured Party shall have the right to cause a
subsequent sale or sales to be made hereunder; and
(vi) any and all statements of fact or other recitals made in any
bill of sale or assignment or other instrument evidencing any foreclosure sale
hereunder as to nonpayment of any indebtedness or as to the occurrence of any
default, or as to Secured Party having declared all of such indebtedness to be
due and payable, or as to notice of time, place and terms of sale and the
Collateral to be sold having been duly given, as to any other act or thing
having been duly done by Secured Party, shall be taken as prima facie evidence
of the truth of the facts so stated and recited; and
(vii) Secured Party 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
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party; and
(viii) to the extent allowed by applicable law, demand of
performance, advertisement and presence of property at sale are hereby WAIVED
and Secured Party is hereby authorized to sell hereunder any evidence of debt it
may hold as security for the Debt. To the extent allowed by applicable law, all
demands and presentments of any kind or nature are expressly WAIVED by Debtor.
Debtor WAIVES, to the extent allowed by applicable law, the right to require
Secured Party to pursue any other remedy for the benefit of Debtor and agrees
that Secured Party may proceed against any Obligor for the amount of the Debt
owed to Secured Party without taking any action against any other Obligor or any
other person or entity and without selling or otherwise proceeding against or
applying any of the Collateral in Secured Party's possession.
7.2 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 other instrument securing the payment
of the Debt, or any part thereof, or otherwise benefiting Secured Party, and the
resort to any remedy provided for hereunder or under any such other instrument
or provided for by law shall not prevent the concurrent or subsequent employment
of any other appropriate remedy or remedies.
7.3 Secured Party may resort to any security given by this Agreement
or to any other security now existing or hereafter given to secure the payment
of the Debt, in whole or in part, and in such portions and in such order as may
seem best to Secured Party in its sole and uncontrolled discretion, and any such
action shall not in anywise be considered as a waiver of any of the rights,
benefits or security interests evidenced by this Agreement.
7.4 To the full extent Debtor may do so, Debtor agrees that Debtor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any appraisement, valuation,
stay, extension or redemption, and Debtor, for Debtor, Debtor's heirs, devisees,
executors, administrators, personal representatives, successors, receivers,
trustees and assigns, and for any and all persons ever claiming any interest in
the Collateral, to the extent permitted by law, hereby WAIVES and releases all
rights of redemption, valuation, appraisement,
<PAGE>
stay of execution, notice of intention to mature or to declare due the whole of
the Debt, notice of election to mature or to declare due the whole of the Debt
and all rights to a marshaling of the assets of Debtor, including the
Collateral, or to a sale in inverse order of alienation in the event of
foreclosure of the security interest hereby created.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Subject to the automatic reinstatement provisions of Section
8.24 below, upon full payment of the Debt, complete performance of all of the
obligations of the Obligors under the Credit Documents and final termination of
Secured Party's obligations--if any--to make any further advances under the Note
or to provide any other financial accommodations to any Obligor, all rights
under this Agreement shall terminate and the Collateral shall become wholly
clear of the security interest evidenced hereby, and upon written request by
Debtor such security interest shall be released by Secured Party in due form and
at Debtor's cost.
8.2 Secured Party may waive any default without waiving any other
prior or subsequent default. Secured Party may remedy any default without
waiving the default remedied. The failure by Secured Party to exercise any
right, power or remedy upon any default shall not 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 Secured Party 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 Debtor therefrom
shall in any event be effective unless the same shall be in writing and signed
by Secured Party 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 Debtor in any case shall of itself entitle
Debtor to any other or further notice or demand in similar or other
circumstances. Acceptance by Secured Party of any payment in an amount less than
the amount then due on the Debt shall be deemed an acceptance on account only
and shall not in any way affect the existence of a default hereunder.
8.3 Secured Party may at any time and from time to time in writing
(a) waive compliance by Debtor with any covenant herein made by Debtor to the
extent and in the manner specified in such writing; (b) consent to Debtor's
doing any act which hereunder Debtor is prohibited from doing, or consent to
Debtor's failing to do any act which hereunder Debtor is required to do, to the
extent and in the manner specified in such writing; (c) release any part of the
Collateral, or any interest therein, from the security interest of this
Agreement; or (d) release any party liable, either directly or indirectly, for
the Debt or for any covenant herein or in any other instrument now or hereafter
securing the payment of the Debt, without impairing or releasing the liability
of any other party. No such act shall in any way impair the rights of Secured
Party hereunder except to the extent specifically agreed to by Secured Party in
such writing.
<PAGE>
8.4 Secured Party shall not be required to take any steps necessary
to preserve any rights against prior parties to any of the Collateral.
8.5 The security interest and other rights of Secured Party
hereunder shall not be impaired by any indulgence, moratorium or release granted
by Secured Party, including but not limited to (a) any renewal, extension or
modification which Secured Party may grant with respect to the Debt, (b) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Secured Party may grant in respect of any item of the Collateral, or any
part thereof or any interest therein, or (c) any release or indulgence granted
to any endorser, guarantor or surety of the Debt.
8.6 Secured Party may call at Debtor's place or places of business
during reasonable business hours at intervals to be determined by Secured Party
and, without hindrance or delay, inspect, audit, check and make extracts from
and copies of the books, records, journals, orders, receipts, correspondence and
other data relating to the Collateral or to any transaction between Debtor and
Secured Party, and Debtor shall assist Secured Party in such actions.
8.7 Secured Party may render and send to Debtor a statement of
account showing loans made, all other charges, expenses and items charged to
Debtor, payment by Debtor against the loans, proceeds collected and applied to
the loans, other appropriate debts and credits, and a total of Debtor's
indebtedness on the loans as of the date of the statement of account, and the
statement of account shall be considered correct in all respects and accepted by
and conclusively binding upon Debtor, except for specified objections which
Debtor makes in writing within ten (10) days from the date upon which the
statement of account is sent.
8.8 A carbon, photographic or other reproduction of this Agreement
or of any financing statement relating to this Agreement shall be sufficient as
a financing statement.
8.9 Debtor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
8.10 In the event the ownership of the Collateral or any part
thereof becomes vested in a person other than Debtor, Secured Party may, without
notice to Debtor, deal with such successor or successors in interest with
reference to this Agreement and to the Debt in the same manner as with Debtor,
without in any way vitiating or discharging Debtor's liability hereunder or upon
the Debt. No sale of the Collateral, and no forbearance on the part of Secured
Party and no extension of the time for the payment of the Debt given by Secured
Party shall operate to release, discharge, modify, change or affect, in whole or
in part, the liability of Debtor hereunder for the payment of the Debt or the
liability of any other person hereunder for the payment of the Debt, except as
agreed to in writing by Secured Party.
8.11 Any other or additional security taken for the payment of any
of the Debt shall not in any manner affect the security given by this Agreement.
<PAGE>
8.12 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding lien, security interest, charge or prior
encumbrance against the Collateral, such proceeds have been advanced by Secured
Party at Debtor's request and Secured Party shall be subrogated to any and all
rights, security interests and liens owned 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.
8.13 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the lien, assignments and security interests of this Agreement
cannot be lawfully enforced to pay any part of the Debt, then and in either such
event, at the option of Secured Party, all payments on the Debt shall be deemed
to have been first applied against that part of the Debt.
8.14 Secured Party may assign this Agreement so that the assignee
shall be entitled to the rights and remedies of Secured Party hereunder and in
the event of such assignment, Debtor will assert no claims or defenses it may
have against the assignee except those granted in this Agreement.
8.15 This Agreement shall not be changed orally but shall be changed
only by agreement in writing signed by Debtor and Secured Party. No course of
dealing between the parties, no usage of trade and no parole or extrinsic
evidence of any nature shall be used to supplement or modify any of the terms or
provisions of this Agreement.
8.16 Any notice, request or other communication required or
permitted to be given hereunder shall be given as provided in the Loan
Agreement. Actual notice, however and from whomever given or received, shall
always be effective when received.
8.17 This Agreement shall be binding upon Debtor, and the heirs,
devisees, executors, administrators, personal representatives, trustees,
beneficiaries, conservators, receivers, successors and assigns of Debtor,
including all successors in interest of Debtor in and to all or any part of the
Collateral, and shall benefit Secured Party and its successors and assigns.
8.18 If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this Agreement is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed against
Secured Party for having bargained for and obtained it.
8.19 Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any of the Collateral in its possession if it
takes such action for that purpose as Debtor requests in writing, but failure of
Secured Party to comply with such request shall not of itself be deemed a
failure to have exercised reasonable care, and no failure of Secured Party to
take any action so requested by Debtor shall be deemed a failure to exercise
reasonable care in the custody
<PAGE>
or preservation of such Collateral. Secured Party shall not be responsible in
any way for any depreciation in the value of the Collateral, nor shall any duty
or responsibility whatsoever rest upon Secured Party to take any steps to
preserve rights against prior parties or to enforce collection of the Collateral
by legal proceedings or otherwise, the sole duty of Secured Party, its
successors and assigns, being to receive collections, remittances and payments
on such Collateral as and when made and received by Secured Party and, at
Secured Party's option, to apply the amount or amounts so received, after
deduction of any collection costs incurred, as payment upon any of the Debt or
to hold the same for the account and order of Debtor.
8.20 In the event Debtor instructs Secured Party, in writing or
orally, to deliver any or all of the Collateral to a third person, and Secured
Party agrees to do so, the following conditions shall be conclusively deemed to
be a part of Secured Party's agreement, whether or not they are specifically
mentioned to Debtor at the time of such agreement: (i) Secured Party shall
assume no responsibility for checking the genuineness or authenticity of any
person purporting to be a messenger, employee or representative of such third
person to whom Debtor has directed Secured Party to deliver the Collateral, or
the genuineness or authenticity of any document of instructions delivered by
such person; (ii) Debtor will be considered by requesting any such delivery to
have assumed all risk of loss as to the Collateral; (iii) Secured Party's sole
responsibility will be to deliver the Collateral to the person purporting to be
such third person described by Debtor, or a messenger, employee or
representative thereof; and (iv) Secured Party and Debtor hereby expressly agree
that the foregoing actions by Secured Party shall constitute reasonable care.
8.21 The pronouns used in this Agreement are in the masculine and
neuter genders but shall be construed as feminine, masculine or neuter as
occasion may require. "Secured Party", "Obligor" and "Debtor" as used in this
Agreement include the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of those parties. When this Agreement is executed by more than one
person, corporation or other legal entity, it shall be construed as though
"Debtor" were written "Debtors" and as though the pronoun and verbs were changed
to correspond; and in such case (a) each of Debtors shall be bound jointly and
severally with one another to keep, observe and perform the covenants,
agreements, obligations and liabilities imposed by this Agreement upon the
"Debtor", (b) a release of one or more persons, corporations or other legal
entities comprising "Debtor" shall not in any way be deemed a release of any
other person, corporation or other legal entity comprising "Debtor", and (c) a
separate action hereunder may be brought and prosecuted against one or more of
the persons, corporations or other legal entities comprising "Debtor" without
limiting any liability or impairing Secured Party's right to proceed against any
other person, corporation or other legal entity comprising "Debtor".
8.22 The section headings appearing in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Terms used in this Agreement which are defined in the Texas Uniform Commercial
Code are used with the meanings as therein defined. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to."
<PAGE>
8.23 This Agreement is performable in Travis County, Texas, which
shall be a proper place of venue for suit on or in respect of this Agreement.
Debtor irrevocably agrees that any legal proceeding in respect of this Agreement
shall be brought in the district courts of Travis County, Texas or the United
States District Court for the Western District of Texas, Austin Division
(collectively, the "Specified Courts"). Debtor hereby irrevocably submits to the
nonexclusive jurisdiction of the state and federal courts of the State of Texas.
Debtor hereby irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to any Credit Document brought
in any Specified Court, and hereby further irrevocably waives any claims that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Debtor further irrevocably consents to the service of
process out of any of the Specified Courts in any such suit, action or
proceeding by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to Debtor at its address as provided in this
Agreement or as otherwise provided by Texas law. Nothing herein shall affect the
right of Secured Party to commence legal proceedings or otherwise proceed
against Debtor in any jurisdiction or to serve process in any manner permitted
by applicable law. Debtor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
8.24 Debtor agrees that, if at any time all or any part of any
payment previously applied by Secured Party to the Debt is or must be returned
by Secured Party--or recovered from Secured Party--for any reason (including the
order of any bankruptcy court), this Agreement shall automatically be reinstated
to the same effect, as if the prior application had not been made, and, in
addition, Debtor hereby agrees to indemnify Secured Party against, and to save
and hold Secured Party harmless from any required return by Secured Party--or
recovery from Secured Party--of any such payments because of its being deemed
preferential under applicable bankruptcy, receivership or insolvency laws, or
for any other reason.
8.25 This Agreement and the other Credit Documents embody the entire
agreement and understanding between Secured Party and Debtor with respect to
their subject matter and supersede all prior conflicting or inconsistent
agreements, consents and understandings relating to such subject matter. Debtor
acknowledges and agrees there is no oral agreement between Debtor and Secured
Party which has not been incorporated in this Agreement and the other Credit
Documents.
8.26 Secured Party may from time to time and at any time, without
any necessity for any notice to or consent by Debtor or any other person or
entity, release all or any part of the Collateral from the security interests of
this Agreement, with or without cause, including as a result of any
determination by Secured Party that the Collateral or any portion thereof
contains or has been contaminated by or releases or discharges any hazardous or
toxic waste, material or substance.
8.27 Secured Party is hereby authorized at any time and from time to
time, without notice to any person or entity (and Debtor hereby WAIVES any such
notice) to the fullest extent permitted
<PAGE>
by law, to set-off and apply any and all monies, securities and other properties
of Debtor now or in the future in the possession, custody or control of Secured
Party, or on deposit with or otherwise owed to Debtor by Secured
Party--including all such monies, securities and other properties held in
general, special, time, demand, provisional or final accounts or for safekeeping
or as collateral or otherwise (but excluding those accounts clearly designated
as escrow or trust accounts held by Debtor for others unaffiliated with
Debtor)--against any and all of Debtor's obligations to Secured Party now or
hereafter existing under this Agreement or any of the Credit Documents,
irrespective of whether Secured Party shall have made any demand hereunder or
thereunder. Secured Party agrees to use reasonable efforts to promptly notify
Debtor after any such set-off and application, provided that failure to give--or
delay in giving--any such notice shall not affect the validity of such set-off
and application or impose any liability on Secured Party. Secured Party's rights
under this Section are in addition to other rights and remedies (including other
rights of set-off) which Secured Party may have.
<PAGE>
EXECUTED as of the 8th day of April, 1998.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS AGREEMENT, THE NOTE AND THE OTHER CREDIT DOCUMENTS TOGETHER CONSTITUTE
A WRITTEN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREE MENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
CHASE BANK OF TEXAS, SURREY, INC.
NATIONAL ASSOCIATION a Texas corporation
By: /s/ Cindy M. Matula By: /s/ Mark van der Hagen
---------------------------------- ---------------------------------
Name: Cindy M. Matula Name: Mark van der Hagen
-------------------------------- -------------------------------
Title: Vice President Title: Vice President
------------------------------- ------------------------------
"Secured Party" "Debtor"
EXHIBIT 10.5
NOTE
Austin, Texas
$2,300,000.00 April 8, 1998
FOR VALUE RECEIVED, SURREY, INC., a Texas corporation, promises to
pay to the order of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national
banking association, at its banking house in the City of Austin, Travis County,
Texas (or such other place as the holder hereof may hereafter designate in
writing), in immediately available funds and in lawful money of the United
States of America, the principal sum of TWO MILLION THREE HUNDRED THOUSAND
DOLLARS ($2,300,000.00) (or the unpaid balance of all principal advanced against
this note, if that amount is less), together with interest as follows: (a)
interest on the unpaid principal balance of this note from time to time
outstanding at the Stated Rate and interest on all past due amounts, both
principal and accrued interest, from the respective due dates thereof until paid
at the Past Due Rate and (b) the Additional Interest; provided, that for the
full term of this note the interest rate produced by the aggregate of all sums
paid or agreed to be paid to the holder of this note for the use, forbearance or
detention of the debt evidenced hereby (including, but not limited to, all
interest on this note at the Stated Rate and the Past Due Rate plus the
Additional Interest) shall not exceed the Ceiling Rate.
1. Definitions. Unless otherwise defined herein, capitalized terms
used in this note shall have the same meaning in this note as in the Loan
Agreement (hereafter defined). As used in this note, the following terms shall
have the respective meanings indicated:
(a) "Additional Interest" means the aggregate of (i) all
amounts paid by Maker to the holder of this note pursuant to the provisions of
Subparagraph (c) of numbered Paragraph 4 hereof and (ii) all other amounts
accrued or paid pursuant to this note or any of the other Credit Documents
(other than interest on this note at the Stated Rate) which, under applicable
laws, are or may be deemed to constitute interest on the indebtedness evidenced
by this note.
(b) "Construction Loan Agreement" means the Construction Loan
Agreement dated concurrently herewith between Maker and Payee, as the same may
be amended, supplemented, restated or replaced from time to time.
(c) "Loan Agreement" means the Loan Agreement dated
concurrently herewith between Maker and Payee, as the same may be amended,
supplemented, restated or replaced from time to time.
(d) "Maker" means Surrey, Inc., a Texas corporation.
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
(e) "Maturity Date" means the maturity of this note, April 8,
2005, as the same may hereafter be accelerated pursuant to the provisions of
this note or any of the other Credit Documents.
(f) "Payee" means Chase Bank of Texas, National Association, a
national banking association, and any other holder or holders of this note from
time to time and, upon acquisition of this note by any holder or holders other
than the named payee, effective as of the time of such acquisition, the term
"Payee" shall mean all of the then holders of this note, to the exclusion of all
prior holders not then retaining or reserving an interest in this note, to the
end that all the rights, powers, remedies, liens, benefits and privileges
accruing and to accrue hereunder to Payee, as such term is used herein, shall
inure to the benefit of and be owned and held by the holder or holders of this
note from time to time, whether such holder acquires this note through
succession to or assignment from a prior Payee.
(g) "Stated Rate" means, for any day, a rate per annum equal
to the applicable Base Rate for that day for each Base Rate Borrowing made under
this note in accordance with the terms of the Loan Agreement and the applicable
LIBOR Rate for each LIBOR Rate Borrowing made under this note in accordance with
the terms of the Loan Agreement; provided, that if on any day the Stated Rate
for that day would exceed the Ceiling Rate for that day, the Stated Rate shall
be fixed at the Ceiling Rate on that day and on each day thereafter until the
total amount of interest accrued at the Stated Rate (as so fixed) on the unpaid
principal balance of this note plus the Additional Interest equals the total
amount of interest which would have accrued if there had been no Ceiling Rate.
If this note matures (or is prepaid) before such equality is achieved, then, in
addition to the unpaid principal and accrued interest then owing pursuant to the
other provisions of this note, Maker promises to pay on demand to the order of
the holder of this note interest in an amount equal to the excess (if any) of
(a) the lesser of (i) the total interest which would have accrued on this note
if the Stated Rate had been defined as equal to the Ceiling Rate from time to
time in effect and (ii) the total interest which would have accrued on this note
if the Stated Rate were not so prohibited from exceeding the Ceiling Rate, over
(b) the total interest actually accrued hereon to such maturity (or prepayment)
date. Without notice to Maker or any other person or entity, the Stated Rate
shall automatically fluctuate upward and downward in accordance with the
provisions of this Subparagraph and the Loan Agreement.
2. Loan Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Loan Agreement, and is the Advance/Term Note
referred to in the Loan Agreement. Advances against this note by Payee or other
holder hereof shall be governed by the terms and provisions of the Loan
Agreement and the Construction Loan Agreement. Reference is hereby made to the
Loan Agreement and the Construction Loan Agreement for all purposes. Payee is
entitled to the benefits of and security provided for in the Loan Agreement and
the Construction Loan Agreement. Such security includes, among other security,
the Deed of Trust covering and affecting certain property situated in Travis,
Texas, more fully described therein, and the Security Agreements.
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
The unpaid principal balance of this note at any time shall be the total of all
amounts lent or advanced against this note less the amount of all payments or
permitted prepayments made on this note and by or for the account of Maker. All
loans and advances and all payments and permitted prepayments made hereon may be
endorsed by the holder of this note on a schedule which may be attached hereto
(and thereby made a part hereof for all purposes) or otherwise recorded in the
holder's records; provided, that any failure to make notation of (a) any advance
shall not cancel, limit or otherwise affect Maker's obligations or any holder's
rights with respect to that advance, or (b) any payment or permitted prepayment
of principal shall not cancel, limit or otherwise affect Maker's entitlement to
credit for that payment as of the date received by the holder. Amounts paid or
prepaid under this note may not be reborrowed.
3. Computation of Interest. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from the
date it is made. Interest at the Stated Rate shall be computed for the actual
number of days elapsed in a year consisting of 360 days, unless the Ceiling Rate
would thereby be exceeded, in which event, to the extent necessary to avoid
exceeding the Ceiling Rate, interest at the Stated Rate shall be computed on the
basis of the actual number of days elapsed in the applicable calendar year in
which accrued.
4. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal
balance of this note shall be due and payable (i) on the Interest Payment Dates
and (ii) on the Maturity Date.
(b) The principal of this note shall be due and payable in
monthly installments in the amounts described below. The first such installment
shall be due and payable on January 8, 1999 and a like installment shall be due
and payable on the same day of each succeeding calendar month thereafter until
this note shall have been fully paid and satisfied; provided, that on the
Maturity Date, the entire unpaid principal balance of this note shall be finally
due and payable. The amount of the required monthly principal installment shall
be $9,583.33 for each monthly payment due prior to or on April 8, 2001, and
shall thereafter be $12,777.78.
(c) Additional Interest consisting of Eight Thousand Six
Hundred Twenty-Five Dollars ($8,625.00) shall be deemed earned and accrued on
the date of this note and shall be due and payable on demand.
(d) All payments hereon made pursuant to this Paragraph shall
be applied first to accrued interest, the balance to principal.
(e) If any payment provided for in this note shall become due
on a day other than a Business Day, such payment may be made on the next
succeeding Business Day (unless the result of such extension of time would be to
extend the date for such payment into another calendar month
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
or beyond the Maturity Date, and in either such event such payment shall be made
on the Business Day immediately preceding the day on which such payment would
otherwise have been due), and such extension of time shall in such case be
included in the computation of interest on this note.
5. No Usury Intended; Spreading. Notwithstanding any provision
to the contrary contained in this note or any of the other Credit Documents, it
is expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Credit Documents, which under applicable laws are
or may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable usury laws. In
furtherance thereof, none of the terms of this note or any of the other Credit
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of this note. The
provisions of this Paragraph shall control all agreements, whether now or
hereafter existing and whether written or oral, between Maker and Payee.
6. Default. If any default, event of default or similar event
(however denominated) occurs under any Credit Document, then that shall
automatically constitute default under this note, and unless Payee declares the
default fully cured to Payee's satisfaction with any applicable grace period (if
any) agreed to in writing by Payee, then the obligation (if any) of Payee to
make further advances against this note shall cease and terminate and the owner
or holder hereof may, at its, his or her option, exercise any or all rights,
powers and remedies afforded under any Credit Document and by law, including the
right to declare the unpaid balance of principal and accrued interest on this
note at once mature and payable.
7. No Waiver by Payee. No delay or omission of Payee or any other
holder hereof to exercise any power, right or remedy accruing to Payee or any
other holder hereof shall impair any such power, right or remedy or shall be
construed to be a waiver of the right to exercise any such power, right or
remedy. Payee's right to accelerate this note for any late payment or Maker's
failure to timely fulfill its other obligations hereunder or under the other
Credit Documents shall not be
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
waived or deemed waived by Payee by Payee's having accepted a late payment or
late payments in the past or Payee otherwise not accelerating this note or
exercising other remedies for Maker's failure to timely perform its obligations
hereunder or under the other Credit Documents. Payee shall not be obligated or
be deemed obligated to notify Maker that it is requiring Maker to strictly
comply with the terms and provisions of this note and the other Credit Documents
before accelerating this note and exercising its other remedies hereunder or
under the other Credit Documents because of Maker's failure to timely perform
its obligations under this note and the other Credit Documents.
8. Costs and Attorneys' Fees. If any holder of this note retains an
attorney in connection with any default or to collect, enforce or defend this
note or any of the Credit Documents in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker sues any holder in
connection with this note or any of the Credit Documents and does not prevail,
then Maker agrees to pay to each such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such holder in trying to
collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. Any amount to be paid under this Paragraph by Maker to Payee
shall be a demand obligation owing by Maker to Payee and shall bear interest
from the date of demand until paid at the Past Due Rate.
9. Waivers by Maker and Others. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Credit
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from time to time without
notice to any of them. Each such person agrees that his, her or its liability on
or with respect to this note shall not be affected by any release of or change
in any guaranty or security at any time existing or by any failure to perfect or
to maintain perfection of any lien against or security interest in any such
security or the partial or complete unenforceability of any guaranty or other
surety obligation, in each case in whole or in part, with or without notice and
before or after maturity.
10. Paragraph Headings. Paragraph headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.
11. Venue; Choice of Law. This note is performable in Travis County,
Texas, which shall be a proper place of venue for suit on or in respect of this
note. Maker hereby irrevocably agrees that any legal proceeding in respect of
this note shall be brought in the district courts of Travis County, Texas, or in
the United States District Court for the Western District of Texas, Austin
Division (collectively, the "Specified Courts"). Maker hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Maker hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this note or any of the Credit Documents brought in any
Specified Court, and hereby further irrevocably waives any claims that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. Maker further irrevocably consents to the service of process
out of any of the Specified Courts in any such suit, action or proceeding by the
mailing of copies thereof by certified mail, return receipt requested, postage
prepaid, to Maker. Nothing herein shall affect the right of Payee to commence
legal proceedings or otherwise proceed against Maker in any jurisdiction or to
serve process in any manner permitted by applicable law. Maker agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM
TIME TO TIME IN EFFECT.
12. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
13. Records of Payments. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
14. Severability. If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this note is subject to the
overriding and controlling rule that it shall be effective only if and to the
extent that (a) it is not prohibited by applicable law and (b) applicable law
neither provides for nor allows any material sanctions to be imposed against
Payee for having bargained for and obtained it.
15. Sale and Assignment. Payee reserves the right, exercisable in
its sole discretion and without notice to Maker or any other person, to sell
participations or assign its interest, or both, in all or any part of this note
or any loan evidenced by this note.
16. Prepayment. Except as provided in the Loan Agreement, Maker may
prepay this note, in whole or in part, at any time without penalty or fee. All
prepayments hereon shall be applied first to any applicable prepayment charge,
if any, next to accrued interest and the balance to principal.
17. Business Loans. Maker warrants and represents to Payee and all
other holders of this note that all loans evidenced by this note are and will be
for business, commercial, investment or
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
other similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter 1D of Title 79, Texas
Revised Civil Statutes 1925, as amended.
18. Entire Agreement. This note and the other Credit Documents
embody the entire agreement and understanding between Payee and Maker and other
parties with respect to their subject matter and supersede all prior conflicting
or inconsistent agreements, consents and understandings relating to such subject
matter. Maker acknowledges and agrees that there is no oral agreement between
Maker and Payee which has not been incorporated in this note and the other
Credit Documents.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS NOTE AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES SUBSTANTIALLY CONCURRENTLY HEREWITH TOGETHER CONSTITUTE A WRITTEN LOAN
AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
SURREY, INC., a Texas corporation
By: /s/ Mark van der Hagen
------------------------------------
Name: Mark van der Hagen
----------------------------------
Title: Vice President
---------------------------------
EXHIBIT 10.6
NOTE
Austin, Texas
$1,000,000.00 April 8, 1998
FOR VALUE RECEIVED, SURREY, INC., a Texas corporation, promises to
pay to the order of CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national
banking association, at its banking house in the City of Austin, Travis County,
Texas (or such other place as the holder hereof may hereafter designate in
writing), in immediately available funds and in lawful money of the United
States of America, the principal sum of ONE MILLION DOLLARS ($1,000,000.00) (or
the unpaid balance of all principal advanced against this note, if that amount
is less), together with interest on the unpaid principal balance of this note
from time to time outstanding at the Stated Rate and interest on all past due
amounts, both principal and accrued interest, from the respective due dates
thereof until paid at the Past Due Rate; provided, that for the full term of
this note the interest rate produced by the aggregate of all sums paid or agreed
to be paid to the holder of this note for the use, forbearance or detention of
the debt evidenced hereby (including, but not limited to, all interest on this
note at the Stated Rate and the Past Due Rate) shall not exceed the Ceiling
Rate.
1. Definitions. Unless otherwise defined herein, capitalized terms
used in this note shall have the same meaning in this note as in the Loan
Agreement (hereafter defined). As used in this note, the following terms shall
have the respective meanings indicated:
(a) "Loan Agreement" means the Loan Agreement dated
concurrently herewith between Maker and Payee, as the same may be amended,
supplemented, restated or replaced from time to time.
(b) "Maker" means Surrey, Inc., a Texas corporation.
(c) "Maturity Date" means the maturity of this note, April 8,
2000, as the same may hereafter be accelerated pursuant to the provisions of
this note or any of the other Credit Documents.
(d) "Payee" means Chase Bank of Texas, National Association, a
national banking association, and any other holder or holders of this note from
time to time and, upon acquisition of this note by any holder or holders other
than the named payee, effective as of the time of such acquisition, the term
"Payee" shall mean all of the then holders of this note, to the exclusion of all
prior holders not then retaining or reserving an interest in this note, to the
end that all the rights, powers, remedies, liens, benefits and privileges
accruing and to accrue hereunder to Payee, as such term is used herein, shall
inure to the benefit of and be owned and held by the holder or
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
holders of this note from time to time, whether such holder acquires this note
through succession to or assignment from a prior Payee.
(e) "Stated Rate" means, for any day, a rate per annum equal
to the applicable Base Rate for that day for each Base Rate Borrowing made under
this note in accordance with the terms of the Loan Agreement and the applicable
LIBOR Rate for each LIBOR Rate Borrowing made under this note in accordance with
the terms of the Loan Agreement; provided, that if on any day the Stated Rate
for that day would exceed the Ceiling Rate for that day, the Stated Rate shall
be fixed at the Ceiling Rate on that day and on each day thereafter until the
total amount of interest accrued at the Stated Rate (as so fixed) on the unpaid
principal balance of this note equals the total amount of interest which would
have accrued if there had been no Ceiling Rate. If this note matures (or is
prepaid) before such equality is achieved, then, in addition to the unpaid
principal and accrued interest then owing pursuant to the other provisions of
this note, Maker promises to pay on demand to the order of the holder of this
note interest in an amount equal to the excess (if any) of (a) the lesser of (i)
the total interest which would have accrued on this note if the Stated Rate had
been defined as equal to the Ceiling Rate from time to time in effect and (ii)
the total interest which would have accrued on this note if the Stated Rate were
not so prohibited from exceeding the Ceiling Rate, over (b) the total interest
actually accrued hereon to such maturity (or prepayment) date. Without notice to
Maker or any other person or entity, the Stated Rate shall automatically
fluctuate upward and downward in accordance with the provisions of this
Subparagraph and the Loan Agreement.
2. Loan Agreement; Advances; Security. This note has been issued
pursuant to the terms of the Loan Agreement, and is the Revolving Note referred
to in the Loan Agreement. Advances against this note by Payee or other holder
hereof shall be governed by the terms and provisions of the Loan Agreement.
Reference is hereby made to the Loan Agreement for all purposes. Payee is
entitled to the benefits of and security provided for in the Loan Agreement.
Such security includes, among other security, the Deed of Trust covering and
affecting certain property situated in Travis County, Texas, more fully
described therein, and the Security Agreements. The unpaid principal balance of
this note at any time shall be the total of all amounts lent or advanced against
this note less the amount of all payments or permitted prepayments made on this
note and by or for the account of Maker. All loans and advances and all payments
and permitted prepayments made hereon may be endorsed by the holder of this note
on a schedule which may be attached hereto (and thereby made a part hereof for
all purposes) or otherwise recorded in the holder's records; provided, that any
failure to make notation of (a) any advance shall not cancel, limit or otherwise
affect Maker's obligations or any holder's rights with respect to that advance,
or (b) any payment or permitted prepayment of principal shall not cancel, limit
or otherwise affect Maker's entitlement to credit for that payment as of the
date received by the holder.
3. Computation of Interest. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from the
date it is made. Interest at the Stated Rate shall be computed for the actual
number of days elapsed in a year consisting of 360 days, unless
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
the Ceiling Rate would thereby be exceeded, in which event, to the extent
necessary to avoid exceeding the Ceiling Rate, interest at the Stated Rate shall
be computed on the basis of the actual number of days elapsed in the applicable
calendar year in which accrued.
4. Mandatory Payments of Principal and Interest.
(a) Accrued and unpaid interest on the unpaid principal
balance of this note shall be due and payable (i) on the Interest Payment Dates
and (ii) on the Maturity Date.
(b) The principal of this note shall be due and payable on the
Maturity Date.
(c) All payments hereon made pursuant to this Paragraph shall
be applied first to accrued interest, the balance to principal.
(d) If any payment provided for in this note shall become due
on a day other than a Business Day, such payment may be made on the next
succeeding Business Day (unless the result of such extension of time would be to
extend the date for such payment into another calendar month or beyond the
Maturity Date, and in either such event such payment shall be made on the
Business Day immediately preceding the day on which such payment would otherwise
have been due), and such extension of time shall in such case be included in the
computation of interest on this note.
5. No Usury Intended; Spreading. Notwithstanding any provision to
the contrary contained in this note or any of the other Credit Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant to
this note or any of the other Credit Documents, which under applicable laws are
or may be deemed to constitute interest upon the indebtedness evidenced by this
note from the date hereof, ever exceed the Ceiling Rate. In this connection,
Maker and Payee stipulate and agree that it is their common and overriding
intent to contract in strict compliance with applicable usury laws. In
furtherance thereof, none of the terms of this note or any of the other Credit
Documents shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the Ceiling Rate. Maker or other parties now or hereafter becoming liable for
payment of the indebtedness evidenced by this note shall never be liable for
interest in excess of the Ceiling Rate. If, for any reason whatever, the
interest paid or received on this note during its full term produces a rate
which exceeds the Ceiling Rate, the holder of this note shall credit against the
principal of this note (or, if such indebtedness shall have been paid in full,
shall refund to the payor of such interest) such portion of said interest as
shall be necessary to cause the interest paid on this note to produce a rate
equal to the Ceiling Rate. All sums paid or agreed to be paid to the holder of
this note for the use, forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of this note, so
that the interest rate is uniform throughout the full term of
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
this note. The provisions of this Paragraph shall control all agreements,
whether now or hereafter existing and whether written or oral, between Maker and
Payee.
6. Default. If any default, event of default or similar event
(however denominated) occurs under any Credit Document, then that shall
automatically constitute default under this note, and unless Payee declares the
default fully cured to Payee's satisfaction with any applicable grace period (if
any) agreed to in writing by Payee, then the obligation (if any) of Payee to
make further advances against this note shall cease and terminate and the owner
or holder hereof may, at its, his or her option, exercise any or all rights,
powers and remedies afforded under any Credit Document and by law, including the
right to declare the unpaid balance of principal and accrued interest on this
note at once mature and payable.
7. No Waiver by Payee. No delay or omission of Payee or any other
holder hereof to exercise any power, right or remedy accruing to Payee or any
other holder hereof shall impair any such power, right or remedy or shall be
construed to be a waiver of the right to exercise any such power, right or
remedy. Payee's right to accelerate this note for any late payment or Maker's
failure to timely fulfill its other obligations hereunder or under the other
Credit Documents shall not be waived or deemed waived by Payee by Payee's having
accepted a late payment or late payments in the past or Payee otherwise not
accelerating this note or exercising other remedies for Maker's failure to
timely perform its obligations hereunder or under the other Credit Documents.
Payee shall not be obligated or be deemed obligated to notify Maker that it is
requiring Maker to strictly comply with the terms and provisions of this note
and the other Credit Documents before accelerating this note and exercising its
other remedies hereunder or under the other Credit Documents because of Maker's
failure to timely perform its obligations under this note and the other Credit
Documents.
8. Costs and Attorneys' Fees. If any holder of this note retains an
attorney in connection with any default or to collect, enforce or defend this
note or any of the Credit Documents in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker sues any holder in
connection with this note or any of the Credit Documents and does not prevail,
then Maker agrees to pay to each such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such holder in trying to
collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. Any amount to be paid under this Paragraph by Maker to Payee
shall be a demand obligation owing by Maker to Payee and shall bear interest
from the date of demand until paid at the Past Due Rate.
9. Waivers by Maker and Others. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Credit
Documents, Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive notice (including, but not limited to, notice of intent to
accelerate and notice of acceleration, notice of protest and notice of
dishonor), demand, presentment for payment, protest, diligence in collecting and
the filing of suit for the purpose of fixing liability and consent that the time
of payment hereof may be extended and re-extended from
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
time to time without notice to any of them. Each such person agrees that his,
her or its liability on or with respect to this note shall not be affected by
any release of or change in any guaranty or security at any time existing or by
any failure to perfect or to maintain perfection of any lien against or security
interest in any such security or the partial or complete unenforceability of any
guaranty or other surety obligation, in each case in whole or in part, with or
without notice and before or after maturity.
10. Paragraph Headings. Paragraph headings appearing in this note
are for convenient reference only and shall not be used to interpret or limit
the meaning of any provision of this note.
11. Venue; Choice of Law. This note is performable in Travis County,
Texas, which shall be a proper place of venue for suit on or in respect of this
note. Maker hereby irrevocably agrees that any legal proceeding in respect of
this note shall be brought in the district courts of Travis County, Texas, or in
the United States District Court for the Western District of Texas, Austin
Division (collectively, the "Specified Courts"). Maker hereby irrevocably
submits to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas. Maker hereby irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this note or any
of the Credit Documents brought in any Specified Court, and hereby further
irrevocably waives any claims that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. Maker further
irrevocably consents to the service of process out of any of the Specified
Courts in any such suit, action or proceeding by the mailing of copies thereof
by certified mail, return receipt requested, postage prepaid, to Maker. Nothing
herein shall affect the right of Payee to commence legal proceedings or
otherwise proceed against Maker in any jurisdiction or to serve process in any
manner permitted by applicable law. Maker agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE
LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN
EFFECT.
12. Successors and Assigns. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of Maker and Payee.
13. Records of Payments. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
14. Severability. If any provision of this note is held to be
illegal, invalid or unenforceable under present or future laws, the legality,
validity and enforceability of the remaining provisions of this note shall not
be affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this note is subject to the
overriding and
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
controlling rule that it shall be effective only if and to the extent that (a)
it is not prohibited by applicable law and (b) applicable law neither provides
for nor allows any material sanctions to be imposed against Payee for having
bargained for and obtained it.
15. Sale and Assignment. Payee reserves the right, exercisable in
its sole discretion and without notice to Maker or any other person, to sell
participations or assign its interest, or both, in all or any part of this note
or any loan evidenced by this note.
16. Prepayment. Except as provided in the Loan Agreement, Maker may
prepay this note, in whole or in part, at any time without penalty or fee. All
prepayments hereon shall be applied first to any applicable prepayment charge,
if any, next to accrued interest and the balance to principal.
17. Revolving Loan. Subject to the terms and provisions of the Loan
Agreement, Maker may use all or any part of the credit provided to be evidenced
by this note at any time before the Maturity Date. Maker may borrow, repay and
reborrow hereunder, and except as set forth in the Loan Agreement, there is no
limitation on the number of advances made hereunder so long as the total unpaid
principal amount at any time outstanding hereunder does not exceed the lesser of
(a) the Borrowing Base or (b) One Million Dollars ($1,000,000.00). Pursuant to
Section 346.003 of the Texas Finance Code, as amended, Maker and Payee expressly
agree that Chapter 346 of the Texas Finance Code shall not apply to this note or
to any loan evidenced by this note and that neither this note nor any such loan
shall be governed by or subject to the provisions of Chapter 346 in any manner
whatsoever.
18. Business Loans. Maker warrants and represents to Payee and all
other holders of this note that all loans evidenced by this note are and will be
for business, commercial, investment or other similar purpose and not primarily
for personal, family, household or agricultural use, as such terms are used in
Chapter 1D of Title 79, Texas Revised Civil Statutes 1925, as amended.
19. Entire Agreement. This note and the other Credit Documents
embody the entire agreement and understanding between Payee and Maker and other
parties with respect to their subject matter and supersede all prior conflicting
or inconsistent agreements, consents and understandings relating to such subject
matter. Maker acknowledges and agrees that there is no oral agreement between
Maker and Payee which has not been incorporated in this note and the other
Credit Documents.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
THIS NOTE AND ALL OTHER CREDIT DOCUMENTS EXECUTED BY ANY OF THE
PARTIES SUBSTANTIALLY CONCURRENTLY HEREWITH TOGETHER
INITIALLED FOR
IDENTIFICATION:______
<PAGE>
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SURREY, INC., a Texas corporation
By: /s/ Mark van der Hagen
------------------------------------
Name: Mark van der Hagen
----------------------------------
Title: Vice President
---------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001044847
<NAME> SURREY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,073
<SECURITIES> 0
<RECEIVABLES> 1,187
<ALLOWANCES> (24)
<INVENTORY> 1,508
<CURRENT-ASSETS> 4,106
<PP&E> 3,708
<DEPRECIATION> (1,549)
<TOTAL-ASSETS> 6,265
<CURRENT-LIABILITIES> 868
<BONDS> 1,218
0
0
<COMMON> 4,098
<OTHER-SE> 32
<TOTAL-LIABILITY-AND-EQUITY> 6,265
<SALES> 1,902
<TOTAL-REVENUES> 1,902
<CGS> 1,365
<TOTAL-COSTS> 1,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (14)
<INCOME-TAX> 5
<INCOME-CONTINUING> (9)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001044847
<NAME> SURREY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 109
<SECURITIES> 0
<RECEIVABLES> 1,418
<ALLOWANCES> (46)
<INVENTORY> 1,209
<CURRENT-ASSETS> 2,795
<PP&E> 2,843
<DEPRECIATION> (1,353)
<TOTAL-ASSETS> 4,285
<CURRENT-LIABILITIES> 1,956
<BONDS> 1,282
0
0
<COMMON> 393
<OTHER-SE> 607
<TOTAL-LIABILITY-AND-EQUITY> 4,285
<SALES> 1,847
<TOTAL-REVENUES> 1,847
<CGS> 1,408
<TOTAL-COSTS> 1,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 4
<INCOME-TAX> (1)
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
