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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported) March 11, 1997
Reliability Incorporated
(Exact name of registrant as specified in its charter)
Texas 0-7092 75-0868913
(State or other (Commission (I.R.S. Employer
jurisdiction of File Identification Number)
incorporation) Number)
16400 Park Row, Houston, Texas 77084
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (281) 492-0550
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RELIABILITY INCORPORATED
Items 1 - 4. Not applicable
Item 5. Other events
On March 11, 1997 (effective March 10, 1997), the Registrant
amended its Loan Agreement with Wells Fargo Bank (Texas) National
Association ("Bank"), (Successor in interest to First Interstate
Bank of Texas, N.A.) to increase its credit availability from
$2,000,000 to $7,500,000 and to extend the term of the Loan
Agreement to March 31, 2003. The amendment provided for a
declining revolving line of credit, secured by the Company's
receivables, inventory, equipment, machinery, furniture and
fixtures. The amendment prohibits the payment of dividends by the
Company unless otherwise agreed to by the Bank. The funds are
available to the Company for working capital and general corporate
purposes, as well as to purchase its common stock, as described
below:
Item 6. Not applicable.
Item 7. Financial statements and Exhibits.
The following exhibits are filed as part of this report:
4.1 Loan Agreement, dated as of July 1, 1995, between
Reliability
Incorporated and First Interstate Bank of Texas, N.A.
4.2 First Amendment to Loan Agreement, dated as of March 10,
1997,
between Reliability Incorporated and Wells Fargo Bank
(Texas) National Association.
Items 8 - 9. Not applicable.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Reliability Incorporated
Date: March 19, 1997 By: /s/ Max T. Langley
Max T. Langley, Senior Vice
President and Chief Financial
Officer
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RELIABILITY INCORPORATED
Index to Exhibits
Exhibit
Number Description of Exhibits Page
- ------- ----------------------- ----
4.1 Loan Agreement, dated as of July 1, 1995, between 4
Reliability Incorporated and First Interstate Bank
of Texas, N.A.
4.2 First Amendment to Loan Agreement, dated as of 36
March 10, 1997, between Reliability Incorporated
and Wells Fargo Bank (Texas) National Association
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RELIABIITY INCORPORATED
Exhibit 4-1
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of July 1, 1995 (this
"Agreement"), is between RELIABILITY INCORPORATED, a Texas
corporation ("Borrower"), and FIRST INTERSTATE BANK OF TEXAS, N.A.,
a national banking association ("Lender").
R E C I T A L S :
Borrower has requested that Lender extend credit to Borrower
in the form of revolving credit advances which shall not exceed an
aggregate principal amount of $2,000,000.00 at any time
outstanding. Lender is willing to make such extensions of credit
to Borrower upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. As used in this Agreement, the
following terms have the following meanings:
"Advance" means an advance of funds by Lender to Borrower
pursuant to Article II.
"Arbitration Program" means the current Arbitration Program of
Lender, which is attached hereto as Exhibit "C", as the same
may be amended, supplemented or modified from time to time.
"Borrowing Base" means, at any particular time, an amount
equal to the sum of (a) eighty percent (80%) of Eligible
Accounts plus (b) the lesser of (i) thirty percent (30%) of
Eligible Inventory or (ii) $750,000.00.
"Borrowing Base Certificate" means a certificate in the form
of Exhibit "D" hereto, executed by the chief financial
officer,president or other officer of Borrower acceptable to
Lender.
"Business Day" means any day on which Lender is open for all
banking business.
"Closing Date" means the date on which this Agreement has been
executed and delivered by the parties hereto and the
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conditions set forth in Section 5.01 have been satisfied.
"Collateral" has the meaning specified in Section 4.01.
"Commitment" means the obligation of Lender to make Advances
hereunder in an aggregate principal amount at any time
outstanding up to but not exceeding $2,000,000.00 as such
amount may be reduced as provided herein.
"Current Assets" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current
assets on a consolidated balance sheet of Borrower and its
Subsidiaries.
"Current Liabilities" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
current liabilities on a consolidated balance sheet of
Borrower and its Subsidiaries.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Debt" means for any Person (a) all indebtedness, whether or
not represented by bonds, debentures, notes, securities, or
other evidences of indebtedness, for the repayment of money
borrowed, (b) all indebtedness representing deferred payment
of the purchase price of property or assets, (c) all
indebtedness under any lease which, in conformity with GAAP,
is required to be capitalized for balance sheet purposes, (d)
all indebtedness under guaranties (other than guaranties of
indebtedness of Subsidiariies), endorsements, assumptions, or
other contingent obligations, in respect of, or to purchase or
otherwise acquire, indebtedness of others, (e) all
indebtedness secured by a Lien existing on property owned,
whether or not the indebtedness secured thereby shall have
been assumed by the owner thereof, and (f) any obligation to
redeem or repurchase any of such Person's capital stock,
warrants, or stock equivalents.
"Default Rate" means the lesser of (a) the sum of the Prime
Rate in effect from day to day plus one percent (1%) or (b)
the Maximum Rate.
"Eligible Accounts" means the aggregate of all accounts
receivable of Borrower and RICR, but in the case of RICR, only
to the extent described in clause (l)(iii) below, that satisfy
the following conditions: (a) are due and payable (i) within
sixty (60) days in the case of the Major Account Debtors and
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(ii) within thirty (30) days in the case of all other account
debtors; (b) have been outstanding less than (i) one hundred
fifty (150) days past the original date of invoice in the case
of the Major Account Debtors or those accounts backed by a
letter of credit meeting the requirements of (1)(ii) below,
and (ii) one hundred twenty (120) days past the original date
of invoice in the case of all other account debtors; (c) have
arisen in the ordinary course of business from services
performed by Borrower to or for the account debtor or the sale
by Borrower of goods in which Borrower had sole ownership
where such goods have been shipped or delivered to the account
debtor; (d) represent complete bona fide transactions which
require no further act (other than installation, if
applicable) under any circumstances on the part of Borrower to
make such accounts receivable payable by the account debtor;
(e) unless the purchaser has specifically requested that the
Borrower withhold shipment, the goods the sale of which gave
rise to such accounts receivable were shipped or delivered to
the account debtor on an absolute sale basis and not on
consignment, a sale or return basis, a guaranteed sale basis,
a bill and hold basis, or on the basis of any similar
understanding; (f) the goods the sale of which gave rise to
such accounts receivable were not, at the time of sale
thereof, subject to any Lien, except the security interest in
favor of Lender created by the Loan Documents; (g) are not
subject to any provisions prohibiting assignment or requiring
notice of or consent to such assignment; (h) if the Security
Agreement is in effect as provided in Section 11.16, are
subject to a perfected, first priority security interest in
favor of Lender and are not subject to any other Lien; (i) are
not subject to setoff, counterclaim, defense, allowance,
dispute, or adjustment other than normal discounts for prompt
payment, and the goods of sale which gave rise to such
accounts receivable have not been returned or rejected; (j) to
Borrower's knowledge, the account debtor is not the subject of
any bankruptcy or insolvency proceeding and has not made an
assignment for the benefit of creditors, suspended normal
business operations, dissolved, liquidated or terminated its
existence; (k) are not evidenced by chattel paper or any
instrument of any kind; (l) are owed by a Person or Persons
that are citizens of or organized under the laws of the United
States or any State and are not owed by any Person located
outside of the United States of America unless such accounts
receivable arise from the operations of such Person located
within the United States of America, except that the following
accounts receivable shall not be subject to the provisions of
this clause (l): (i) accounts receivable from the Major
Account Debtors, (ii) accounts receivable the payment of which
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is backed by a letter of credit issued by a bank reasonably
satisfactory to Lender and which is in form and substance
reasonably satisfactory to Lender, and (iii) receivables
ofRICR which are owed by persons who are organized under the
laws of the United States and located in the United States and
which are payable into the Lockbox if the Lockbox is in
effect, as provided in Section 11.17, (m) if any accounts
receivable are owed by the United States of America or any
department, agency, or instrumentality thereof, the Federal
Assignment of Claims Act shall have been complied with; and
(n) are not owed by an affiliate of Borrower. No account
receivable owed by an account debtor to Borrower shall be
included as an Eligible Account if more than twenty-five
percent (25%) of the balances then outstanding on accounts
receivable owed by such account debtor and its affiliates to
Borrower have remained unpaid for more than (i) one hundred
forty-nine (149) days from the dates of their original
invoices in the case of the Major Account Debtors or accounts
receivable which are backed by a letter of credit meeting the
requirements of (l)(i) above, and (ii) one hundred nineteen
(119) days from the dates of their original invoices in the
case of all other account debtors. Except for Eligible
Accounts owed by Major Account Debtors or accounts receivable
which are backed by a letter of credit meeting the
requirements of (l)(i) above. The amount of any Eligible
Accounts owed by an account debtor to Borrower shall be
reduced by the amount of all "contra accounts" and other
obligations owed by Borrower to such account debtor. Except
for Eligible Accounts owed by Major Account Debtors or
accounts receivable which are backed by a letter of credit
meeting the requirements of (l)(i) above, in the event that at
any time the accounts receivable from any account debtor and
its affiliates to Borrower exceed ten percent (10%) of the
accounts receivable of Borrower, the accounts receivable from
such account debtor and its affiliates shall not constitute
Eligible Accounts to the extent to which such accounts
receivable exceed ten percent (10%) of the accounts receivable
of Borrower.
"Eligible Inventory" means, at any time, all inventory of raw
materials, work in process, and finished goods then owned by
(and in the possession or under the control of) Borrower
located in the United States of America and held for sale or
disposition in the ordinary course of Borrower's business, in
which Lender has a perfected, first priority security
interest, if the Security Agreement is in effect as provided
in Section 11.16, valued at the lower of actual cost or fair
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market value. Eligible Inventory shall not include (a)
inventory that has been shipped or delivered to a customer on
consignment, a sale or return basis, or on the basis of any
similar understanding (b) inventory with respect to which
aclaim exists disputing Borrower's title to or right to
possession of such inventory and (c) inventory that is not in
good condition or does not comply with any applicable laws,
rules, or regulations or the standards imposed by any
governmental authority with respect to its manufacture, use,
or sale.
"Environmental Laws" means any and all federal and state laws
and regulations pertaining to the protection of the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 et seq.,the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., the
Clean Water Act, 33 U.S.C. Section 1251 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., and
all similar laws and regulations of any state or federal
governmental authority or agency having jurisdiction over
Borrower or any Subsidiary or any of their respective
properties or assets, as such laws and regulations may be
amended or supplemented from time to time.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and
published interpretations thereunder.
"Event of Default" has the meaning specified in Section 10.01.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of
Certified Public Accountants or in statements of the Financial
Accounting Standards Board or their respective successors and
which are applicable in the circumstances as of the date in
question. Accounting principles are applied on a "consistent
basis" when the accounting principles observed in a current
period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Hazardous Substance" means any substance, product, waste,
pollutant, material, chemical, contaminant, constituent, or
other material which is or becomes listed or regulated as
hazardous under any Environmental Law, including, without
limitation, asbestos, petroleum, and polychlorinated
biphenyls.
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"Lien" means any lien, mortgage, security interest, tax lien
(other than inchoate tax liens), financing statement, pledge,
charge, hypothecation, assignment, preference, priority, or
other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention
agreement), whether arising by contract, operation of law, or
otherwise.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, deeds of trust, assignments,
letters of credit, guaranties, and other instruments,
documents, and agreements executed and delivered pursuant to
or in connection with this Agreement, as such instruments,
documents, and agreements may be amended, modified, renewed,
extended, or supplemented from time to time.
"Major Account Debtors" means International Business Machines
Corp., Intel Corp., Mitsubishi Semiconductor of America, Inc.,
Motorola, Inc. and Texas Instruments, Inc..
"Maximum Rate" means the maximum rate of nonusurious interest
permitted from day to day by applicable law, including as to
Article 52069-1.04, Vernon's Texas Civil Statutes (and as the
same may be incorporated by reference in other Texas
statutes), but otherwise without limitation, that rate based
upon the "indicated rate ceiling" and calculated after taking
into account any and all relevant fees, payments, and other
charges in respect of the Loan Documents which are deemed to
be interest under applicable law.
"No Default Certificate" means a certificate in the form of
Exhibit "E" hereto, executed by the chief financial officer,
president or other officer of Borrower acceptable to Lender.
"Note" means the promissory note executed by Borrower payable
to the order of Lender, in substantially the form of Exhibit
"A" hereto, and all extensions, renewals, and modifications
thereof and all substitutions therefor.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Lender, now existing or hereafter
arising, under this Agreement and the other Loan Documents,
and all interest accruing thereon and all reasonable out of
pocket attorneys' fees and other expenses incurred in the
enforcement or collection thereof.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, governmental
authority, or other entity.
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"Prime Rate" means that variable rate of interest per annum
established by Lender from time to time as its prime rate
which shall vary from time to time. Such rate is set by
Lender as a general reference rate of interest, taking into
account such factors as Lender may deem appropriate, it being
understood that many of Lender's commercial or other loans are
priced to relation to such rate, that it is not necessarily
the lowest or best rate charged to any customer and that
Lender may make various commercial or other loans at rates of
interest having no relationship to such rate.
"RICR" means RICR de Costa Rica, S.A., a corporation created
and existing under the laws of the country of Costa Rica, and
its successors.
"Security Agreement" means the Security Agreement executed by
Borrower in favor of Lender in substantially the form of
Exhibit "B" hereto, as the same may be amended, supplemented,
or modified.
"Singapore" means Reliability Singapore Pte Ltd, a corporation
created and existing under the laws of Singapore, and its
successors.
"Subsidiary" means any corporation of which more than fifty
percent (50%) of the issued and outstanding securities having
ordinary voting power for the election of a majority of
directors is owned or controlled, directly or indirectly, by
Borrower, by Borrower and one or more other Subsidiaries, or
by one or more other Subsidiaries.
"Tangible Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of
Borrower and its Subsidiaries; provided, however, there shall
be excluded therefrom (a) any amount at which shares of
capital stock of Borrower or any Subsidiary appear as an asset
on Borrower's or any Subsidiary's balance sheet, (b) goodwill,
including any amounts, however designated, that represent the
excess of the purchase price paid for assets or stock over the
value assigned thereto, (c) patents, trademarks, trade names,
and copyrights, (d) deferred expenses, (e) loans and advances
to any stockholder, director, officer, or employee of Borrower
or any Subsidiary or any affiliate other than (i) advances for
travel and business expenses in the ordinary course of
business and (ii) loans and advances outside of the ordinary
course of business which do not exceed an aggregate principal
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amount of $100,000, and (f) all other assets which are
properly classified as intangible assets.
"Termination Date" means 11:00 a.m., Houston, Texas time on
July 1, 1997, or such earlier date on which the Commitment
terminates as provided in this Agreement.
Section 1.02. Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular
and plural forms of the terms defined. The words "hereof",
"herein", and "hereunder" and words of similar import referring to
this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this
Agreement. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. Terms used herein that
are defined in the Uniform Commercial Code as adopted by the State
of Texas, unless otherwise defined herein, shall have the meanings
specified in the Uniform Commercial Code as adopted by the State of
Texas.
ARTICLE II.
Advances
Section 2.01. Advances. Subject to the terms and conditions of
this Agreement, Lender agrees to make one or more Advances to
Borrower from time to time from the date hereof to and including
the Termination Date in an aggregate principal amount at any time
outstanding up to but not exceeding the Commitment; provided that
the aggregate amount of all Advances at any time outstanding shall
not exceed the lesser of the Commitment or the Borrowing Base.
Subject to the foregoing limitations, and the other terms and
provisions of this Agreement, Borrower may borrow, repay, and
reborrow hereunder.
Section 2.02. The Note. The obligation of Borrower to repay the
Advances shall be evidenced by the Note executed by Borrower,
payable to the order of Lender, in the principal amount of the
Commitment.
Section 2.03. Repayment of Advances. Borrower shall repay the
unpaid principal amount of all Advances on the earlier of (a) the
Termination Date or (b) such other dates on which the Advances are
or may be required to be paid pursuant to this Agreement.
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Section 2.04. Interest. The unpaid principal amount of the
Advances shall bear interest prior to maturity at a varying rate
per annum equal from day to day to the lesser of (a) the Maximum
Rate or (b) the Prime Rate in effect from day to day, and each
change in the rate of interest charged on the Advances shall become
effective, without notice to Borrower, on the effective date of
each change in the Prime Rate or the Maximum Rate, as the case may
be; provided, however, if at any time the rate of interest
specified in clause (b) preceding shall exceed the Maximum Rate,
thereby causing the interest on the Advances to be limited to the
Maximum Rate, then any subsequent reduction in the Prime Rate shall
not reduce the rate of interest on the Advances below the Maximum
Rate until the total amount of interest actually accrued on the
Advances equals the aggregate amount of interest which would have
accrued on the Advances if the interest rate specified in clause
(b) preceding had at all times been in effect. Accrued and unpaid
interest on the Advances shall be payable on the first day of each
month commencing on August 1, 1995, and on the earlier of the
Termination Date or any other date on which the principal amount of
the Advances is paid (whether as a result of optional or mandatory
prepayment or acceleration). All past due principal and interest
shall bear interest at the Default Rate.
Section 2.05. Requests for Advances. Each Advance shall be made
upon receipt by Lender of notice requesting such Advance from
Borrower. Such request may be made by telephone. Each such
request shall constitute a representation by Borrower that the sum
of the amount of the outstanding Advances plus the amount of the
requested Advance does not exceed the lesser of the Commitment or
the Borrowing Base, and at any time Lender may request written
evidence from Borrower to such effect.
Section 2.06. Use of Proceeds. The proceeds of Advances shall be
used for general working capital purposes.
Section 2.07. Mandatory Prepayment. If at any time the
outstanding principal amount of the Advances exceeds the Borrowing
Base, Borrower shall promptly prepay the outstanding Advances by
the amount of the excess plus accrued and unpaid interest on the
amount so prepaid.
Section 2.08. Commitment Fee; Reduction or Termination of
Commitment. Borrower agrees to pay to Lender a commitment fee on
the average daily unused portion of the Commitment, from and
including the Closing Date to and including the Termination Date,
at the rate of one quarter of one percent (1/4%) per annum based on
a 360 day year and the actual number of days elapsed, payable on
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the first day of each January 1, April 1, July 1 and October 1,
commencing on October 1, 1995, and on the Termination Date.
Borrower shall have the right at any time to terminate in whole or
from time to time to irrevocably reduce in part the Commitment upon
at least three (3) Business Days prior notice to Lender specifying
the effective date thereof, whether a termination or reduction is
being made, and the amount of any partial reduction.
Simultaneously with giving such notice, Borrower shall prepay the
amount by which the unpaid principal amount of the Advances exceeds
the Commitment (after giving effect to such notice) plus accrued
and unpaid interest on the principal amount so prepaid. The
Commitment may not be reinstated after it has been terminated or
reduced.
ARTICLE III
Payments
Section 3.01. Method of Payment. All payments of principal,
interest, and other amounts to be made by Borrower under this
Agreement, the Note or any other Loan Documents shall be made to
Lender at its office at 1000 Louisiana, Houston, Texas 77002,
without setoff, deduction, or counterclaim in immediately available
funds. Whenever any payment under this Agreement, the Note or any
other Loan Document shall be stated to be due on a day that is not
a Business Day, such payment shall be due on the next Business Day,
and interest shall continue to accrue during such extension.
Section 3.02. Voluntary Prepayment. Borrower may prepay the Note
in whole at any time or from time to time in part without premium
or penalty but with accrued interest to the date of prepayment on
the amount so prepaid.
Section 3.03. Computation of Interest. Interest on the
indebtedness evidenced by the Note shall be computed on the basis
of a year of 360 days and the actual number of days elapsed
(including the first day but excluding the last day) unless such
calculation would result in a usurious rate, in which case interest
shall be calculated on the basis of a year of 365 or 366 days, as
the case may be.
ARTICLE IV.
Collateral
Section 4.01. Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver
or cause to be executed and delivered the documents described below
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covering the property and collateral described therein and in this
Section 4.01 (which, together with any other property and
collateral which may now or hereafter secure the Obligations or any
part thereof, is sometimes herein called the "Collateral"):
(a) Borrower shall grant to Lender a first priority security
interest in all of its accounts (as defined in the Uniform
Commercial Code as adopted in the State of Texas),and accounts
receivable, whether now owned or hereafter acquired, and all
contract rights, funds on deposit with Secured Party,general
intangibles, lease receivables, note receivables, cash, notes,
drafts, acceptances, instruments and chattel paper arising
therefrom, all returned and repossessed goods arising from or
relating to any such accounts, or other proceeds of any sale,
lease or other disposition of inventory, all tax refunds of
whatever nature arising therefrom and all proceeds (including
insurance proceeds) and products thereof, pursuant to the
Security Agreement; provided, however, that the Security
Agreement shall not become effective until the occurrence of
and Event of Default and the giving of notice by Lender as
provided in Section 11.16.
(b) Borrower shall grant Lender a first priority security
interest in all of its inventory, whether now owned or
hereafter acquired, including, without limitation, all raw
materials, goods in process, finished goods and other tangible
personal property held for sale or lease or furnished or to be
furnished under contracts for service or used or consumed in
Debtor's trade or business and all additions, accessions,
substitutions, attachments and replacements thereto and all
documents of title evidencing or representing any part thereof
and all products and proceeds (including insurance proceeds)
thereof pursuant to the Security Agreement; provided, however,
that the Security Agreement shall not become effective until
the occurrence of an Event of Default and the giving of notice
by Lender as provided in Section 11.16.
(c) Borrower shall execute and cause to be executed such
further documents and instruments, including without
limitation, Uniform Commercial Code financing statements, as
Lender, in its sole and reasonable discretion, deems necessary
or desirable to evidence and perfect its liens and security
interests in the Collateral; provided that Lender shall not
file any Uniform Commercial Code financing statement related
to the collateral covered by the Security Agreement until the
occurrence of an Event of Default and the giving of notice by
Lender as provided in Section 11.16.
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Section 4.02. Setoff. Upon the occurrence of an Event of Default
and acceleration of the Obligations, Lender shall have the right to
set off and apply against the Obligations in such a manner as
Lender may determine, at any time and without notice to Borrower,
any and all deposits (general or special, time or demand,
provisional or final) or other sums at any time credited by or
owing from Lender to Borrower whether or not the Obligations are
then due. As further security for the Obligations, Borrower hereby
grants to lender a security interest in all money, instruments, and
other property of Borrower now or hereafter held by Lender,
including, without limitation, property held in safekeeping. In
addition to Lender's right of setoff and as further security for
the Obligations, Borrower hereby grants to lender a security
interest in all deposits (general or special, time or demand,
provisional or final) and other accounts of Borrower now or
hereafter on deposit with or held by lender and all other sums at
any time credited by or owing from Lender to Borrower; provided
that such security interest shall be effective ony upon the
occurrence of an Event of Default and accelaration of the
Obligations. The rights and remedies of Lender hereunder are in
addition to other rights and remedies (including, without
limitation, to the rights of setoff) which Lender may have.
ARTICLE V.
Conditions Precedent
Section 5.01. Initial Extension of Credit. The obligation of
Lender to make the initial Advance is subject to the condition
precedent that Lender shall have received on or before the day of
such Advance all of the documents set forth below in form and
substance satisfactory to Lender.
(a) Resolutions - Borrower. Resolutions of the Board of
Directors of Borrower certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery
and performance by Borrower of this Agreement and the other
Loan Documents to which Borrower is or is to be a party.
(b) Incumbency Certificate - Borrower. A certificate of
incumbency certified by the Secretary or an Assistant
Secretary of Borrower certifying the names of the officers of
Borrower authorized to sign this Agreement and each of the
other Loan Documents to which Borrower is or is to be party
together with specimen signatures of such officers.
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(c) Articles of Incorporation - Borrower. The articles of
incorporation of Borrower certified by the Secretary of State
of state of incorporation of Borrower.
(d) Bylaws - Borrower. The bylaws of Borrower certified by
the Secretary or an Assistant Secretary of Borrower.
(e) Governmental Certificates - Borrower. Certificates of
the appropriate government officials of the state of Texas as
to the existence and good standing of Borrower.
(f) Note. The Note executed by Borrower.
(g) Security Agreement. The Security Agreement executed by
Borrower.
(h) Financing Statements. Uniform Commercial Code financing
statements executed by Borrower.
(i) Insurance Policies. Copies of certificates of all U.S.
insurance policies required by Section 7.05, together with
loss payable endorsements in favor of Lender, as its interests
may appear, with respect to all insurance policies covering
Collateral, other than Collateral consisting of accounts
receivable.
(j) UCC Search. A Uniform Commercial Code search showing all
financing statements and other documents or instruments on
file against Borrower in Harris County, Texas and the office
of the Secretary of State of Texas.
(k) Attorneys' Fees and Expenses. Evidence that the costs
and expenses (including reasonable attorneys' fees) referred
to in Section 11.01, to the extent incurred, have been paid in
full by Borrower.
(l) Additional Documentation. Such additional approvals,
opinions or documents as Lender may reasonably request.
Section 5.02. All Extensions of Credit. The obligation of Lender
to make any Advance (including the initial Advance) is subject to
the additional conditions precedent that Lender shall have received
(a) a request for such Advance and (b) such additional approvals,
opinions or documents as Lender may reasonable request.
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ARTICLE VI.
Representations and Warranties
To induce Lender to enter into this Agreement, Borrower
represents and warrants to Lender that:
Section 6.01. Corporate Existence. Borrower and each Subsidiary
(a) are corporations duly organized, validly existing, and in good
standing under the laws of their respective jurisdictions of
incorporation, (b) have all requisite corporate power and authority
to own their assets and carry on their business as now being or as
proposed to be conducted and (c) are qualified to do business in
all jurisdictions necessary and where failure to so qualify would
have a material adverse effect on their financial condition or
properties. Borrower has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement
and the other Loan Documents to which it is or may become a party.
Section 6.02. Financial Statements. Borrower has delivered to
Lender audited consolidated financial statements of Borrower and
its Subsidiaries as at and for the fiscal year ended December 31,
1994, and unaudited consolidated financial statements of Borrower
and its Subsidiaries for the three month period ended March 31,
1995 and the unaudited consolidating work sheets of Borrower and
its Subsidiaries as of May 31, 1995. Such 1994 audited financial
statements have been prepared in accordance with GAAP, and fairly
present, in all material respects, on a consolidated basis, the
financial condition of Borrower and its Subsidiaries as of the
respective dates indicated therein and the results of operations
for the respective periods indicated therein. The March 31, 1995
financial statements are prepared in accordance with GAAP for
interim statements and SEC rules and instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. To the knowledge of Borrower,
neither Borrower nor any of its Subsidiaries has any material
contingent liabilities, liabilities for taxes or unrealized or
anticipated losses not reflected in such financial statements.
There has been no material adverse change in the financial
condition or properties of Borrower or any of its Subsidiaries
since the effective date of the most recent financial statements
referred to in this Section.
Section 6.03. Corporate Action; No Breach. The execution,
delivery, and performance by Borrower of this Agreement and the
other Loan Documents to which Borrower is a party have been duly
authorized by all requisite action on the part of Borrower and do
not and will not violate or conflict with the articles of
incorporation or bylaws of Borrower or any law, rule or regulation
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or any order, writ, injunction, or decree of any court,
governmental authority, or arbitrator, and do not and will not
conflict with, result in a breach of, or constitute a default
under, or result in the imposition of any Lien (except as provided
in this Agreement) upon any of the revenues or assets of Borrower
or any Subsidiary pursuant to the provisions of any indenture,
mortgage, deed of trust, security agreement, franchise, permit,
license, or other instrument or agreement by which Borrower or any
Subsidiary or any of their respective properties is bound.
Section 6.04. Operation of Business. Borrower and each Subsidiary
possess all licenses, permits and franchises, to conduct their
respective businesses substantially as now conducted and as
presently proposed to be conducted. To Borrower's knowledge, it is
not infringing the intellectual property rights of any other
Person.
Section 6.05. Litigation and Judgments. There is no action, suit,
proceeding, or, to Borrower's knowledge, investigation before or by
any court, governmental authority, or arbitrator pending, or to the
knowledge of Borrower, threatened against or affecting Borrower or
any Subsidiary, that would, if adversely determined, have a
material adverse effect on the financial condition or properties of
Borrower or any Subsidiary or the ability of Borrower to pay and
perform the Obligations. There are no outstanding judgments
against Borrower or any Subsidiary.
Section 6.06. Rights in Properties; Liens. Borrower and each
Subsidiary have good and indefeasible title to or valid leasehold
interests in their respective properties and assets, real and
personal, including the properties, assets and leasehold interests
reflected in the financial statements described in Section 6.02,
and none of the properties, assets or leasehold interests of
Borrower or any Subsidiary is subject to any Lien, except as
permitted by this Agreement.
Section 6.07. Enforceability. This Agreement constitutes, and the
other Loan Documents to which Borrower is party, when delivered,
shall constitute the legal, valid, and binding obligations of
Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforceability thereof may be limited
by bankruptcy, insolvency, or other laws of general application
relating to the enforcement of creditor's rights and except that
specific performance and equitable remedies may be enforced at the
discretion of any court having jurisdiction.
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Section 6.08. Approvals. No authorization, approval, or consent
of, and no filing (except for filing UCC-1 financing statements
covering the Collateral) or registration with, any court,
governmental authority, or third party is or will be necessary for
the execution, delivery, or performance by Borrower of this
Agreement and the other Loan Documents to which Borrower is or may
become a party or the validity or enforceability thereof.
Section 6.09. Debt. Borrower and its Subsidiaries have no Debt
except the Debt disclosed in the financial statements referred to
in Section 6.02.
Section 6.10. Use of Proceeds; Margin Securities. None of
Borrower or any Subsidiary is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning
of Regulations G, T, U, or X of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any
extension of credit under this Agreement will be used to purchase
or carry any such margin stock or to extend credit to others for
the purpose of purchasing or carrying margin stock.
Section 6.11. ERISA. Borrower and each Subsidiary have complied
with all applicable minimum funding requirements and all other
applicable and material requirements of ERISA, and there are no
existing conditions that would give rise to liability thereunder.
No Reportable Event (as defined in Section 4043 of ERISA) has
occurred in connection with any employee benefit plan that might
constitute grounds for the termination thereof by the Pension
Benefit Guaranty Corporation or for the appointment by the
appropriate United States District Court of a trustee to administer
such plan.
Section 6.12. Taxes. Borrower and each Subsidiary have filed, or
extended the due date by appropriate filings, all tax returns
(federal, state, and local) required to be filed, including all
income, franchise, employment, property, and sales taxes, and have
paid all of their liabilities for taxes, assessments, governmental
charges, and other levies that are due and payable, and Borrower
knows of no pending investigation of Borrower or any Subsidiary by
any taxing authority or of any pending but unassessed tax liability
of Borrower or any Subsidiary.
Section 6.13. Subsidiaries. Borrower has no Subsidiaries other
than RICR and Singapore.
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Section 6.14. Compliance with Laws. None of Borrower or any
Subsidiary is in violation in any material respect of any law,
rule, regulation, order, or decree of any court, governmental
authority, or arbitrator.
Section 6.15. Investment Company Act. None of Borrower or any
Subsidiary is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 6.16. Environmental Matters. Borrower and each
Subsidiary, and their respective properties are in material
compliance with all applicable Environmental Laws and none of
Borrower or any Subsidiary has been notified of any liability or
obligation for remedial action thereunder. There is no pending or,
to the knowledge of Borrower, threatened investigation or inquiry
by any governmental authority of Borrower or any Subsidiary, or any
of their respective properties pertaining to any Hazardous
Substance. To the knowledge of Borrower, there are no Hazardous
Substances located on or under any of the properties of Borrower or
any Subsidiary. None of Borrower or any Subsidiary has caused or
permitted any Hazardous Substance to be disposed of on or under or
released from any of its properties. Borrower and each Subsidiary
have obtained all permits, licenses, and authorizations which are
required under and by all Environmental Laws.
ARTICLE VII.
Positive Covenants
Borrower covenants and agrees that, as long as the Obligations
or any part thereof are outstanding or Lender has any Commitment
hereunder, Borrower will perform and observe the covenants set
forth below, unless Lender shall otherwise consent in writing.
Section 7.01. Reporting Requirements. Borrower will deliver to
Lender:
(a) Annual Financial Statements - Borrower. As soon as
available, and in any event within one hundred twenty (120)
days after the end of each fiscal year of Borrower, beginning
with the fiscal year ending December 31, 1995, a copy of the
annual audit report of Borrower and the Subsidiaries for such
fiscal year containing, on a consolidated basis, balance
sheets, statements of income, statements of stockholders
equity and statements of cash flows as at the end of such
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fiscal year and for the 12-month period then ended, in each
case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and audited
and certified by independent certified public accountants of
recognized standing reasonably acceptable to Lender, to the
effect that such report has been prepared in accordance with
GAAP.
(b) Quarterly Financial Statements - Borrower. As soon as
available, and in any event within sixty (60) days after the
end of each of the first three quarters of each fiscal year of
Borrower, a copy of an unaudited financial report of Borrower
and the Subsidiaries as of the end of such fiscal quarter and
for the portion of the fiscal year then ended, containing, on
a consolidated basis, balance sheets, statements of income,
statements of stockholder's equity and cash flows in each case
setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in
reasonable detail and certified by the chief financial officer
or president of Borrower to have been prepared in accordance
with GAAP for interim financial statements and instructions to
Form 10-Q and Rule 10-01 of Regulation S-X and to fairly
present (subject to year-end audit adjustments and further
notes) the financial condition and results of operations of
Borrower and the Subsidiaries, on a consolidated basis, at the
date and for the periods indicated therein.
(c) No Default Certificate. Concurrently with the delivery
of each of the financial statements referred to in subsections
7.01(a) and 7.01(b), a No Default Certificate executed by the
chief financial officer, president or other officer of
Borrower acceptable to Lender.
(d) Monthly Accounts Receivable Reports. As soon as
available, and in any event within thirty (30) days after the
end of each month of each fiscal year of Borrower, aged
accounts receivable reports for Borrower as of the last day of
such month certified by the chief financial officer, president
or other officer of Borrower acceptable to Lender.
(e) Borrowing Base Certificate. Promptly upon request
therefor by Lender, which request may be given by Lender at
any time, and as soon as available, but not later than thirty
days after the end of each month of each fiscal year of
Borrower, a Borrowing Base Certificate as of the date of such
request or the last day of such month, as applicable, executed
by the chief financial officer, president or other officer of
Borrower acceptable to Lender.
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(f) Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before
any court or governmental commission, board, bureau, agency,
or instrumentality, domestic or foreign, affecting Borrower or
any Subsidiary which, if determined adversely to Borrower or
such Subsidiary, could have a material adverse effect on the
financial condition or properties of Borrower or such
Subsidiary.
(g) Notice of Default. As soon as possible and in any event
within five (5) days after the occurrence of each Event of
Default and each event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default,
a written notice setting forth the details of such Event of
Default or event and the action which Borrower has taken and
proposes to take with respect thereto.
(h) General Information. Promptly, such other information
concerning Borrower or any Subsidiary as Lender may from time
to time reasonably request.
Section 7.02. Maintenance of Existence; Conduct of Business.
Borrower will preserve and maintain, and will cause each Subsidiary
to preserve and maintain, its corporate existence and all of its
leases, privileges, licenses, permits, franchises, qualifications
and rights that are necessary in the ordinary conduct of its
business.
Section 7.03. Maintenance of Properties. Borrower will maintain,
and will cause each Subsidiary to maintain, its assets and
properties in good condition and repair, except for ordinary wear
and tear.
Section 7.04. Taxes and Claims. Borrower will pay or discharge,
and will cause each Subsidiary to pay or discharge, at or before
maturity or before becoming delinquent (a) all taxes, levies,
assessments, and governmental charges imposed on it or its income
or profits or any of its property, and (b) all lawful claims for
labor, material, and supplies, which, if unpaid, might become a
Lien upon any of its property; provided, however, that none of
Borrower or any Subsidiary shall be required to pay or discharge
any tax, levy, assessment, or governmental charge which is being
contested in good faith by appropriate proceedings diligently
pursued, and for which adequate reserves have been established.
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Section 7.05. Insurance. Borrower will maintain, and will cause
each Subsidiary to maintain, with financially sound and reputable
insurance companies workmen's compensation insurance, liability
insurance, and insurance on its property and assets at least in
such amounts and against such risks as are usually insured against
by Persons engaged in similar businesses. Each insurance policy
covering Collateral shall name Lender as loss payee, as its
interests may appear, and provide that such policy will not be
cancelled without thirty (30) days prior written notice to Lender.
Section 7.06. Inspection; Audits. At any reasonable time and from
time to time, Borrower will permit, and will cause each Subsidiary
to permit, representatives of the Lender:
(a) Upon one Business Day's prior notice, to examine and make
copies of the books and records of, and visit and inspect the
properties or assets of Borrower and any Subsidiary and to
discuss the business, operations, and financial condition of
any such Persons with their respective officers and with their
independent certified public accountants; and
(b) To conduct audits, verifications and inspections of the
accounts receivable of Borrower and its Subsidiaries.
Section 7.07. Keeping Books and Records. Borrower will maintain,
and will cause each Subsidiary to maintain, proper books of record
and account in which full, true, and correct entries in conformity
with GAAP shall be made of all dealings and transactions in
relation to its business and activities.
Section 7.08. Compliance with Laws. Borrower will comply, and
will cause each Subsidiary to comply, in all material respects with
all applicable laws, rules, regulations, and final orders of any
court, governmental authority, or arbitrator.
Section 7.09. Compliance with Agreements. Borrower will comply in
all material respects with all agreements, contracts, and
instruments binding on it or affecting its properties or business.
Section 7.10. Further Assurances. Borrower will execute and
deliver, and will cause each Subsidiary to execute and deliver,
such further instruments as may be reasonably requested by Lender
to carry out the provisions and purposes of this Agreement and the
other Loan Documents and to preserve and perfect the Liens of
Lender in the Collateral at such time as such Liens become
effective.
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Section 7.11. ERISA. Borrower will comply, and will cause each
Subsidiary to comply, with all minimum funding requirements, and
all other material requirements, of ERISA, if applicable, so as not
to give rise to any liability thereunder.
ARTICLE VIII
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations
or any part thereof are outstanding or Lender has any Commitment
hereunder, Borrower will perform and observe the covenants set
forth below, unless Lender shall otherwise consent in writing.
Section 8.01. Debt. Borrower will not incur, create, assume or
permit to exist, and will not permit RICR to incur, create, assume,
or permit to exist, any Debt, except (a) Debt to Lender, (b) Debt
which is specifically permitted by this Agreement, (c) Debt
existing on the date of this Agreement which has been disclosed in
the financial statements referred to in Section 6.02, (d) accounts
payable in the ordinary course of business, (e) Debt arising from
the endorsement of instruments for collection in the ordinary
course of business and (f) Debt which is incurred after the date of
this Agreement in the ordinary course of business for fixed assets
and is secured by such fixed assets (and not the Collateral);
provided that after the incurrence of such Debt Borrower is in
compliance with the covenants contained in Article IX.
Section 8.02. Limitation on Liens. Borrower will not incur,
create, assume, or permit to exist, any Lien upon any of its
property, assets or revenues which are located in the United States
of America, whether now owned or hereafter acquired, except (a)
Liens existing on the date of this Agreement which have been
disclosed to Lender in writing or in the financial statements
described in Section 6.02, (b) encumbrances consisting of minor
easements, zoning restrictions, or other restrictions on the use of
real property that do not (individually or in the aggregate)
materially affect the value of the assets encumbered thereby or
materially impair the ability of Borrower to use such assets in its
business, and none of which is violated in any material aspect by
existing or proposed structures or land use, (c) Liens for taxes,
assessments, or other governmental charges which are not delinquent
or which are being contested in good faith and for which adequate
reserves have been established, (d) Liens of mechanics,
materialmen, warehousemen, carriers or other similar statutory
Liens securing obligations that are not yet due and are incurred in
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the ordinary course of business, and (e) Liens securing Debt
permitted by Section 8.01(f).
Section 8.03. Mergers, Acquisitions, Dissolutions and Disposition
of Assets. Borrower will not, and will not permit any Subsidiary
to, (a) become a party to a merger, consolidation, partnership or
joint venture or purchase or otherwise acquire all or a substantial
part of the assets of any Person or any shares or other evidence of
beneficial ownership of any Person, (b) dissolve or liquidate, or
(c) sell, lease, assign, transfer or otherwise dispose of any
material portion of its assets, except dispositions of inventory in
the ordinary course of business.
Section 8.04. Loans and Investments. Borrower will not make, and
will not permit any Subsidiary to make, any advance, loan,
extension of credit, or capital contribution to or investment in,
or purchase, or permit any Subsidiary to purchase, any stock,
bonds, notes, debentures, or other securities of any Person, except
(a) advances which do not exceed $3,000,000.00 at any time
outstanding to RICR, (b) advances which do not exceed $1,500,000.00
to Singapore, (c) readily marketable direct obligations of the
United States of America, (d) fully insured certificates of deposit
with maturities of one year or less from the date of acquisition of
any commercial bank operating in the United States having capital
and surplus in excess of $25,000,000.00, and (e) commercial paper
of a domestic issuer if at the time of purchase such paper is rated
in one of the two highest rating categories of Standard and Poor's
Corporation or Moody Investors Service.
Section 8.05. Compliance with Environmental Laws. Borrower will
not, and will not permit any Subsidiary to, (a) use (or permit any
tenant to use) any of their respective properties or assets for the
handling, processing, storage, transportation, or disposal of any
Hazardous Substance, (b) generate any Hazardous Substance, (c)
conduct any activity which is likely to cause a release or
threatened release of any Hazardous Substance, or (d) otherwise
conduct any activity or use any of their respective properties or
assets in any manner that is likely to violate any Environmental
Law in any material respect.
Section 8.06. Accounting. Borrower will not make, and will not
permit any Subsidiary to make, any change in accounting treatment
or reporting practices, except as required or permitted by GAAP.
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ARTICLE IX
Financial Covenants
Borrower covenants and agrees that, as long as the Obligations
or any part thereof are outstanding or Lender has any Commitment
hereunder, Borrower will observe and perform the following
financial covenants set forth below, unless Lender shall otherwise
consent in writing.
Section 9.01. Current Ratio. Borrower will at all times maintain
a Current Ratio of not less than 1.50 to 1.0.
Section 9.02. Tangible Net Worth. Borrower will at all times
maintain Tangible Net Worth in an amount not less than
$9,500,000.00.
Section 9.03. Ratio of Debt to Tangible Net Worth. Borrower will
at all times maintain a ratio of Debt of Borrower and its
Subsidiaries to Tangible Net Worth of not greater than 1.0 to 1.0.
ARTICLE X
Default
Section 10.01. Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) Borrower shall fail to pay when due the Obligations or
any part thereof.
(b) Any representation or warranty made by Borrower in any
Loan Document or in any certificate, report, notice, or
financial statement furnished at any time in connection with
this Agreement shall be false or erroneous in any material
respect when made.
(c) Borrower shall fail to perform, observe, or comply with
any covenant, agreement, or term contained in this Agreement
or any other Loan Document for a period of fifteen (15) days
following the date on which Lender gives Borrower notice of
such failure.
(d) Borrower or any Subsidiary shall commence a voluntary
proceeding seeking liquidation, reorganization, or other
relief with respect to itself or its debts under any
bankruptcy, insolvency, or other similar law now or hereafter
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in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of it or a
substantial part of its property or shall consent to any such
relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding
commenced against it or shall make a general assignment for
the benefit of creditors.
(e) An involuntary proceeding shall be commenced against
Borrower or any Subsidiary seeking liquidation,
reorganization, or other relief with respect to it or its
debts under any bankruptcy, insolvency, or other similar law
now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official for it or a substantial part of its property, and
such involuntary proceeding shall remain undismissed and
unstayed for a period of ninety (90) days.
(f) Borrower shall fail to discharge within a period of
thirty (30) days after the commencement thereof any
attachment, sequestration, or similar proceeding or
proceedings involving an aggregate amount in excess of
$100,000.00 against any of its assets or properties.
(g) Borrower shall fail to satisfy and discharge promptly any
final judgement or judgements against it for the payment of
money in an aggregate amount in excess of $100,000.00.
(h) Borrower shall fail to pay when due any principal of or
interest on any Debt (other than the Obligations), and the
maturity of any such Debt shall have been accelerated, or any
such Debt shall have been required to be prepaid prior to the
stated maturity thereof.
(i) This Agreement or any other Loan Document shall cease to
be in full force and effect or shall be declared null and void
or the validity or enforceability thereof shall be contested
or challenged by Borrower or any Subsidiary or any of their
respective shareholders, or Borrower shall deny that it has
any further liability or obligation under any of the Loan
Documents, or when effective as provided in Section 11.16, any
lien or security interest created by the Loan Documents shall
for any reason cease to be a valid, first priority perfected
security interest in and lien upon any of the Collateral
purported to be covered thereby.
(j) The financial statements delivered pursuant to Section
7.01(a) shall evidence that Borrower and its Subsidiaries
shall have failed to generate net income at any fiscal year
end.
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Section 10.02. Remedies Upon Default. If any Event of Default
shall occur, Lender may do any one or more of the following: (a)
declare the outstanding principal of and accrued and unpaid
interest on the Note and the Obligations or any part thereof to be
immediately due and payable, and the same shall thereupon become
immediately due and payable, without notice, demand, presentment,
notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other
formalities of any kind, all of which are hereby expressly waived
by Borrower, (b) terminate the Commitment without notice to
Borrower, (c) foreclose or otherwise enforce any Lien granted to
the Lender to secure payment and performance of the Obligations,
and (d) exercise any and all rights and remedies afforded by the
laws of the State of Texas or any other jurisdiction by any of the
Loan Documents, by equity or otherwise; provided, however, that
upon the occurrence of an Event of Default under Section 10.01(d)
or Section 10.01(e), the Commitment shall automatically terminate,
and the outstanding principal of and accrued and unpaid interest on
the Note and the other Obligations shall become immediately due and
payable without notice, demand, presentment, notice of dishonor,
notice of acceleration, notice of intent to accelerate, notice of
intent to demand, protest, or other formalities of any kind, all of
which are hereby expressly waived by Borrower.
Section 10.02. Performance by Lender. If Borrower shall fail to
perform any covenant, duty, or agreement contained in any of the
Loan Documents, not earlier than ten (10) days following the date
on which Lender gives Borrower notice thereof, Lender may perform
or attempt to perform such covenant, duty, or agreement on behalf
of Borrower. In such event, Borrower shall, at the request of
Lender, promptly pay any amount expended by Lender in such
performance or attempted performance to Lender, together with
interest thereon at the Default Rate from the date of such
expenditure until paid. Notwithstanding the foregoing, it is
expressly agreed that Lender shall not have any liability or
responsibility for the performance of any obligation of Borrower
under this Agreement or any other Loan Document.
ARTICLE XI.
Miscellaneous
Section 11.01. Expenses of Lender. Borrower hereby agrees to pay
Lender on demand (a) all reasonable out of pocket costs and
expenses incurred by Lender in connection with the preparation,
negotiation, and execution of this Agreement and the other Loan
Documents and any and all amendments, modifications, renewals,
extensions, and supplements thereof and thereto, including, without
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limitation, the fees and expenses of Lender's legal counsel, (b)
all reasonable out of pocket costs and expenses incurred by Lender
in connection with the enforcement of this Agreement or any other
Loan Document, including, without limitation, the fees and expenses
of Lender's legal counsel, and (c) all filing fees and other
similar charges levied by an governmental authority or otherwise
payable in respect of this Agreement or any other Loan Document or
in obtaining any insurance policy, audit or appraisal in respect of
the Collateral.
Section 11.02. Indemnification. Borrower hereby indemnifies
Lender and its officers, directors and employees from, and holds
each of them harmless against, any and all losses, liabilities,
claims, damages, penalties, judgments, disbursements, costs, and
expenses (including attorneys' fees) to which any of them may
become subject which directly or indirectly arise from or relate to
(a) the negotiation, execution, delivery, performance,
administration, or enforcement of any of the Loan Documents, (b)
any of the transactions contemplated by the Loan Documents, (c) any
breach by Borrower of any representation, warranty, covenant, or
other agreement contained in any of the Loan Documents or (d) the
presence, release, disposal, removal, or cleanup of any Hazardous
Substance located on, about, within, or affecting any of the
properties or assets of Borrower or any Subsidiary provided,
however, Borrower shall not be obligated to indemnify Lender with
respect to acts taken by Lender, its officers, directors or
employees which (i) violate this Agreement, (ii) violate any
applicable law or (iii) are negligent or constitute misconduct.
Section 11.03. Limitation of Liability.
(a) Neither Lender nor any officer, director or employee of
Lender shall have any liability with respect to, and Borrower
hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of
the other Loan Documents, or any of the transactions contemplated
by this Agreement or any of the other Loan Documents. Borrower
hereby waives, releases, and agrees not to sue Lender or any of
Lender's officers, directors or employees for punitive damages in
respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents,
or any of the transactions contemplated by this Agreement or any of
the other Loan Documents.
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(b) Neither Borrower nor any officer, director or employee of
Borrower shall have any liability with respect to, and Lender
hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Lender in connection with, arising
out of, or in any way related to, this Agreement or any of the
other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents. Lender hereby
waives, releases, and agrees not to sue Borrower or any of
Borrower's officers, directors or employees for punitive damages in
respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents,
or any of the transactions contemplated by this Agreement or any of
the other Loan Documents.
Section 11.04. No Waiver; Cumulative Remedies. No failure on the
part of Lender or Borrower to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power, or
privilege under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power, or
privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or
privilege. The rights and remedies provided for in this Agreement
and the other Loan Documents are cumulative and not exclusive of
any rights and remedies provided by law.
Section 11.05. Successors and Assigns. This Agreement is binding
upon and shall inure to the benefit of Lender and Borrower and
their respective successors and assigns, except that Borrower may
not assign or transfer any of its rights or obligations under this
Agreement without prior written consent of Lender.
Section 11.06. Survival. All representations and warranties made
in this Agreement or any other Loan Document or in any document,
statement, or certificate furnished in connection with this
Agreement shall survive the execution and delivery of this
Agreement and the other Loan Documents, and no investigation by
Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them. Without
prejudice to the survival of any other obligation of Borrower
hereunder, the obligations of Borrower under Sections 11.01 and
11.02 shall survive repayment of the Note and termination of the
Commitment.
Section 11.07. Amendment. The provisions of this Agreement and
the other Loan Documents to which Borrower is a party may be
amended or waived only by an instrument in writing signed by the
parties hereto.
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Section 11.08. Maximum Interest Rate. No provision of this
Agreement or of any other Loan Documents shall require the payment
or the collection of interest in excess of the maximum permitted by
applicable law. If any excess of interest in such respect is
hereby provided for, or shall be adjudicated to be so provided, in
any other Loan Documents or otherwise in connection wit this loan
transaction, the provisions of this Section shall govern and
prevail and neither Borrower nor the sureties, guarantors,
successors, or assigns of Borrower shall be obligated to pay the
excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto. In
the event Lender ever receives, collects, or applies as interest
any such sum, such amount which would be in excess of the maximum
amount permitted by applicable law shall be applied as payment and
reduction of the principal of the indebtedness evidenced by the
Note; and, if the principal of the Note has been paid in full, any
remaining excess shall forthwith be paid to Borrower. In deter-
mining whether or not the interest paid or payable exceeds the
Maximum Rate, Borrower and Lender shall, to the extent permitted by
applicable law, amortize, prorate, allocate, and spread in equal or
unequal parts the total amount of interest throughout the entire
contemplated term of the indebtedness evidenced by the Note so that
interest for the entire term does not exceed the Maximum Rate.
Section 11.09. Notices. All notices and other communications
provided for in this Agreement and the other Loan Documents shall
be in writing and may be telexed, telecopied, mailed by certified
mail return receipt requested, or delivered to the intended
recipient at the addresses specified below or at such other address
as shall be designated by any party listed below in a notice to the
other parties listed below given in accordance with this Section.
If to Borrower: Reliability Incorporated
16400 Park Row
Houston, Texas 77064
Attention: Max T. Langley
Telephone No.: 713-492-0550
Fax: 713-492-0615
If to Lender: First Interstate Bank of Texas, N.A.
1000 Louisiana
Houston, Texas 77002
Attention: Edward W. Camp, Senior Vice
President
Telephone 713-250-1539
Fax: 713-250-7031
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Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when
transmitted by telex or telecopy, subject to telephone confirmation
of receipt, when personally delivered or, in the case of a mailed
notice, two Business Days after the date when duly deposited in the
mails, in each case given or addressed as aforesaid; provided,
however, that notices to Lender pursuant to Article II shall not be
effective until received by Lender.
Section 11.10. Applicable Law; Venue; Service of Process. This
Agreement shall be governed by and construed in accordance with the
laws of the State of Texas and the applicable laws of the United
States of America. This Agreement has been entered into in Harris
County, Texas. Except as provided in the Arbitration Program, any
action or proceeding against Borrower under or in connection with
any of the Loan Documents may be brought in any state or federal
court in Harris County, Texas, and Borrower hereby irrevocably
submits to the nonexclusive jurisdiction of such courts and waives
any objection it may now or hereafter have as to the venue of any
such action or proceeding brought in any such court or that any
such court is an inconvenient forum. Except as provided in the
Arbitration Program, nothing herein or in any of the other Loan
Documents shall affect the right of Lender to serve process in any
other manner permitted by law or shall limit the right of Lender to
bring any action or proceeding against Borrower or with respect to
any of its property in courts in other jurisdictions. Except as
provided in the Arbitration Program, any action or proceeding by
Borrower against Lender shall be brought only in a court located in
Harris County, Texas.
Section 11.11. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
Section 11.12. Severability. Any provision of this Agreement held
by a court of competent jurisdiction to be invalid or unenforceable
shall not impair or invalidate the remainder of this Agreement and
the effect thereof shall be confined to the provision held to be
invalid or illegal.
Section 11.13. Headings. The headings, captions, and arrangements
used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.
Section 11.14. Non-Application of Chapter 15 of Texas Credit Code.
The provisions of Chapter 15 of the Texas Credit Code (Vernon's
Texas Civil Statutes, Article 5069-15) are specifically declared by
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the parties hereto not to be applicable to this Agreement or any of
the other Loan Documents or to the transactions contemplated
hereby.
Section 11.15. Confidentiality. Lender agrees that the financial
information, information from Borrower's or its Subsidiaries' books
and records, information obtained from talking with representatives
of Borrower, any Subsidiary or Borrower's independent accountants,
information concering Borrower's or its Subsidiaries' trade secrets
and patents and any other information received from Borrower or its
Subsidiaries hereunder (the "Information") shall be treated as
confidential by Lender and Lender agrees to use its best efforts to
insure that the Information is not published, disclosed or
otherwise divulged to any one other than such employees or officers
of Lender as have need for the Information. Lender understands
that the common stock of Borrower is publicly traded, and agrees
that none of the Information shall be used for the purpose of
buying or selling Borrower's securities or disclosed to others who
might buy or sell such securities.
Section 11.16. Agreements Regarding Security Interest. (a)
Borrower and Lender agree that the Security Agreement and the
security interests created by the Security Agreement shall not
become effective until an Event of Default has occurred and Lender
has given notice to Borrower that the Security Agreement and the
security interests created by the Security Agreement are to become
effective, and then five (5) days following the giving of such
notice, unless Borrower has cured such Event of Default, the
Security Agreement and the security interests created by the
Security Agreement shall immediately become effective, without any
further act or notice of any kind by Lender or Borrower. Lender
agrees that it will not file any Uniform Commercial Code financing
statement related to the Collateral covered by the Security
Agreement until an Event of Default occurs; however, upon the
occurrence of an Event of Default, Lender may file such Uniform
Commercial Code financing statements but only upon the
effectiveness of the Security Agreement and the security interests
created by the Security Agreement as provided in the preceding
sentence, without any further act or notice of any kind by Lender
or Borrower.
Section 11.17. Lockbox.
(a) At any time following the occurrence of an Event of
Default (and whether or not Lender has given notice regarding the
effectiveness of the Security Agreement and the security interests
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created thereby as provided in Section 11.16 above) Lender may
notify Borrower that the Lockboxes (as hereinafter defined) is
effective and that Borrower must comply with the provisions of this
Section 11.17. In such notice Lender will also designate two post
office boxes (the "Lockboxes") to which the accounts receivable of
Borrower and RICR, respectively, are to be remitted. Upon receipt
of such notice Borrower will (a) cause, and, as applicable, will
cause RICR to cause, all of the proceeds from the accounts
receivable of Borrower and RICR to be remitted to the Lockboxes,
(b) give notice to each of Borrower's and, as applicable, RICR's
account debtors to deliver all payments and amounts owed to
Borrower and RICR to the appropriate Lockbox and (c) execute, and
cause RICR to execute, lockbox agreements or similar agreements
regarding the Lockboxes.
(b) At the time that Lender delivers the notice regarding the
Lockboxes described in paragraph (a) above, Lender shall shall
establish and maintain a segregated noninterest bearing collateral
account entitled "Reliability Incorporated Collateral Account" (the
"Collateral Account"). Borrower hereby pledges and assigns to
Lender, and grants to Lender a security interest in, the Collateral
Account and in all cash, instruments, securities and funds on
deposit therein, all interest, dividends and cash or other property
received in connection therewith or in exchange therefor, and all
proceeds of all of the above, now or hereafter existing as
additional collateral security for the Obligations. Borrower
hereby grants to Lender a contractual right to offset all or a
portion of the funds in the Collateral Account.
(c) The Lockboxes shall be under the sole control of Lender,
and Lender shall have the sole right to enter the Lockboxes.
Lender, from time to time, will collect the contents of the
Lockboxes. The Lender will open the envelopes or other contents of
the Lockboxes, remove, inspect and handle the checks in accordance
with its normal procedures and the lockbox agreements referred to
in paragraph (a) above.
(d) All funds with respect to checks received in the
Lockboxes shall be deposited by Lender in the Collateral Account.
Borrower shall have no right to effect withdrawals from the
Collateral Account, and the Collateral Account shall be maintained
in the name of and subject to the sole and exclusive dominion and
control of Lender. Lender shall make disbursements or transfers
from the Collateral Account to pay any outstanding Obligations and
then to Borrower at any time, and from time to time.
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Section 11.18. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTE, AND
THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF
THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES
HERETO.
Section 11.19. Arbitration. THE PARTIES HERETO AGREE TO BE BOUND
BY THE TERMS AND PROVISIONS OF THE ARBITRATION PROGRAM WHICH IS
ACKNOWLEDGED AS RECEIVED BY THE PARTIES HERETO PURSUANT TO WHICH
ANY AND ALL DISPUTES SHALL BE RESOLVED BY MANDATORY BINDING
ARBITRATION UPON THE REQUEST OF ANY PARTY.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
RELIABILITY INCORPORATED
By:/s/Larry Edwards
________________________________
Larry Edwards
President
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:/s/ Edward W. Camp
________________________________
Edward W. Camp
Senior Vice President
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RELIABIITY INCORPORATED
Exhibit 4.2
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment"),
dated as of March 10, 1997, is between RELIABILITY INCORPORATED, a
Texas corporation ("Borrower"), and WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION ("Lender").
RECITALS:
A. Borrower and First Interstate Bank of Texas, N.A., predecessor
in interest to Lender, entered into that certain Loan
Agreement dated as of July 1, 1995 (the "Agreement").
B. Borrower and Lender now desire to amend the Agreement as
herein set forth.
NOW, THEREFORE, in consideration of the premises herein
contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have
the meanings given to such terms in the Agreement, as amended
hereby.
ARTICLE II
Amendments
Section 2.01. Amendment to Certain Definitions.
(a) Effective as of date hereof, the definition of each of the
following terms contained in Section 1.01 of the Agreement is
amended to read in its respective entirety as follows:
"Commitment" means the obligation of Lender to make Advances
hereunder in an aggregate principal amount at any time
outstanding up to but not exceeding (a) $7,500,000.00 from
March 10, 1997 through September 30, 1997, (b) $7,000,000.00
from October 1, 1997 through March 31, 1998, (c) $6,500,000.00
from April 1, 1998 through September 30, 1998, (d)
$6,000,000.00 from October 1, 1998 through March 31, 1999, (e)
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$5,500,000.00 from April 1, 1999 through September 30, 1999,
(f) $5,000,000.00 from October 1, 1999 through March 31, 2000,
(g) $4,500,000.00 from April 1, 2000 through September 30,
2000, (h) $4,000,000.00 from October 1, 2000 through March 31,
2001, (i) $3,500,000.00 from April 1, 2001 through September
30, 2001, (j) $3,000,000.00 from October 1, 2001 through March
31, 2002, (k) $2,500,000.00 from April 1, 2002 through
September 30, 2002, and (l) $2,000,000.00 from October 1, 2002
through the Termination Date; provided that Borrower may
further reduce the Commitment as provided in Section 2.08.
"Default Rate" means the lesser of (a) the sum of the Prime
Rate in effect from day to day plus three percent (3%) or (b)
the Maximum Rate.
"Termination Date" means 11:00 a.m., Houston, Texas time on
March 31, 2003, or such earlier date on which the Commitment
terminates as provided in this Agreement.
(b) Effective as of the date hereof, the following definitions
shall be added to Section 1.01 of the Agreement in proper
alphabetical order:
"Capital Lease Payments" means for Borrower and its
Subsidiaries, on a consolidated basis, the amount due and
payable during the next succeeding twelve month period on
leases of Borrower and its Subsidiaries which are capitalized
in accordance with GAAP.
"Current Maturities of Long Term Debt" means for Borrower and
its Subsidiaries, on a consolidated basis, the principal
amount due and payable during the next succeeding twelve month
period on Debt of Borrower and its Subsidiaries for borrowed
money which Debt has a final maturity more than twelve months
from the date of calculation.
"Debt Service Coverage Ratio" means for Borrower and its
Subsidiaries on a consolidated basis for any period the sum of
(a) net income from operations, plus (b) depreciation,
amortization and other non-cash charges, plus (c) interest
expense, divided by the sum of (x) Current Maturities of Long
Term Debt, plus (y) Capital Lease Payments, plus (z) interest
expense.
"Lender" means Wells Fargo Bank (Texas), National Association,
and its successors and assigns.
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"Liabilities" means all amounts which, in conformity with
GAAP, would be included as liabilities on a consolidated
balance sheet of Borrower and its Subsidiaries.
"Reduction Day" means each day on which the amount of the
Commitment reduces as provided in the definition of the term
"Commitment".
(c) Effective as of the date hereof, the following terms are
deleted from the Agreement:
"Borrowing Base"
"Borrowing Base Certificate"
"Eligible Accounts"
"Eligible Inventory"
"Major Account Debtors"
Section 2.02. Amendment to Section 2.01. Effective as of the date
hereof, the phrase "; provided that the aggregate amount of all
Advances at any time outstanding shall not exceed the lesser of the
Commitment or the Borrowing Base" shall be deleted from the first
sentence of Section 2.01.
Section 2.03. Amendment to Section 2.03. Effective as of the date
hereof, a new sentence shall be added to the end of Section 2.03 of
the Agreement which shall read in its entirety as follows:
On each Reduction Day Borrower shall also repay the Advances,
together with accrued interest on the amount repaid, in a
principal amount so that the outstanding amount of the
Advances is not greater than the Commitment as reduced on such
Reduction Day.
Section 2.04. Amendment to Section 2.04. Effective as of the date
hereof, Section 2.04 of the Agreement is amended to read in its
entirety as follows:
Section 2.04 Interest. The unpaid principal amount of the
Advances shall bear interest prior to maturity at a varying
rate per annum equal from day to day to the lesser of (a) the
Maximum Rate or (b) the Prime Rate minus one quarter percent
(1/4%), and each change in the rate of interest charged on the
Advances shall become effective, without notice to Borrower,
on the effective date of each change in the Prime Rate or the
Maximum Rate, as the case may be; provided, however, if at any
time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest on
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the Advances to be limited to the Maximum Rate, then any
subsequent reduction in the Prime Rate shall not reduce the
rate of interest on the Advances below the Maximum Rate until
the aggregate amount of interest accrued on the Advances
equals the aggregate amount of interest which would have
accrued on the Advances if the interest rate specified in
clause (b) preceding had at all times been in effect. Accrued
and unpaid interest on the Advances shall be payable on the
last day of each month commencing on April 30, 1997, and on
the earlier of the Termination Date or any other date on which
the principal amount of the Advances is paid (whether as a
result of optional or mandatory prepayment or acceleration).
All past due principal and interest shall bear interest at the
Default Rate.
Section 2.05. Amendment to Section 2.06. Effective as of the date
hereof, Section 2.06 of the Agreement is amended to read in its
entirety as follows:
Section 2.06. Use of Proceeds. The proceeds of the Advances
shall be used for general working capital purposes and for
general corporate purposes, including the purchase of
Borrower's stock.
Section 2.06. Deletion of Section 2.07. Effective as of the date
hereof, Section 2.07 shall be deleted from the Agreement.
Section 2.07. Amendment to Section 4.01. Effective as of the date
hereof, (a) the phrase "provided, however, that the Security
Agreement shall not become effective until the occurrence of an
Event of Default and the giving of notice by Lender as provided in
Section 11.16" shall be deleted from the end of Section 4.01(a) of
the Agreement, (b) the phrase "provided, however, that the Security
Agreement shall not become effective until the occurrence of an
Event of Default and the giving of notice by Lender as provided in
Section 11.16" shall be deleted from the end of Section 4.01(b) of
the Agreement, and (c) the phrase "provided that Lender shall not
file any Uniform Commercial Code financing statement related to the
collateral covered by the Security Agreement until the occurrence
of an Event of Default and the giving of notice by Lender as
provided in Section 11.16" shall be deleted from the end of Section
4.01(c) of the Agreement.
Section 2.08. Amendment to Section 7.01.
(a) Effective as of the date hereof, paragraph (d) is deleted from
Section 7.01 of the Agreement.
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(b) Effective as of the date hereof, paragraph (e) is deleted from
Section 7.01 of the Agreement.
Section 2.09. Addition of Section 7.12. Effective as of the date
hereof, Section 7.12 is added to the Agreement which shall read in
its entirety as follows:
Section 7.11. Lockbox. Borrower will cause its account
debtors and the account debtors of RICR to make all payments
of its accounts receivable and all payments of RICR's accounts
receivable directly to the lockbox established under the
lockbox agreement executed by Borrower in favor of Lender.
Section 2.10. Amendment to Section 8.01. Effective as of the date
hereof clause (f) of Section 8.01 is amended to read in its
entirety as follows:
(f) Debt in an aggregate principal amount which does not
exceed $100,000.00 at any time, which is incurred after the
date of this Agreement in the ordinary course of business for
fixed assets and is secured by fixed assets; provided that
after the incurrence of such Debt Borrower is in compliance
with the covenants contained in Article IX.
Section 2.11. Addition of Section 8.07. Effective as of the date
hereof, Section 8.07 is added to the Agreement which shall read in
its entirety as follows:
Section 8.07. Restricted Payments. Borrower will not declare
or pay any cash dividends or make any other payment or
distribution in cash on account of its capital stock, unless
Lender shall specifically consent in writing to the
declaration or payment of such dividends, which consent shall
not be unreasonably withheld.
Section 2.12. Amendment to Section 9.02. Effective as of the date
hereof, Section 9.02 of the Agreement is amended to read in its
entirety as follows:
Section 9.02. Tangible Net Worth. Borrower will maintain
Tangible Net Worth of not less than (a) $9,500,000.00 from
March 10, 1997 through December 30, 1997, (b) $12,500,000.00
from December 31, 1997 through December 30, 1998, (c)
$16,500,000.00 from December 31, 1998 through December 30,
1999, and (d) $20,000,000.00 as of December 31, 1999 and
throughout the remainder of the term of this Agreement.
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Section 2.13. Amendment to Section 9.03. Effective as of the date
hereof, Section 9.03 of the Agreement is amended to read in its
entirety as follows:
Section 9.03. Ratio of Liabilities to Tangible Net Worth.
Borrower will at all times maintain a ratio of Liabilities of
Borrower and its Subsidiaries to Tangible Net Worth of not
greater than (a) 1.50 to 1.00 from March 10, 1997 through
December 30, 1997, (b) 1.35 to 1.00 from December 31, 1997
through December 30, 1998, (c) 1.20 to 1.00 from December 31,
1998 through December 30, 1999, and (d) 1.00 to 1.00 as of
December 31, 1999 and throughout the remainder of the term of
this Agreement.
Section 2.14. Addition of Section 9.04. Effective as of the date
hereof, Section 9.04 shall be added to the Agreement and shall read
in its entirety as follows:
Section 9.04. Debt Service Coverage Ratio. Borrower and its
Subsidiaries will at all times maintain, on a consolidated
basis, a Debt Service Coverage Ratio of not less than (a) 1.75
to 1.00 from March 10, 1997 through December 30, 1998, and (b)
2.00 to 1.00 from December 31, 1998 and at all times
thereafter. The Debt Service Coverage Ratio shall be
calculated as of the last day of each fiscal quarter on a
cumulative basis for the four quarters ended as of such date.
Section 2.15. Addition of Section 9.05. Effective as of the date
hereof, Section 9.05 shall be added to the Agreement and shall read
in its entirety as follows:
Section 9.05. Capital Expenditures. Borrower and its
Subsidiaries shall not expend more than (a) $9,000,000.00 for
capital expenditures during the fiscal year ending December
31, 1997, and (b) $4,000,000.00 for capital expenditures
during any fiscal year thereafter, unless Lender shall
specifically consent in writing to such capital expenditures,
which consent shall not be unreasonably withheld.
Section 2.16. Deletion of Section 10.01(j). Effective as of the
date hereof, Paragraph (j) of Section 10.01 is deleted from the
Agreement.
Section 2.17. Amendment to Exhibits. Effective as of the date
hereof, (a) Exhibit "A" to the Agreement (Note) is amended to
conform in its entirety to Annex "A" to this Amendment, (b)
Exhibit "D" to the Agreement (Borrowing Base Certificate) is
deleted from the Agreement, and (c) Exhibit "E" (No Default
Certificate) to the Agreement is amended to conform in its entirety
to Annex "C" to this Amendment.
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ARTICLE III
Conditions Precedent
Section 3.01. Conditions. The effectiveness of this Amendment is
subject to the receipt by Lender of the following in form and
substance satisfactory to Lender:
(a) Resolutions - Borrower. Resolutions of the Board of Directors
of Borrower certified by its Secretary or an Assistant
Secretary which authorize the execution, delivery and
performance by Borrower of this Amendment and the other Loan
Documents to which Borrower is or is to be a party hereunder.
(b) Incumbency Certificate - Borrower. A certificate of
incumbency certified by the Secretary or an Assistant
Secretary of Borrower certifying the names and signatures of
the officers of Borrower authorized to sign this Amendment and
each of the other Loan Documents to which Borrower is or is to
be a party hereunder.
(c) Certificates of Existence and Good Standing - Borrower.
Certificates of the appropriate governmental officials
regarding the existence and good standing of Borrower in the
State of Texas.
(d) Note. The Note executed by Borrower.
(e) First Amendment to Security Agreements. The First Amendment
to Security Agreement in the form of Annex "B" hereto,
executed by Borrower.
(f) UCC Search. A Uniform Commercial Code search showing all
financing statements and other documents or instruments on
file against Borrower in Harris County, Texas and the office
of the Secretary of State of Texas.
(g) Fee. A commitment fee in the amount of $20,625.00.
(h) Legal Fees. Payment of the reasonable legal fees and expenses
of Lender's counsel.
(i) Additional Information. Such additional documents,
instruments and information as Lender may request.
Section 3.02. Additional Conditions. The effectiveness of this
Amendment is also subject to the satisfaction of the additional
conditions precedent that (a) the representations and warranties
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contained herein and in all other Loan Documents, as amended
hereby, shall be true and correct as of the date hereof as if made
on the date hereof, (b) all proceedings, corporate or otherwise,
taken in connection with the transactions contemplated by this
Amendment and all documents, instruments and other legal matters
incident thereto shall be satisfactory to Lender, and (c) no Event
of Default shall have occurred and be continuing and no event or
condition shall have occurred that with the giving of notice or
lapse of time or both would be an Event of Default.
ARTICLE IV
Ratifications, Representations, and Warranties
Section 4.01. Ratifications. The terms and provisions set forth
in this Amendment shall modify and supersede all inconsistent terms
and provisions set forth in the Agreement and except as expressly
modified and superseded by this Amendment, the terms and provisions
of the Agreement are ratified and confirmed and shall continue in
full force and effect. Borrower and Lender agree that the
Agreement as amended hereby shall continue to be the legal, valid
and binding obligation of such Persons enforceable against such
Persons in accordance with its terms.
Section 4.02. Representations, Warranties and Agreements.
Borrower hereby represents and warrants to Lender that as of the
date hereof, and taking into account the provisions of this
Amendment, (a) the execution, delivery, and performance of this
Amendment and any and all other Loan Documents executed or
delivered in connection herewith have been authorized by all
requisite corporate action on the part of Borrower and will not
violate the articles of incorporation or bylaws of Borrower, (b)
the representations and warranties contained in the Agreement as
amended hereby, and all other Loan Documents are true and correct
on and as of the date hereof as though made on and as of the date
hereof, (c) no Event of Default has occurred and is continuing and
no event or condition has occurred that with the giving of notice
or lapse of time or both would be an Event of Default, (d) Borrower
is in full compliance with all covenants and agreements contained
in the Agreement as amended hereby, (e) Borrower is obligated to
Lender pursuant to the terms of the Note, as the same may have been
renewed, modified, extended, increased and rearranged, including,
without limitation, renewals, modifications, increases and
extensions made pursuant to this Amendment, (f) the liens, security
interests, encumbrances and assignments created and evidenced by
the Loan Documents are, respectively, valid and subsisting liens,
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security interests, encumbrances and assignments (except as
provided in the First Amendment to Security Agreement of even date
herewith between Borrower and Lender) and secure the Note as the
same may have been renewed, modified, increased or rearranged,
including, without limitation, renewals, modifications, increases
and extensions made pursuant to this Amendment, and (g) Borrower
has no claims, credits, offsets, defenses or counterclaims arising
from the Loan Documents or Lender's performance under the Loan
Documents.
ARTICLE V
Miscellaneous
Section 5.01. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other
Loan Documents including any Loan Document furnished in connection
with this Amendment shall fully survive the execution and delivery
of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely on
them.
Section 5.02. Reference to Agreement. Each of the Loan Documents,
including the Agreement and any and all other agreements,
documents, or instruments now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the
Agreement, as amended hereby, are hereby amended so that any
reference in such Loan Documents to the Agreement shall mean a
reference to the Agreement, as amended hereby.
Section 5.03. Expenses of Lender. As provided in the Agreement,
Borrower agrees to pay on demand all reasonable costs and expenses
incurred by Lender in connection with the preparation, negotiation
and execution of this Amendment and the other documents and
instruments executed pursuant hereto and any and all amendments,
modifications and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all
costs and expenses incurred by Lender in connection with the
enforcement or preservation of any rights under the Agreement, as
amended hereby, or any other Loan Document, including, without
limitation, the costs and fees of Lender's legal counsel.
Section 5.04. Severability. Any provision of this Amendment held
by a court of competent jurisdiction to be invalid or unenforceable
shall not impair or invalidate the remainder of this Amendment and
the effect thereof shall be confined to the provision so held to be
invalid or unenforceable.
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Section 5.05. Applicable Law. This Amendment and all other Loan
Documents executed pursuant hereto shall be deemed to have been
made and to be performable in Houston, Harris County, Texas and
shall be governed by and construed in accordance with the laws of
the State of Texas.
Section 5.06. Successors and Assigns. This Amendment is binding
upon and shall inure to the benefit of Lender and Borrower and
their respective successors and assigns, except Borrower may not
assign or transfer any of its rights or obligations hereunder
without the prior written consent of Lender.
Section 5.07. Counterparts. This Amendment may be executed in one
or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together
shall constitute one and the same instrument.
Section 5.08. Effect of Waiver. No consent or waiver, express or
implied, by Lender to or for any breach of or deviation from any
covenant, condition or duty by Borrower shall be deemed a consent
or waiver to or of any other breach of the same or any other
covenant, condition or duty.
Section 5.09. Headings. The headings, captions, and arrangements
used in this Amendment are for convenience only and shall not
affect the interpretation of this Amendment.
5.10. Liens and Security Interests are Currently Effective. Prior
to the execution of this Amendment, the Agreement and the Security
Agreement contained provisions to the effect that the liens and
security interests created by the Security Agreement were not
effective until an Event of Default occurred. As provided in this
Amendment and the First Amendment to Security Agreement executed in
connection herewith, those provisions have been deleted from the
Agreement and the Security Agreement. Borrower and Lender agree
that the provisions of the Security Agreement are fully effective
and enforceable as of the date of this Amendment and that such
provisions have been fully effective and enforceable since the date
of execution of the Agreement. Borrower agrees that, upon the
execution of this Amendment, Lender may and shall file a UCC-1
financing statement with respect to the collateral covered by the
Security Agreement and that upon such filing, the liens and
security interests created by the Security Agreement shall be first
priority perfected security interests in favor of Lender, except as
provided in the First Amendment to Security Agreement of even date
herewith between Borrower and Lender.
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Section 5.11. Consent to Purchase of Stock. Notwithstanding the
provisions of Section 6.10 of the Agreement, this Amendment will
constitute the consent by Lender to the purchase by Borrower, at
any time prior to April 1, 1997, of 1,270,221 shares of its common
stock.
Section 5.12. Permitted Security Interest. Notwithstanding the
provisions of the Agreement, the Security Agreement or any other
Loan Document, this Amendment will constitute the consent of Lender
to the first priority security interest granted by Borrower to AT&T
Capital Corporation in a TEK/27120 Analyzer System.
Section 5.13. ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN
CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF
AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THIS AMENDMENT AND THE OTHER INSTRUMENTS,
DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS
AMONG THE PARTIES HERETO.
Section 5.14. Agreement for Binding Arbitration. Borrower and
Lender agree to be bound by the terms and provisions of Lender's
current Arbitration Program, which is acknowledged as having been
received by Borrower and which is incorporated by reference herein,
pursuant to which any and all disputes regarding the subject matter
hereof or of any Loan Documents shall be resolved by mandatory
binding arbitration upon the request of Borrower or Lender.
Executed as of the date first written above.
BORROWER: LENDER:
RELIABILITY INCORPORATED WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ Larry Edwards By:/s/ Bennett Douglas
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Larry Edwards Bennett Douglas
President Vice President
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