U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
------- -------
Commission file number 0-17321
HITOX CORPORATION OF AMERICA
(Exact name of small business issuer as specified in its charter)
Delaware 74-2081929
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Furman Plaza Building
418 Peoples Street, Corpus Christi, Texas 78401
(Address of principal executive offices)
Issuer's telephone number: (512) 882-5175
None
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, $0.25 par value 3,656,787
(Class) (Outstanding as of October 31, 1995)
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
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HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
September 30, 1995 and December 31, 1994 3-4
Condensed Consolidated Statements of Operations--
three months ended September 30, 1995 and 1994 and
nine months ended September 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows--
nine months ended September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
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<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(in thousands)
<CAPTION>
September 30, 1995 December 31,
(Unaudited) 1994
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 588 $ 2,483
Accounts receivable; no allowance for
doubtful accounts considered necessary 1,729 959
Other receivables 30 132
Inventories:
Raw materials 2,492 2,034
Finished goods 803 984
Supplies 75 97
------------------ -------------
Total inventories 3,370 3,115
Other current assets 82 30
------------------ -------------
Total current assets 5,799 6,719
Property, plant and equipment 8,991 8,855
Accumulated depreciation (4,551) (4,078)
------------------ -------------
4,440 4,777
Other assets 186 231
------------------ -------------
$ 10,425 $ 11,727
================== =============
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
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<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(in thousands, except par value)
<CAPTION>
September 30, 1995 December 31,
(Unaudited) 1994
------------------ -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,056 $ 217
Notes payable to bank --- 2,267
Accrued expenses 485 866
Current maturities of long-term debt 57 558
------------------ -------------
Total current liabilities 1,598 3,908
Long-term subordinated debt, related party 5,000 5,000
Long-term debt, excluding current maturities 421 ---
------------------ -------------
Total liabilities 7,019 8,908
Commitments and contingencies
Shareholders' equity:
Common stock $.25 par value; authorized
10,000 shares; 3,657 shares outstanding
after deducting 88 shares held in treasury 936 936
Additional paid-in capital 10,600 10,594
Accumulated deficit (8,087) (8,668)
------------------ -------------
3,449 2,862
Less: cost of treasury stock (43) (43)
------------------ -------------
Total shareholders' equity 3,406 2,819
------------------ -------------
$ 10,425 $ 11,727
================== =============
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
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<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 2,818 $ 3,243 $ 8,690 $ 9,654
Costs and expenses:
Cost of products sold 1,918 2,659 5,951 7,339
Selling, administrative and general 542 1,141 1,686 2,535
Loss from sales of subsidiaries --- 3,022 --- 3,022
-------- -------- -------- --------
Operating income 358 (3,579) 1,053 (3,242)
Other income (expenses):
Interest income 8 --- 40 ---
Interest expense (149) (363) (479) (1,126)
Other, net (13) (15) (30) 12
-------- -------- -------- --------
Income (loss) before minority
interest and income tax 204 (3,957) 584 (4,356)
Minority interest --- 206 --- 184
-------- -------- -------- --------
Income (loss) before income tax 204 (3,751) 584 (4,172)
Provision for income tax 2 (702) 3 (669)
-------- -------- -------- --------
NET INCOME (LOSS) $ 202 $ (3,049) $ 581 $ (3,503)
======== ======== ======== ========
Income (loss) per common share:
Primary $ 0.05 $ (0.83) $ 0.16 $ (0.96)
Fully diluted 0.05 (0.83)<F1> 0.15 (0.96)<F1>
Weighted average number of common and
common equivalent shares outstanding:
Primary 3,800 3,659 3,736 3,658
Fully diluted 3,849 4,215 3,809 4,214
- ---------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements
<F1>
Antidilutive
</FN>
</TABLE>
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<TABLE>
HITOX CORPORATION OF AMERICA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 581 $ (3,503)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 515 694
Warrants issued to subordinated debenture holders 6 (144)
Loss from sales of subsidiaries --- 3,022
Changes in assets and liabilities:
Accounts receivable (770) (677)
Inventories (255) 686
Other receivables and other current assets 51 (38)
Accounts payable and accrued expenses 459 (179)
---------- ----------
Net cash provided by (used in) operating activities 587 (139)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (135) (96)
Cash disposed in sale of subsidiaries --- (15)
---------- ----------
Net cash used in investing activities (135) (111)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (2,347) (10,905)
Proceeds from debt --- 11,222
---------- ----------
Net cash (used in) provided by financing activities (2,347) 317
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,895) 67
CASH AND CASH EQUIVALENTS:
AT BEGINNING OF PERIOD 2,483 537
---------- ----------
AT END OF PERIOD $ 588 $ 604
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 1,066 $ 567
Income taxes paid 3 37
Income tax refunds received 39 ---
<FN>
See Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Accounting Policies
The unaudited condensed consolidated financial statements of Hitox
Corporation of America and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) which the Company deems necessary for
a fair presentation of its financial position and results of operations have
been included. Results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. All significant
accounting policies conform to those previously set forth in the Company's
fiscal 1994 Annual Report on Form 10-KSB.
Reclassification
Certain reclassifications have been made to prior years' condensed
consolidated financial statements to conform to present reporting
classifications.
2. Debt
On August 31, 1995, the Company entered into an amended and restated loan
agreement (the "Loan Agreement") with NationsBank of Texas, N.A., (the "Bank").
The Loan Agreement increased the amount of the Company's revolving line of
credit from $1,400,000 to $2,000,000, and extended the maturity date until
April 30, 1997. The line of credit provides for monthly interest payments on
any outstanding principal balance at an interest rate of the Bank's prime plus
1%. The Company did not access the line of credit during the quarter ended
September 30, 1995, and there was no outstanding balance at September 30, 1995.
The Loan Agreement also extends the maturity of a mortgage note on the
Company's headquarters building which had a principal balance of $487,000 on
August 31, 1995. The mortgage note is payable in 77 equal monthly installments
of $8,000, including principal and interest, at an interest rate of 9.5%, and
matures February 28, 2002.
During the quarter ended September 30, 1995, the Company paid in full the
remaining accrued and overdue interest of $411,000 to the holders of the
$5,000,000 subordinated debentures (the "Debentures"). On August 1, 1995, the
Company began to make monthly payments of $44,000 to the Debenture holders on
the current interest and will continue this practice.
<PAGE> 7
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3. Commitments
The Company purchases raw materials under a supply agreement (the "Supply
Agreement"). The Supply Agreement contains a take or pay arrangement for
specified quantities on a yearly basis, with a fixed price for the first two
years of its five year term. The Company will take delivery of the quantity
stipulated in the first year of the Supply Agreement, and anticipates that it
will need and take delivery of the agreed-upon quantities for the remainder of
the agreement.
<PAGE> 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sales:
Net sales for the third quarter of 1995 were $2,818,000 as compared to
$3,243,000 for the same quarter in 1994. Total net sales for the nine months
ended September 30, 1995 were $8,690,000 compared with $9,654,000 for the same
period in 1994. The three month and nine month decreases of approximately
$425,000 and $964,000, respectively, are partially due to the inclusion of
sales in 1994 from two former foreign subsidiaries that the Company divested
effective September 30, 1994. Sales of the two former subsidiaries totalled
$771,000 for the nine month period ended September 30, 1994. Also contributing
to a decrease in sales was a weaker market in 1995 for the Company's customers
in the PVC pipe industry. Management continues to focus on marketing HITOX
pigments to existing and new markets in the United States, Canada and Mexico.
Gross Profit:
Gross profit for the third quarter of 1995 was $900,000, as compared to
$584,000 for the third quarter of 1994, an increase of $316,000. Gross profit
as a percentage of sales increased to 31.9% in the third quarter this year as
compared to 18.0% in the same quarter last year. The year to date gross profit
for the nine months ended September 30, 1995 was $2,739,000, or 31.5% of net
sales compared with $2,315,000, or 24.0% of net sales for the same period of
1994. The improvement is primarily a result of the divestiture of the Company's
foreign subsidiaries in September of 1994, and a reduction in costs of domestic
operations which commenced in the latter half of 1994.
Expenses:
Total selling, administrative and general expenses declined from
$1,141,000 during the third quarter of 1994, to $542,000 for the third quarter
of 1995, representing a decrease of approximately 52.4%. Total selling,
administrative and general expenses decreased from $2,535,000 during the nine
months ended September 30, 1994, to $1,686,000 for the same period of 1995,
representing approximately a 33.5% decrease. The decreases result because 1995
does not include the two former subsidiaries' expenses, and because of the
Company's cost reduction efforts.
Interest Income:
During the third quarter of 1995, excess funds were deposited in short-
term interest bearing investments resulting in interest income of $8,000.
Total interest income for the nine months ended September 30, 1995 was $40,000.
Included in the nine month total is $20,000 resulting from a one time foreign
currency transaction gain.
<PAGE> 9
<PAGE>
Interest Expense:
Interest expense decreased $214,000 in the third quarter of 1995 as
compared with the same quarter last year. For the nine month period ended
September 30, 1995, interest expense decreased $647,000 principally because
1994 included $443,000 of interest expense incurred by the Company's two
foreign subsidiaries. The remainder of the decrease is due to a reduction in
the average line of credit balance outstanding from $2,901,000 in the first
nine months of 1994 to $100,000 during the first nine months of 1995.
Minority Interest:
During the nine months ended September 30, 1995, there was no charge for
minority interest due to the 1994 sale of the Company's foreign subsidiaries.
Provision for Income Tax:
The Company has net operating loss and other carry forwards available to
offset the Company's regular taxable income. However, the Company is subject
to alternative minimum tax. Provision for income tax was $3,000 for the nine
months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to experience improvement in its financial position
in the third quarter of 1995 after the divestiture of its foreign subsidiaries
in the third quarter of 1994. Working capital increased from $2,811,000 at
December 31, 1994, to $4,201,000 at September 30, 1995. The Company applied a
substantial amount of its cash position at December 31, 1994 to pay off the
entire $2,267,000 outstanding balance in its bank line of credit in mid-
January, 1995. The Company had no outstanding balance in its line of credit at
September 30, 1995, and had $2,000,000 available to borrow under its new loan
agreement, which is discussed below.
The Company finances its operations principally through cash flows
generated by U.S. operations, through bank financing and cash on hand. The
Company has a continuing need for working capital to finance raw material
purchases, primarily synthetic rutile, which is purchased under a Supply
Agreement with its former subsidiary, Malaysian Titanium Corporation. The
Supply Agreement contains a take or pay arrangement for specified quantities on
a yearly basis, with a fixed price for the first two years of its five year
term. The Company anticipates that it will need and take delivery of the
quantities stipulated in the Supply Agreement.
On August 31, 1995, the Company entered into an amended and restated loan
agreement (the "Loan Agreement") with NationsBank of Texas, N.A., (the "Bank").
The Loan Agreement increased the amount of the Company's revolving line of
credit from $1,400,000 to $2,000,000, and extended the maturity date until
April 30, 1997. The line of credit provides for monthly interest payments on
any outstanding principal balance at an interest rate of the Bank's prime plus
1%. The Company did not access the line of credit during the quarter ended
September 30, 1995, and there was no outstanding balance at September 30, 1995.
<PAGE> 10
<PAGE>
The Loan Agreement also extends the maturity of a mortgage note on the
Company's headquarters building which had a principal balance of $487,000 on
August 31, 1995. The mortgage note is payable in 77 equal monthly installments
of $8,000, including principal and interest, at an interest rate of 9.5%, and
matures February 28, 2002.
During the quarter ended September 30, 1995, the Company paid in full the
remaining accrued and overdue interest of $411,000 to the holders of the
$5,000,000 subordinated debentures (the "Debentures"). On August 1, 1995, the
Company began to make monthly payments of $44,000 to the Debenture holders on
the current interest and will continue this practice.
<PAGE> 11
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
Page No.
--------
(a) Exhibit 10 - Loan Agreement 13
Exhibit 11 - Earnings per share 32
Exhibit 27 - Financial Data Schedule 33
(b) Reports on Form 8-K: The Company filed a Form 8-K
Current Report dated
September 19, 1995 reporting a
change in certifying accountant.
Signatures
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 thereunto duly authorized.
Hitox Corporation of America
- --------------------------------------
(Registrant)
Date: November 13, 1995 THOMAS A. LANDSHOF
----------------- ---------------------------------
Thomas A. Landshof, President
and Chief Executive Officer
Date: November 13, 1995 CRAIG A. SCHKADE
----------------- ---------------------------------
Craig A. Schkade, Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE> 12
<PAGE>
Exhibit 10
LOAN AGREEMENT
This is a Loan Agreement ("Loan Agreement") by and among HITOX CORPORATION
OF AMERICA, a Delaware corporation ("Borrower") and NATIONSBANK OF TEXAS, N.A.,
a national banking association ("NationsBank").
Borrower and NationsBank have entered into a loan agreement dated February
15,1995 ("Prior Loan Agreement") and the promissory notes and security
documents referred to therein ("Prior Loan Documents"). Borrower has requested
NationsBank to modify and amend the Prior Loan Agreement, to increase the
amount of Borrower's revolving line of credit and to extend the maturity of the
promissory notes referred to therein. Borrower and NationsBank have agreed to
amend and restate said Prior Loan Agreement on the terms and conditions set
forth herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties do hereby agree and act as follows:
I.
LOANS
1.1 Revolving Line of Credit. NationsBank agrees to establish a
revolving line of credit for loans to be made to Borrower and letters of credit
to be issued at the request of Borrower, which shall be evidenced by the
promissory note maturing April 30, 1997 which is attached as Exhibit A, to
which reference is here made for all purposes ("Revolving Note"). The total
amount of all loans and letters of credit outstanding under the Revolving Note
may vary from time to time, but shall not exceed in the aggregate at any one
time the lesser of (a) $2,000,000 or (b) the sum of (i) 80% of Borrower's
Eligible Accounts Receivable, and (ii) the lesser of $1,000,000 or 50% of
Borrower's Eligible Inventory. For purposes of this calculation only,
Borrower's "Eligible Accounts Receivable" shall mean those accounts receivable
for services actually performed and/or goods actually sold and delivered, which
are invoiced and owing to Borrower, other than (1) receivables from Borrower's
officers, directors, employees, stockholders or affiliates, (2) receivables
that are subject to offset or credit, (3) receivables from customers which
NationsBank has determined, in its sole discretion, not to be credit-worthy,
(4) receivables that are contingent or are disputed by customers, and (5)
receivables from customers where at least 10% of one or more invoices is more
than 60 days past the date of original invoice (or 120 days if the invoice is
secured by a letter of credit). Also, for purposes of this calculation only,
"Eligible Inventory" shall mean Borrower's inventory, valued at the lower of
cost or fair market value, excluding (i) items which are not actually in
Borrower's possession (unless the goods are in transit and the title documents
<PAGE> 13
<PAGE>
are in the possession of NationsBank) and paid for, (ii) work in progress,
(iii) inventory which is consigned to others for sale and (iv) inventory which
is obsolete.
1.2. Borrowing Base Compliance. Borrower agrees to deliver to
NationsBank a Borrowing Base Certificate in the form attached as Exhibit B,
stating the information set forth therein as of the date thereof, (a) upon each
request for an advance on the Revolving Note and (b) 20 days after the end of
each month, showing the information as of the last day of the preceding month.
If the total amount of all loans (including any letter of credit obligations)
outstanding under the Revolving Note exceeds the amount authorized, Borrower
agrees that it will promptly (1) pay NationsBank an amount sufficient to reduce
the outstanding balance on the Revolving Note to an amount which does not
exceed the authorized amount, or (2) increase the amount of assets in the
Borrowing Base calculation to the extent necessary to increase the authorized
amount above the total aggregate amount of all loans and letter of credit
obligations outstanding under the Revolving Note at such time.
1.3. Letter of Credit Obligations. NationsBank agrees to issue its
irrevocable standby letters of credit under the Revolving Note as requested by
Borrower, for a fee of 2.0% of the amount of the credit per annum, with a
minimum charge of $300 plus NationsBank's standard charges for amendments,
telex, document review and other charges for each letter of credit issued, upon
receipt of Borrower's Application and Agreement for Irrevocable Letter of
Credit and a current Borrowing Base Certificate. Borrower's obligations to
reimburse NationsBank for funds drawn against said letters of credit shall be
considered as loans for all purposes under the Revolving Note from and after
the date of issuance.
1.4. Commitment Fee. In consideration for NationsBank's commitment to
maintain $2,000,000 available for advances under the Revolving Note, Borrower
agrees to pay NationsBank a Commitment Fee of 0.25% per annum on the difference
between the Requested Availability Amount and the average amount of the
advances (including unfunded letter of credit obligations) made during the
preceding quarter, calculated and invoiced to Borrower following each March 31,
June 30, September 30 and December 31, which shall be due and payable upon
receipt. Borrower's Requested Availability Amount shall be (a) $2,000,000 or
(b) if such a letter is given, any lesser amount stated by Borrower in letter
delivered to NationsBank at least ten days prior to each March 31, June 30,
September 30 or December 31 stating a maximum amount to be available for loans
and letters of credit to be outstanding under the Revolving Note during the
next succeeding quarter and, until a subsequent letter is given, all successive
quarters thereafter. Borrower shall not be entitled to borrow funds or obtain
letters of credit which, with all previously outstanding loans and letters of
credit outstanding at that time, exceed the Requested Availability Amount as so
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<PAGE>
designated. The Requested Availability Amount may be increased by Borrower
during such quarter, but in that event the Commitment Fee shall be calculated
on the basis of the higher Requested Availability Amount for the entire quarter
times 110%.
1.5. Term Loan. NationsBank is the owner of a promissory note dated
June 27, 1988 from Borrower to Corpus Christi National Bank in the original
principal amount of $750,000, which has been modified by Modifications of
Promissory Note dated June 1, 1989 and November 30, 1990. NationsBank agrees
to renew the present principal balance of said note as set forth in the
modification of note which is attached as Exhibit C, to which reference is here
made for all purposes ("Term Note").
1.6. Novation. Nothing in this Loan Agreement shall be understood or
construed to be a satisfaction, discharge or release of any prior promissory
note from Borrower to NationsBank. The terms and provisions of all prior
promissory notes and security documents shall remain in full force and effect,
except for the real estate, equipment and prior collateral being released by
NationsBank. Borrower and NationsBank represent that it is their intention to
modify and extend Borrower's prior promissory notes to NationsBank, and this
Loan Agreement and the documents referred to herein do not constitute and shall
not be construed as a novation of any prior promissory note or other security
document.
1.7. Loans. The provisions of this Loan Agreement shall apply to the
Revolving Note and the Term Note, to any extensions and renewals thereof, and
to any other loans which may hereafter be made to Borrower by NationsBank.
Said loans (including the letter of credit obligations) are collectively
referred to as "Loans", and each separately as a "Loan", herein. The
promissory notes which are attached as Exhibits A and C and all other
promissory notes from Borrower to NationsBank are collectively referred to as
"Notes", and each separately as a "Note", herein.
1.8. No Obligation to Renew. NationsBank shall not be obligated to
renew or extend the time for payment of any Note beyond the maturity date
stated therein. If a Note is not renewed at maturity, Borrower will be
required to pay the obligation out of other assets, or will be required to find
another lender who is willing to refinance the debt. Any refinancing will be
at the then prevailing market rate, which may be higher than the current rate.
Also, there is no guaranty that the obligation can be refinanced on any basis.
If a Note is refinanced or renewed, Borrower may also be required to pay
additional closing costs, or be required to provide additional collateral
and/or a current appraisal, survey, title policy or other supporting data on
the existing Collateral.
<PAGE> 15
<PAGE>
II.
SECURITY
2.1. Collateral. Payment of the Loans shall be secured by the
following ("Collateral"):
(a) A first and prior security interest in all inventory,
accounts (accounts receivable), instruments, chattel paper, general
intangibles, contract rights, documents and insurance proceeds on Collateral,
now or hereafter owned by or owing to Borrower, and all proceeds thereof;
(b) A first and prior deed of trust lien against Lots 9, 10,
11 and 12, Block 10, Beach Portion, a Subdivision of the City of Corpus
Christi, Nueces County, Texas, described in that Deed of Trust dated June 27,
1988, from Borrower to Bickford Shaw, Trustee, which is recorded at Volume 2272
Page 312, Deed of Trust Records of Nueces County, Texas, together with all
improvements, personal property, fixtures and insurance thereon and
appurtenances thereto ("Real Property");
(c) A security interest in and right of set off against all
funds in any deposit, savings or other accounts in the name of Borrower at
NationsBank; and
(d) Any other collateral which may be given to NationsBank at
any time.
2.2. Security Documents. Borrower agrees that it will sign and
deliver to NationsBank all documents required by NationsBank in order to
establish and perfect the security interests, liens and collateral assignments
provided for herein (which, together with any previously signed documents, are
collectively referred to as "Security Documents" herein), and in order to
accomplish any other purpose required by this Loan Agreement.
III.
REPRESENTATIONS & WARRANTIES
Borrower represents and warrants to NationsBank, to induce NationsBank to
make and extend the Loans, the following:
3.1. Organization. Borrower is a corporation which is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and is duly licensed, qualified and in good standing as a foreign corporation
authorized to do business in any other jurisdiction where, because of the
nature of its activities or properties, such license or qualification is
required.
3.2. Authorization. The execution and delivery of this Loan
Agreement, the Notes and the Security Documents have been duly authorized by
<PAGE> 16
<PAGE>
all necessary corporate action and do not contravene or conflict with
Borrower's corporate charter or bylaws.
3.3. Validity. This Loan Agreement, the Notes and Security Documents
are legal, valid and binding obligations of Borrower which are enforceable
against it in accordance with their respective terms.
3.4. Financial and Other Statements. All financial statements of
Borrower which have been furnished to NationsBank are correct and complete in
all respects, and accurately represent the financial condition of Borrower on
the dates thereof or for the periods specified therein, and were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. No material adverse change
has occurred since the date of the latest of each such financial statement. No
financial statement nor any other written document which has been furnished to
NationsBank by or on behalf of Borrower states any fact which is materially
incorrect, or fails to state a fact which is necessary in order to make the
statements which were made not misleading.
3.5. Litigation and Contingent Liabilities. No litigation,
arbitration proceedings or governmental or regulatory proceedings are pending
or threatened against Borrower which, if adversely determined, would be likely
to adversely affect their financial condition, or would be likely to adversely
affect the legality, validity or enforceability of this Loan Agreement, the
Notes or Security Documents. Borrower has no contingent liabilities or forward
commitments which are not disclosed in the financial statements.
3.6. Title and Liens. Borrower has good title to all of the
Collateral. None of the Collateral is subject to any mortgage, pledge, title
retention, offset or other lien, encumbrance or security interest, except (a)
security interests and liens described herein in favor of NationsBank, (b)
liens for current taxes and similar charges which are not delinquent or are
being contested in good faith and by appropriate proceedings and (c) purchase
money security interests in specific items of equipment.
3.7. Employee Benefit Plans. Borrower has not established any
employee benefit plan that has engaged in any "prohibited transaction" as that
term is defined in Section 4975 of the Internal Revenue Code of 1986 as amended
("Tax Code") or Section 406 of the Employee Retirement Income Security Act of
1974 as amended ("ERISA"), which could subject such plans to the tax on
prohibited transactions imposed by said Section 4975 of the Tax Code or a
penalty under Section 502(i) of ERISA. No reportable event (as defined in
Title IV of ERISA) which would result in liability to the Pension Benefit
Guarantee Corporation has occurred and is continuing with respect to any such
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employee benefit plan. No employee benefit plan has incurred any "accumulated
funding deficiency" as such term is defined in Section 302 of ERISA, since the
effective date thereof.
3.8. Tying. None of the Loans were conditioned upon or subject to the
requirement that Borrower or any other person obtain additional credit,
property or services from NationsBank, provide additional credit, property or
services to NationsBank, or not obtain some other credit, property or service
from a competitor of NationsBank.
3.9. Hazardous Substances. The Real Property is free from
contamination by all toxic and hazardous wastes, pollutants and other
hazardous, toxic and chemical substances, including without limitation
asbestos, PBC's, petroleum products and by-products, and substances defined or
listed as hazardous or toxic substances or similarly identified in or pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended, 42 U.S.C. Section 9601 et seq., the Hazardous Materials
Transportation Act, 47 U.S.C. Section 1802 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., the Toxic Substance Control
Act of 1976 as amended, 15 U.S.C. Section 2601 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 135 et seq., the
Rivers and Harbors Act, 33 U.S.C. Section 401 et seq., the Clean Water Act as
amended, 33 U.S.C. Section 1251 et seq., the Clean Air Act as amended, 42
U.S.C. Section 7401, et seq. and any other hazardous or toxic substance,
chemical or pollutant regulated under any other applicable federal, state or
local environmental law (collectively "Hazardous Substances"). Borrower will
not use or permit any other person to use Hazardous Substances at any of
Borrower's places of business except such substances as are incidental to
Borrower's normal course of business, in which event said substances shall be
handled and disposed of in full compliance with all applicable environmental
laws. NationsBank shall have no right to participate in the management of any
facility, nor affect any decision of Borrower with respect to the use and
disposal of Hazardous Substances.
3.10. Criminal Activities. Borrower represents that none of the
Collateral was acquired with the proceeds of illegal controlled substance
transfers, and that none of the Collateral has been used or is now being used
to facilitate the manufacture or distribution of controlled substances in
violation of the Drug Abuse Prevention and Control Act of 1970, 21 U.S.C.
Section 801 et seq., the Racketeering Influenced and Corrupt Organizations Act,
18 U.S.C. Section 1961 et seq., or Article 5901 et seq. of the Texas Code of
Criminal Procedure.
3.11. Permits and Agreements. Borrower is in compliance with all legal
requirements applicable to its businesses and operations, and has all permits
and licenses necessary for the normal operation of its businesses.
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3.12. No Impediment. Neither Borrower nor any of the Collateral, are
presently affected by any fire, explosion, accident, strike, lockout or other
labor dispute, hurricane, tornado, earthquake, embargo, act of God or of the
public enemy or any other casualty which adversely affects their respective
business operations or the Collateral.
3.13. Other Agreements. Borrower is not a party to any indenture, loan
or credit agreement or other restriction which would adversely affect the
normal operation of Borrower's business, or which would prohibit or restrict
any obligation contained in this Loan Agreement.
3.14. Good Faith. All information, reports, documents, projections and
other data furnished to NationsBank in connection with the negotiation of the
Loans were furnished in good faith, with Borrower's belief in the accuracy
thereof.
3.15. No Default. Borrower is not in default under, and no condition
exists that with notice or lapse of time would constitute a default under: (a)
any mortgage, indenture, loan or credit agreement or other agreement or
instrument evidencing indebtedness for borrowed money to which Borrower is a
party or by which Borrower is bound or to which any of Borrower's properties or
assets are subject, other than that owing to the holders of Subordinated Debt
which is currently in default but which default will be cured by December 31,
1995 and for which the Subordinated Debt holders have waived their rights; (b)
any order, judgment or decree of any governmental authority; or (c) any other
agreement, contract, lease, license or other instrument, which default or
potential default might reasonably be expected to have a material adverse
effect.
3.16. Use of Proceeds; No Representations by NationsBank. All proceeds
of the Loans have been or will be used solely for business purposes. Borrower
solicited the Loans from NationsBank, and utilized or will utilize the proceeds
of said Loans for such purposes as Borrower has determined in its sole business
judgment. No representation, statement, suggestion, recommendations or advice
of any kind, nature or description has been made by NationsBank to Borrower,
and if any representation, statement, suggestion, recommendation or advice were
given by NationsBank, now or hereafter, it was not, and will not be, relied
upon by Borrower.
IV.
COVENANTS
Until the Loans are repaid, Borrower covenants and agrees with NationsBank
as follows:
4.1. Loan Payment. Borrower agrees that it will pay or cause to be
paid when due the principal and interest on the Notes, without deduction by
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reason of any defense, setoff or counterclaim of any kind, nature or
description whatsoever, and that Borrower will punctually perform all of its
obligations under this Loan Agreement and the Security Documents.
4.2. Books and Records. Borrower agrees to keep books and records
which are full, true and correct records of all business transactions made by
it, in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except for changes in such
accounting principles which are required or permitted by applicable accounting
authorities and concurred in by Borrower's independent accountants.
4.3. Annual Financial Statements. Borrower agrees to furnish
NationsBank, (a) within 90 days after the close of each fiscal year, with a
copy of (i) Borrower's annual financial statements, audited by an independent
certified public accountant or accounting firm selected by Borrower and
satisfactory to NationsBank, which financial statements shall include balance
sheets as of the end of the year and profit and loss statements reflecting
operations during the year, including statements of financial condition,
income, cash flows and changes in shareholders' equity, all of which shall be
in reasonable detail and shall set forth comparable figures for the preceding
year, (ii) Borrower's annual report to its shareholders and (iii) the
independent auditor's letter to Borrower's board of directors, (b) within 60
days after the close of each fiscal year, with copies of Borrower's pro forma
balance sheet, income statement and cash flow statement for the next year and
with a listing of all of Borrower's accounts receivable parties showing each
customer's name, address, telephone number and contact person, and (c) with
copies of their federal income tax returns within 10 days after filing the
same.
4.4. Monthly and Periodic Financial Statements and Compliance
Certificates. Borrower agrees to furnish NationsBank, within 20 days after the
end of each month, with a copy of Borrower's monthly financial statements,
certified by the president or chief financial officer of Borrower, which
financial statements shall include (a) balance sheets as of the end of the
month, (b) profit and loss statements reflecting operations during the month,
(c) a listing of the inventory in Borrower's possession at the end of the
month, showing the product description, quantities and value at the lower of
cost or market and (d) an aged list of accounts receivable owed to Borrower at
the end of the month. In addition, Borrower also agrees to furnish
NationsBank, within 45 days after each March 31, June 30 and September 30, and
within 90 days after each December 31, with (i) a Compliance Certificate,
completed and with supporting data, in the form which is attached as Exhibit D,
(ii) with a copy of Borrower's quarterly report to its shareholders and (iii) a
copy of Borrower's 10-Q report filed with the Securities and Exchange
Commission. In addition, Borrower further agrees to furnish NationsBank with
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copies of each press release issued by Borrower, within 48 hours of the date of
issue.
4.5. Notice of Default or Litigation. Borrower agrees to promptly
notify NationsBank in writing of (a) the institution of or any adverse
determination in any litigation, arbitration or governmental proceeding filed
by or against Borrower, (b) the occurrence of any event which would constitute
an Event of Default under this Loan Agreement, (c) any uninsured or partially
uninsured loss through fire, theft, liability or property damage, and (d) any
condition, event or act that would or might adversely affect Borrower's
financial condition or operations, the Collateral or NationsBank's rights under
the Loan Agreement, Notes, or Security Documents, describing the same and the
steps being taken with respect thereto.
4.6. Inspections. NationsBank and any independent third parties
designated by NationsBank are authorized to visit and inspect the Collateral
and the business operations of Borrower, to examine the books and records of
Borrower and to discuss the affairs, finances and accounts of Borrower with its
officers, accountants and representatives at such times and intervals and to
such extent as NationsBank may desire.
4.7. Insurance. Borrower agrees that it will maintain insurance with
responsible insurance companies in such amounts and against such risks as are
customarily maintained by similar businesses operating in Corpus Christi,
Texas, specifically including fire and extended coverage insurance covering the
Real Property, workers' compensation insurance (or its equivalent) and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to NationsBank with respect to insurance on the Collateral,
containing a mortgagee clause naming NationsBank as a loss payee, as an
additional insured, or as its interest may appear (as applicable), and
providing for at least 30 days' prior notice to NationsBank of any cancellation
thereof. Satisfactory evidence of such insurance shall be supplied to
NationsBank at least 30 days prior to each policy renewal. Borrower agrees
that it will use its best efforts to expeditiously collect all insurance
proceeds.
4.8. Taxes and Liabilities. Borrower agrees to pay all income,
franchise, unemployment, withholding, social security, ad valorem, sales and
other taxes and assessments, all insurance premiums and all other liabilities,
as they become due, except as contested in good faith and by appropriate
proceedings.
4.9. Transactions With Shareholders. Borrower will not purchase or
redeem any shares of its capital stock, declare or pay any dividends or make
any distribution, loan or payment to any shareholder, except in the ordinary
course of business including, specifically, the payment of interest to the
holders of Subordinated Debt, without the prior written approval of
NationsBank.
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4.10. Additional Debt, Capital Acquisitions. Borrower agrees that it
will not incur, assume, guaranty or become contingently liable for the payment
of any indebtedness or liability (including capitalized leases), other than (a)
the Loans, (b) open account trade indebtednesses which are incurred in the
ordinary course of business (which shall be paid when due), (c) existing
indebtednesses disclosed to NationsBank in writing and acknowledged by
NationsBank prior to the date hereof, (d) funds borrowed for the purpose of
acquiring new equipment, and (e) tax obligations (which shall be paid when
due). Borrower agrees that it will not expend any funds for capital
acquisitions (i) in excess of $250,000 in the aggregate during 1995 and (ii) in
excess of the lesser of $500,000 or a number which is equal to the prior year's
annual depreciation and net profit less all scheduled principal payments on the
Notes and all other loan obligations during 1996 and each successive year
thereafter, without the prior written approval of NationsBank, whose consent
shall not be unreasonably withheld.
4.11. Liens. Borrower agrees that it will not create or permit to
exist any security interest, pledge, title retention, lien or other encumbrance
with respect to any of the Collateral, except for the liens permitted in
Paragraph 3.6 hereof.
4.12. Mergers, Acquisitions, Ownership and Management. Borrower agrees
that it will not be a party to any merger, or sell all or any substantial part
of its assets outside the ordinary course of business, or purchase or otherwise
acquire all or substantially all of the assets or stock of any other company,
partnership, joint venture or person, without the prior written approval of
NationsBank. Borrower agrees to promptly notify NationsBank of any change in
its management personnel.
4.13. Loans to Unaffiliated Entities. Borrower agrees it will not lend
funds to any one or more persons or entities in excess of $1,000 to any one
individual.
4.14. Repair and Maintenance; Licenses. Borrower agrees that it will
maintain all of its tangible real and personal property in good condition and
repair and make all necessary replacements thereof, and preserve and maintain
all licenses, trademarks, privileges, franchises, certificates and the like
necessary for the operation of its business.
4.15. Contamination, Criminal Activities, Indemnification. Borrower
agrees that it will keep the Real Property free from contamination by any
Hazardous Substance. Borrower agrees that it will not purchase any Collateral
with the proceeds from illegal controlled substance transfers, and that none of
the Collateral will ever be used to facilitate the manufacture or distribution
of controlled substances in violation of the Drug Abuse Prevention and Control
Act of 1970, the Racketeering Influenced and Corrupt Organizations Act or
Article 5901 et seq. of the Texas Code of Criminal Procedure. Borrower further
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agrees to indemnify NationsBank and hold it harmless from and against, and to
reimburse NationsBank for, any and all loss, claim, liability, damage,
injunctive relief, injury to any person, property or natural resource, cost,
expense, action or cause of action, arising in connection with the release or
presence of any Hazardous Substance on, in, under or at any of the Real
Property, whether foreseeable or unforeseeable, regardless of the source of
such release or when such release occurred or such presence is discovered. The
foregoing indemnity includes, without limitation, all costs of removal,
remediation of any kind and disposal of such Hazardous Substances, all costs of
determining whether the Real Property is in compliance and causing the Real
Property to be in compliance with all applicable environmental laws, all costs
associated with claims for damages to persons, property or natural resources,
and NationsBank's attorneys' and consultants' fees and court costs.
4.16. Existence, Compliance and Business Operations. Borrower agrees
that it will maintain its existence, good standing and qualification to do
business, and will comply with all laws, regulations and governmental
requirements applicable to it or to any of its property, business operations
and transactions. Borrower agrees that it will not change the general
character of business as conducted on the date hereof, or engage in any type of
business not reasonably related to its business as presently conducted.
4.17. Working Capital. Borrower agrees that it will maintain a working
capital (total current assets less total current liabilities) of not less than
$3,000,000 at all times.
4.18. Tangible Net Worth. Borrower agrees that it will maintain a
tangible net worth of not less than $2,800,000 at all times. For purposes of
this calculation, Borrower's tangible net worth shall mean all of Borrower's
assets less any good will and other intangible assets, minus all of Borrower's
liabilities (including Subordinated Debt).
4.19. Ratio of Current Assets to Current Liabilities. Borrower agrees
that it will maintain a ratio of current assets to current liabilities of not
less than 1.5 to 1.0 at all times.
4.20 Ratio of Total Debt to Capital Funds. Borrower agrees that it
will maintain a ratio of total debt to capital funds of not more than 0.6 to
1.0 on each March 31, June 30, September 30 and December 31. For purposes of
this calculation, Borrower's total debt shall mean all of its liabilities other
than its Subordinated Debt, and Borrower's capital funds shall mean Borrower's
net worth plus the outstanding balance of its Subordinated Debt.
4.21. Fixed Charge Coverage. Borrower agrees that it will maintain a
fixed charge coverage ratio of at least 1.5 to 1.0 on each March 31, June 30,
September 30 and December 31 based on the four immediately preceding quarters.
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For purposes of this calculation, Borrower's fixed charge coverage shall mean
that ratio of Borrower's cash flow to Borrower's fixed charges. Borrower's
cash flow shall include its net income after taxes on a book basis (a) plus (i)
interest expense, (ii) depreciation and amortization, (iii) other non-cash
expenses and (iv) lease expenses, (b) less gains on the sale of assets and cash
dividends, and Borrower's fixed charges shall include all scheduled principal
and interest payments on all promissory notes and capital lease obligations.
4.22. Subordinated Debt. Borrower has issued convertible subordinated
notes dated June 15, 1992, with amendments dated September 30, 1994 and
February 28, 1995, totaling $5,000,000 ("Subordinated Debt") which require
monthly interest payments at 10.5% per annum and quarterly principal payments
totaling $500,000 beginning September 15, 1997. Borrower agrees that it will
not modify, amend or otherwise change any term or provision of the Subordinated
Debt, or prepay any principal or interest on the Subordinated Debt, without the
prior written consent of NationsBank. Borrower agrees that it will not make
any principal payment to the holder of any Subordinated Debt without the prior
written consent of NationsBank. Borrower agrees that it will not make any
interest payment to the holder of any Subordinated Debt following the
occurrence of any uncured Event of Default under this Loan Agreement.
4.23. Negative Pledge. Borrower agrees that it will not grant a
security interest in any of its equipment or other personal property to any
person or entity, except to the extent permitted in Paragraph 3.6 hereof,
without prior written consent of Bank whose consent shall not be unreasonably
held.
4.24. Bank Accounts. Borrower agrees that it will maintain all bank
accounts relating to its business operations at NationsBank, depositing all
income into said accounts and paying all expenses out of said accounts,
including all checking and savings accounts, certificates of deposit and other
cash-equivalent investments, or, at Borrower's option, that Borrower will grant
NationsBank a security interest in all checking and savings accounts,
certificates of deposit and other cash-equivalent investments which are
maintained at other financial institutions, to secure the payment of the Loans
described herein.
4.25. Costs and Expenses. Borrower agrees to reimburse NationsBank for
all expenses incurred by it in connection with this Loan Agreement, the Notes
and Security Documents, including but not limited to filing and recording
expenses and attorney's fees. Borrower also agrees that it will furnish
NationsBank with an endorsement to its current mortgagee's policy of title
insurance in form satisfactory to NationsBank, insuring that its deed of trust
lien against the Real Property constitutes a first and prior lien in favor of
NationsBank, with no exceptions other than those approved by NationsBank.
Borrower also agrees to furnish NationsBank, from time to time as reasonably
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requested by NationsBank to comply with regulatory requirements, with
environmental audits and appraisals from qualified appraisers stating the fair
market value of the Real Property.
V.
EVENTS OF DEFAULT
5.1. Events of Default. The occurrence of any one of the following
events shall constitute an event of default ("Event of Default") by Borrower
under this Loan Agreement:
(a) Any failure to pay NationsBank any installment on any
Note when due;
(b) (1) Any failure of Borrower to pay, or any admission in
writing of their inability to pay, any debt as it becomes due, (2) any consent
to or acquiescence in the appointment of a trustee or receiver for all or part
of the property of Borrower, (3) the making of a general assignment for the
benefit of creditors by Borrower, (4) the filing of any petition for
bankruptcy, reorganization or other proceedings for the arrangement of debt
under any insolvency law by Borrower, (5) the institution of any act or
proceeding for dissolution or liquidation by Borrower, or (6) the commencement
of any proceeding against Borrower under the Bankruptcy Code, which proceeding
is not dismissed within 60 days after filing;
(c) Any failure of Borrower to comply with, or the occurrence
of any act, omission or event which is in violation of, this Loan Agreement or
any Note or Security Document;
(d) Any warranty, representation or certification made to
NationsBank by Borrower proves to have been incorrect, false or misleading in
any material respect on the date made;
(e) Any financial statement, Borrowing Base Certificate,
Compliance Certificate, report, schedule or other information furnished to
NationsBank by or on behalf of Borrower proves to have been incorrect, false or
misleading in any material respect on the date made; and
(f) Any judgment for the payment of money is entered against
Borrower which remains unsatisfied and in effect, without a stay of execution
pending appeal, for any period of 60 consecutive days.
5.2. Effect of Default. Upon the occurrence of any Event of Default
specified in Paragraph 5.1(a) hereof or upon the expiration of 30 days after
notice to Borrower of the occurrence of any other Event of Default, NationsBank
may refuse to make any further advances or issue any letters of credit on
Borrower's behalf under the Revolving Note, and may (but is under no obligation
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to), in its discretion, declare any one or more of the Notes to be immediately
due and payable, and thereupon such Notes shall become due and payable,
together with the interest which has accrued thereon through such date.
NationsBank may take any action or proceeding at law or in equity which it
deems advisable to collect and enforce the payment of the amounts owing to it.
Each right, power and remedy granted to NationsBank herein, under any Security
Document, or under applicable law, shall be cumulative, and shall be in
addition to every other right, power and remedy which may now or hereafter be
available to NationsBank, and each such right, power and remedy may be
exercised by NationsBank from time to time and as often and in such order as
may be deemed expedient to NationsBank. Borrower agrees to pay all expenses
(including appraisal, environmental audit, expert and consultation fees), court
costs and attorney's fees incurred by NationsBank in connection with collecting
the Notes and/or curing any default arising hereunder.
5.3. Borrower's Remedies. No claim may be asserted against
NationsBank by Borrower unless NationsBank receives written notice from
Borrower specifically describing the claim asserted within 120 days after
Borrower discovered or could with the reasonable exercise of diligence have
discovered the event or occurrence which gave rise to such claim.
VI.
GENERAL PROVISIONS
6.1. RELEASE. FOR VALUABLE CONSIDERATION RECEIVED TO THE FULL
SATISFACTION OF BORROWER, BORROWER WAIVES AND RELEASES ANY AND ALL CAUSES OF
ACTION AGAINST NATIONSBANK, ITS AGENTS AND EMPLOYEES, FOR ALL ACTS AND
OMISSIONS WHICH HAVE OCCURRED PRIOR TO THE SIGNING OF THIS LOAN AGREEMENT,
INCLUDING BUT NOT LIMITED TO ALL CAUSES OF ACTION FOR CLAIMS OF USURY, FRAUD,
DECEIT, MISREPRESENTATION, CONSPIRACY, UNCONSCIONABILITY, DURESS, ECONOMIC
DURESS, DEFAMATION, CONTROL, INTERFERENCE WITH CORPORATE GOVERNANCE, TORTIOUS
INTERFERENCE WITH CONTRACTUAL AND BUSINESS RELATIONSHIPS, CONFLICTS OF
INTEREST, CONCEALMENT, DISCLOSURE, SECRECY, MISUSE OF COLLATERAL, WRONGFUL
RELEASE OF COLLATERAL, FAILURE TO INSPECT, ENVIRONMENTAL DUE DILIGENCE,
NEGLIGENT LOAN PROCESSING AND ADMINISTRATION, WRONGFUL SETOFF, VIOLATIONS OF
STATUTES AND REGULATIONS OF GOVERNMENTAL ENTITIES AND AGENCIES (BOTH CIVIL AND
CRIMINAL), RACKETEERING ACTIVITIES, SECURITY AND ANTITRUST VIOLATIONS, TYING
ARRANGEMENTS, DECEPTIVE TRADE PRACTICES (TO THE MAXIMUM EXTENT PERMITTED BY
LAW), AND BREACH OR ABUSE OF ANY ALLEGED FIDUCIARY DUTY, SPECIAL RELATIONSHIP,
COURSE OF CONDUCT AND/OR OBLIGATION OF GOOD FAITH AND FAIR DEALING.
NATIONSBANK AND BORROWER FURTHER AGREE TO LIMIT THEIR DAMAGES IN ALL CAUSES OF
ACTION, INCLUDING CAUSES OF ACTION ARISING AFTER THE DATE HEREOF, TO EXCLUDE
ALL (a) PUNITIVE AND EXEMPLARY DAMAGES, (b) DAMAGES ATTRIBUTABLE TO LOST
PROFITS OR OPPORTUNITY, (c) DAMAGES ATTRIBUTABLE TO MENTAL ANGUISH AND (d)
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DAMAGES ATTRIBUTABLE TO PAIN AND SUFFERING, AND THE PARTIES DO HEREBY WAIVE AND
RELEASE ALL SUCH DAMAGES WITH RESPECT TO ANY AND ALL CAUSES OF ACTION WHICH MAY
ARISE AT ANY TIME AGAINST ANY OTHER PARTY, THEIR AGENTS AND EMPLOYEES.
6.2. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO, INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING
TO THIS LOAN AGREEMENT, THE NOTES AND SECURITY DOCUMENTS, AND INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT (INCLUDING BUT NOT LIMITED TO
THOSE TYPES OF TORTS ENUMERATED IN PARAGRAPH 6.1 HEREOF), SHALL BE DETERMINED
BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT OR, IF
NOT APPLICABLE, THE TEXAS GENERAL ARBITRATION ACT AND THE TEXAS COMMON LAW, THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. ALL PARTIES STIPULATE AND AGREE THAT THE
CONTRACTS, TRANSACTIONS, TORTS, ACTS AND OMISSIONS REFERRED TO HEREIN "INVOLVE
COMMERCE" WITHIN THE MEANING OF 9 U.S.C.A. SECTION 2. THE PROVISIONS OF THIS
PARAGRAPH 6.2 SHALL BE IRREVOCABLE AND ARE ENFORCEABLE BY SPECIFIC PERFORMANCE.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS LOAN AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(a) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
CORPUS CHRISTI, TEXAS, BY J.A.M.S., WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S.
IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL PARTIES AGREE TO MAINTAIN THE
CONFIDENTIALITY OF THE PROCEEDINGS, ANY DISCOVERY AND ALL EVIDENCE PRESENTED.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS AFTER THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
(b) RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL
BE DEEMED TO (i) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (ii) BE
A WAIVER BY NATIONSBANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91
OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (iii) LIMIT THE RIGHT OF
NATIONSBANK (a) TO EXERCISE SELF-HELP REMEDIES SUCH AS, BUT NOT LIMITED TO,
SETOFF, OR (b) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL,
OR (c) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS, BUT
NOT LIMITED TO, INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. NATIONSBANK MAY EXERCISE SUCH SELF-HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
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AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS LOAN
AGREEMENT. NEITHER THIS EXERCISE OF SELF-HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
6.3. INDEMNIFICATION. BORROWER HEREBY AGREES TO INDEMNIFY, DEFEND AND
HOLD HARMLESS NATIONSBANK, ITS AGENTS AND EMPLOYEES, FROM AND AGAINST ALL
CAUSES OF ACTION, LIABILITIES, OBLIGATIONS AND PENALTIES, INCLUDING REASONABLE
ATTORNEYS' FEES, ACCRUING TO ANY THIRD PARTY, ARISING FROM OR IN ANY WAY
RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING BUT NOT
LIMITED TO (a) ACTUAL OR THREATENED DAMAGE TO THE ENVIRONMENT, AGENCY COSTS OF
INVESTIGATION, PERSONAL INJURY OR DEATH OR PROPERTY DAMAGE, DUE TO A RELEASE OR
ALLEGED RELEASE OF HAZARDOUS SUBSTANCES ARISING FROM BORROWER'S BUSINESS
OPERATIONS OR PROPERTY, (b) FROM ANY USE, CONDITION OR OPERATION OF THE
COLLATERAL OR BORROWER'S BUSINESS OPERATIONS, (c) FROM RESPONDING TO ANY
SUBPOENA, (d) FROM ANY LITIGATION TO WHICH NATIONSBANK BECOMES A PARTY, (e)
FROM ANY LAWFUL EXERCISE OF ITS RIGHTS BY NATIONSBANK UNDER THIS LOAN
AGREEMENT, THE NOTES AND SECURITY DOCUMENTS.
6.4. Waiver and Amendments. No delay on the part of NationsBank in
the exercise of any right, power or remedy and no course of dealings with
respect thereto shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or remedy preclude other or further
exercise thereof or the exercise of any other right, power or remedy. No
provision of this Loan Agreement shall be deemed to have been waived unless
such waiver is in writing and signed by an officer of NationsBank. This Loan
Agreement may not be modified or amended, except by written instrument signed
by Borrower and NationsBank. This Loan Agreement, the Notes and Security
Documents set forth the entire agreement of the parties and supersede all other
promises, representations, understandings and agreements, oral or written,
heretofore made with respect to this transaction.
6.5. Relationship. The relationship of Borrower and NationsBank is
that of borrower and lender only. No fiduciary or special relationship exists
between the parties. Borrower represents that no imbalance of bargaining power
exists between the parties. NationsBank shall never be deemed to control any
management decision of Borrower. Borrower is not placing any special trust or
confidence in its relationship with NationsBank.
6.6. Captions and Pronouns, Accounting Terms. The captions appearing
in this Loan Agreement are included only as a matter of convenience, and shall
in no way limit or amplify or otherwise affect the construction of any
provision hereof. The accounting terms which are used herein shall have the
meanings accorded them by generally accepted accounting principles. Words of
<PAGE> 28
<PAGE>
any gender shall be construed to include any other gender, words in the
singular shall be construed to include the plural, and words in the plural
shall be construed to include the singular, as the sense of the context
requires.
6.7. Notices. Any notice under this Loan Agreement, the Notes and
Security Documents shall be in writing and, if delivered personally, by
facsimile machine, telegram or telex, shall be deemed to have been given when
sent, and if mailed shall be deemed to have been given three days after the
date when sent by certified mail, postage prepaid and addressed to Borrower, or
to NationsBank at the address shown by that party's signature.
6.8. Conflict. The provisions of this Loan Agreement and the
provisions of the Notes and Security Documents shall be construed to be
consistent wherever possible; however in the event of a direct conflict in such
provisions, the provisions of this Loan Agreement shall control.
6.9. Partial Invalidity. Any provision of this Loan Agreement which
is prohibited or unenforceable in any jurisdiction shall not be in effect to
the extent of such prohibition or unenforceability in such jurisdiction only,
without invalidating the remaining provisions hereof in that jurisdiction or
affecting the validity or enforceability of that provision in all other
jurisdictions.
6.10. Non-Applicability of Chapter 15, Texas Credit Code. The
provisions of Chapter 15 of the Texas Credit Code, Article 5069-15, Texas
Revised Civil Statutes, are specifically declared by the parties not to be
applicable to this Loan Agreement, the Notes and Security Documents.
6.11. Texas Law. The Loan Agreement, Notes and Security Documents
shall be deemed contracts made in, and shall be construed under, the laws of
the State of Texas. All disputes, claims, demands, actions, causes of actions,
suits or proceedings between the parties shall be enforced in accordance with
and governed by the laws of the State of Texas and, if applicable, the United
States of America, except that, with respect to the creation, perfection and
enforcement of liens and security interests in Collateral, the law of the state
in which such Collateral is located shall govern.
6.12. Mandatory Exclusive Venue; Choice of Forum. All disputes,
claims, demands, actions, causes of action, suits or proceedings between the
parties shall be adjudicated, litigated, heard or tried, if at all, exclusively
in the state courts of Nueces County, Texas or the United States District Court
for the Southern District of Texas, Corpus Christi Division. Nueces County,
Texas shall be the mandatory, exclusive place for the adjudication, litigation,
hearing or trial of any matter between the parties. NationsBank and Borrower
<PAGE> 29
<PAGE>
hereby irrevocably waive any right to have any such dispute, claim, demand,
action, cause of action, suit or proceeding adjudicated, litigated or heard or
tried in any place other than Nueces County, Texas.
6.13. Waiver of Jury. NationsBank and Borrower irrevocably waive their
right to a trial by jury in any claim or cause of action against the other,
including but not limited to claims for usury and claims based on or arising
from an alleged tort (including but not limited to those types of torts
enumerated in Paragraph 6.1 hereof). Such matters shall be decided by a judge,
without a jury.
6.14. Personal Jurisdiction. NationsBank and Borrower hereby
irrevocably submit themselves to the personal jurisdiction of the state and
federal courts located in Nueces County, Texas.
6.15. Set Off. NationsBank shall be entitled to set off and apply
against the outstanding principal balance and accrued interest on the Notes any
and all funds deposited by Borrower with NationsBank, whether general or
special, demand or time, provisional or final, whether or not the Note is then
due, provided that an Event of Default has occurred and is continuing at the
time of such set off.
6.16. Maximum Interest. It is the intention of the parties to conform
strictly to applicable usury laws as presently in effect. Accordingly, if any
transaction contemplated hereby would be usurious under applicable law
(including the laws of the United States of America), then in that event,
notwithstanding anything to the contrary in the Notes or any other agreement
entered into by the parties, it is agreed that the aggregate of all interest
that is contracted for, charged or received by NationsBank shall in no
circumstance exceed the maximum amount of interest allowed by applicable law,
and any excess shall be credited to the principal amount of the Notes as of the
date received, or if the principal amount of the Notes has been paid in full,
such excess shall be promptly refunded to the party paying the same, and
neither Borrower nor any other person shall be obligated to pay the amount of
any interest which is in excess of the maximum interest permitted by the
applicable usury laws, and the effective rate of interest shall ipso facto be
reduced to the highest lawful rate which a national bank would be authorized to
charge Borrower for this type of loan in Texas ("Maximum Lawful Rate"). All
sums paid or agreed to be paid to NationsBank for the use, forbearance and
detention of the money loaned to Borrower shall, to the extent permitted by
applicable law, be amortized, pro rated, allocated and spread throughout the
full term of the Notes until payment in full, so that the actual rate of
interest does not exceed the Maximum Lawful Rate in effect at any particular
time during the full term thereof.
6.17. Successors and Assigns; Continuation. This Loan Agreement shall
be binding upon Borrower and NationsBank and their respective successors and
<PAGE> 30
<PAGE>
assigns, and shall inure to the benefit of Borrower and NationsBank and their
respective successors and assigns. The provisions of this Loan Agreement shall
survive the payment of the Notes, and shall remain fully effective until
terminated by written agreement among the parties.
6.18. THIS WRITTEN LOAN AGREEMENT, THE NOTES AND SECURITY DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Dated: August 31, 1995.
BORROWER:
HITOX CORPORATION OF AMERICA
418 Peoples Street
Corpus Christi, Texas 78401
P.O. Box 2544
Corpus Christi, Texas 78403
By: THOMAS A. LANDSHOF
------------------------
Thomas A. Landshof
President and CEO
NATIONSBANK:
NATIONSBANK OF TEXAS, N.A.
Corpus Christi Downtown Banking Center
500 North Shoreline
Corpus Christi, Texas 78471
By: JAMES W. HOOSE, JR.
------------------------
James W. Hoose, Jr.
Vice President
<PAGE> 31
<PAGE>
<TABLE>
Hitox Corporation of America and Subsidiaries Exhibit 11
Computation of Earnings Per Share (EPS)
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING
Common Stock 3,657 3,657 3,657 3,657
Common Stock Equivalents, assumed exercise
of stock options and warrants (Treasury
Stock Method at average market value) 143 2 79 1
--------- --------- --------- ---------
Total for Primary EPS 3,800 3,659 3,736 3,658
Other potentially dilutive securities,
assumed conversion of 10.5% convertible
subordinate redeemable debentures into
556 shares of common stock --- 556 --- 556
Assumed exercise of stock options and
warrants (Treasury Stock Method at
greater of average or end of period
market value) 49 --- 73 ---
--------- --------- --------- ---------
Total for Fully Diluted EPS 3,849 4,215 3,809 4,214
INCOME (LOSS)
Income (loss) for primary EPS:
Net income (loss) $ 202 $ (3,049) $ 581 $ (3,503)
Income (loss) for fully diluted EPS:
Net income (loss) 202 (3,049) 581 (3,503)
Interest, net of income taxes on 10.5%
convertible subordinate debentures --- 92 --- 266
Amortization of loan origination fees,
net of taxes --- 10 --- 29
--------- --------- --------- ---------
Net income (loss) for fully diluted EPS $ 202 $ (2,947) $ 581 $ (3,208)
INCOME (LOSS) PER SHARE
Primary $ 0.05 $ (0.83) $ 0.16 $ (0.96)
Fully Diluted 0.05 (0.70)<F2> 0.15 (0.76)<F2>
- --------------------------------------------
<FN>
<F2>
Antidilutive
</FN>
</TABLE>
<PAGE> 32
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $588
<SECURITIES> 0
<RECEIVABLES> 1729
<ALLOWANCES> 0
<INVENTORY> 3370
<CURRENT-ASSETS> 5799
<PP&E> 8991
<DEPRECIATION> 4551
<TOTAL-ASSETS> $10425
<CURRENT-LIABILITIES> $1598
<BONDS> 5421
<COMMON> 936
0
0
<OTHER-SE> 2470
<TOTAL-LIABILITY-AND-EQUITY> $10425
<SALES> 8690
<TOTAL-REVENUES> 8730
<CGS> 5951
<TOTAL-COSTS> 5951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479
<INCOME-PRETAX> 584
<INCOME-TAX> 3
<INCOME-CONTINUING> 581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $581
<EPS-PRIMARY> $0.16
<EPS-DILUTED> $0.15
</TABLE>
