SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. )*
HITOX CORPORATION OF AMERICA
________________________________________
(Name of Issuer)
Common Stock, Par Value $0.25 Per Share
_________________________________________
(Title of Class of Securities)
433658101
________________
(CUSIP Number)
Patrick J. Dooley, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
(212) 872-1000
___________________________________________________
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
April 20, 1999
_________________________________
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
Note. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
Continued on following page(s)
Page 1 of 18 Pages
Exhibit Index: Page 10
<PAGE>
Page 2 of 18 Pages
SCHEDULE 13D
CUSIP No. 433658101
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
PAULSON ACQUISITION LLC
2 Check the Appropriate Box If a Member of a Group*
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds*
WC
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 629,474
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 629,474
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
629,474
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* [X]
13 Percent of Class Represented By Amount in Row (11)
13.46%
14 Type of Reporting Person*
OO;IV
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 3 of 18 Pages
SCHEDULE 13D
CUSIP No. 433658101
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
PAULSON RANCH, LTD.
2 Check the Appropriate Box If a Member of a Group*
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds*
WC, BK
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 629,474
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 629,474
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
629,474
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* [X]
13 Percent of Class Represented By Amount in Row (11)
13.46%
14 Type of Reporting Person*
PN;IV
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 4 of 18 Pages
SCHEDULE 13D
CUSIP No. 433658101
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
BERNARD A. PAULSON
2 Check the Appropriate Box If a Member of a Group*
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds*
Not Applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
United States
7 Sole Voting Power
Number of 688,974
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 688,974
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
688,974
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* [ ]
13 Percent of Class Represented By Amount in Row (11)
14.73%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 5 of 18 Pages
This Statement on Schedule 13D relates to shares of Common
Stock, $0.25 par value per share (the "Shares"), of Hitox Corporation of America
(the "Issuer"). This Statement is being filed by the Reporting Persons (as
defined herein) to report the recent acquisition of Shares, as a result of which
the Reporting Persons may be deemed to be the beneficial owners of more than 5%
of the outstanding Shares of the Issuer.
Item 1. Security and Issuer.
This Statement relates to the Shares. The address of the
principal executive offices of the Issuer is 722 Burleson Street, Corpus
Christi, Texas 78402.
Item 2. Identity and Background.
This Statement is being filed on behalf of each of the
following persons (collectively, the "Reporting Persons"):
i) Paulson Acquisition LLC ("Paulson Acquisition"),
ii) Paulson Ranch, Ltd. ("Paulson Ranch"), and
iii) Bernard A. Paulson ("Mr. Paulson").
Paulson Acquisition is a Delaware limited liability company.
Paulson Acquisition is a wholly owned limited liability company of Paulson
Ranch. The general partner of Paulson Ranch is Paulson Ranch Management, L.L.C.,
a Texas limited liability company. The members of Paulson Ranch Management,
L.L.C. are Mr. Bernard A. Paulson and his wife.
The principal business of each of Paulson Acquisition and
Paulson Ranch is investment in securities. Mr. Paulson is the President and
Chief Executive Officer of Paulson Acquisition and as such may be deemed to have
voting and dispositive power over the Shares held for the account of Paulson
Acquisition. Mr. Paulson is a United States citizen. Mr. Paulson is a director
of the Issuer and is the acting Chief Executive Officer of the Issuer. On March
22, 1999, Mr. Paulson recused himself as acting Chief Executive Officer during
the pendency of the Tender Offer (as defined) and recused himself from board of
director deliberations as they relate to the Tender Offer. The address of the
principal business and principal office of each of Paulson Acquisition, Paulson
Ranch and Mr. Paulson is 3 Ocean Park Drive, Corpus Christi, Texas 78404.
On March 23, 1999 Paulson Acquisition commenced a tender offer
(the "Tender Offer") to purchase up to 1,000,000 Shares at $2.50 per Share. The
Tender Offer closed at 12:00 midnight New York City time on April 19, 1999 and
195,074 Shares were purchased by Paulson Acquisition on April 20, 1999.
Thereafter, Paulson Acquisition also purchased Shares in the open market as
described in Item 5.
During the past five years, none of the Reporting Persons has
been (a) convicted in a criminal proceeding, or (b) a party to any civil
proceeding as a result of which he has been subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws, or finding any
violation with respect to such laws.
<PAGE>
Page 6 of 18 Pages
Item 3. Source and Amount of Funds or Other Consideration.
Paulson Acquisition expended approximately $487,685 of its
working capital to purchase the 195,074 shares that were tendered in the Tender
Offer. Paulson Acquisition expended approximately $1,284,256 to purchase the
Shares that were purchased in the open market. Of the amount used to purchase
Shares in the Open Market, approximately $263,180 was funded by a loan to
Paulson Ranch by NationsBank, N.A. (the "NationsBank Loan") which amount was
contributed to Paulson Acquisition. Pursuant to the NationsBank Loan, Paulson
Ranch borrowed $1 million at LIBOR plus 1.50% per annum. The NationsBank Loan
matures on June 15, 2000 with interest payable quarterly commencing on June 6,
1999. The NationsBank Loan is not secured by the Shares and does not have a
prepayment penalty.
Item 4. Purpose of Transaction.
Except as described herein, neither the Reporting Persons nor,
to the best of their knowledge, any of the other persons identified in response
to Item 2, has any plans or proposals that relate to or would result in any of
the transactions described in subparagraphs (a) through (j) of Item 4 of
Schedule 13D.
The Reporting Persons, from time to time, intend to evaluate
and review the Issuer's assets, operations, management and personnel and
consider what, if any, changes would be desirable in light of circumstances
which then exist (which may include an assessment of industry trends and
conditions, and general economic and market circumstances prevailing at the
time). Thereafter, the Reporting Persons may, among other things, seek to (i)
acquire additional securities of the Issuer, enter into an extraordinary
transaction such as a merger, reorganization or liquidation of the Issuer, (ii)
sell or transfer all or substantially all of the Issuer's assets, (iii) change
the Issuer's current board of directors (including changing the number or term
of directors or to fill any existing vacancies on the board), (iv) change the
present capitalization or dividend policy of the Issuer, (v) materially change
the Issuer's business or corporate structure, (vi) change the Issuer's charter
and by-laws, (vii) cause the Issuer's Common Stock to be delisted from the
Nasdaq Stock Market, (viii) cause the Issuer's Common Stock to become eligible
for termination of registration under the Exchange Act, or (ix) take action
similar to any of those enunciated above. While the Reporting Persons currently
have no plans or proposals to implement such changes, there can be no assurance
that the Reporting Persons would not seek to implement such changes in the
future.
The Reporting Persons reserve the right to acquire, or cause
to be acquired, additional securities of the Issuer, to dispose, or cause to be
disposed of, such securities at any time or to formulate other purposes, plans
or proposals regarding the Issuer or any of its securities, or to propose or
take any action as described above or in subparagraphs (a) through (j) of Item 4
of Schedule 13D, to the extent deemed advisable in light of general investment
and trading policies of the Reporting Persons, market conditions or other
factors.
Item 5. Interest in Securities of the Issuer.
(a) (i) Paulson Acquisition may be deemed
the beneficial owner of the 629,474 Shares (approximately 13.46% of the total
number of Shares issued and outstanding). This number includes 629,474 Shares
held for its account.
(ii) Paulson Ranch may be deemed the
beneficial owner of the 629,474 Shares (approximately 13.46% of the total number
of Shares issued and outstanding). This number includes 629,474 Shares held for
the account of Paulson Acquisition.
(iii) Mr. Paulson may be deemed the
beneficial owner of 688,974 Shares (approximately 14.73% of the total number of
Shares issued and outstanding assuming exercise of the options
<PAGE>
Page 7 of 18 Pages
held for his account). This number includes (A) 629,474 Shares held for the
account of Paulson Acquisition, (B) 42,000 Shares held for his account and (C)
17,500 Shares issuable upon the exercise of currently exercisable options held
for his account.
(b) (i) Paulson Acquisition may be deemed to
have the sole power to direct the voting and disposition of the 629,474 Shares
held for its account.
(ii) Paulson Ranch may be deemed to have
the sole power to direct the voting and disposition of the 629,474 Shares held
for the account of Paulson Acquisition.
(iii) Mr. Paulson may be deemed to have
the sole power to direct the voting and disposition of the 629,474 Shares held
for the account of Paulson Acquisition and the 59,500 Shares (and securities
derivative thereof) held for his account.
(c) Except for the transactions listed on Annex
A hereto, there have been no transactions effected with respect to the Shares
since February 26, 1999 (60 days prior to the date hereof) by any of the
Reporting Persons.
(d) The members of Paulson Acquisition, a
Delaware limited liability company, have the right to participate in the receipt
of dividends from, or proceeds from the sale of, the Shares held for the account
of Paulson Acquisition LLC in accordance with their ownership interests in
Paulson Acquisition.
(e) Not applicable.
Each of Paulson Acquisition and Paulson Ranch expressly
disclaims beneficial ownership of the Shares held for the account of Mr.
Paulson.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Except as described above, the Reporting Persons do not have
any contracts, arrangements, understandings or relationships with respect to any
securities of the Issuer.
Item 7. Material to be Filed as Exhibits.
A. Joint Filing Agreement dated April 27, 1999 by and
between Paulson Acquisition LLC and Mr. Bernard A.
Paulson.
B. Promissory Note of Paulson Ranch, Ltd. to
NationsBank, N.A. dated April 5, 1999.
<PAGE>
Page 8 of 18 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief,
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
Date: April 27, 1999
PAULSON ACQUISITION LLC
By: /s/ Bernard A. Paulson
-------------------------------------
Name: Bernard A. Paulson
Title: President and Chief Executive Officer
PAULSON RANCH LTD.
By: PAULSON MANAGEMENT, L.L.C.
By: /s/ Bernard A. Paulson
----------------------------
Name: Bernard A. Paulson
Title: Member
/s/Bernard A. Paulson
----------------------------------------------
Bernard A. Paulson
<PAGE>
<TABLE>
<CAPTION>
Page 9 of 18 Pages
ANNEX A
RECENT TRANSACTIONS IN THE COMMON STOCK OF
HITOX CORPORATION OF AMERICA
<S> <C> <C> <C> <C>
Date of Nature of Number of Price Per
For the Account of Transaction Transaction Shares Share
- ------------------ ----------- ----------- ------ -----
Paulson Acquisition LLC 4/20/99 Purchase - 195,074 $2.50
Tender Offer
Paulson Acquisition LLC 4/20/99 Purchase - 65,000 $2.87
Open Market
Paulson Acquisition LLC 4/21/99 Purchase - 75,000 $2.92
Open Market
Paulson Acquisition LLC 4/22/99 Purchase - 31,000 $2.94
Open Market
Paulson Acquisition LLC 4/23/99 Purchase - 263,400 $2.99
Open Market
</TABLE>
<PAGE>
Page 10 of 18 Pages
EXHIBIT INDEX
Page No.
--------
A. Joint Filing Agreement dated April 27, 1999 by and
between Paulson Acquisition LLC and Mr. Bernard A.
Paulson................................................. 11
B. Promissory Note of Paulson Ranch, Ltd. to NationsBank,
N.A. dated April 5, 1999................................ 12
Page 11 of 18 Pages
EXHIBIT A
JOINT FILING AGREEMENT
The undersigned hereby agree that the statement on Schedule
13D with respect to the Common Stock of Hitox Corporation of America dated April
27, 1999 is, and any amendments thereto signed by each of the undersigned shall
be, filed on behalf of each of us pursuant to and in accordance with the
provisions of Rule 13d-1(f) under the Securities Exchange Act of 1934.
Date: April 27, 1999
PAULSON ACQUISITION LLC
By: /s/ Bernard A. Paulson
-------------------------------------
Name: Bernard A. Paulson
Title: President and Chief Executive Officer
PAULSON RANCH LTD.
By: PAULSON MANAGEMENT, L.L.C.
By: /s/ Bernard A. Paulson
----------------------------
Name: Bernard A. Paulson
Title: Member
/s/Bernard A. Paulson
----------------------------------------------
Bernard A. Paulson
Page 12 of 18 Pages
EXHIBIT B
Promissory Note
Date: April 5, 1999 New
------------- ---
Amount: $1,000,000.00 Maturity Date: June 15, 2000
------------- -----------------------------
================================================================================
Bank: Borrower:
NationsBank, N.A. Paulson Ranch, Ltd.
Banking Center: Corpus Christi 3 Ocean Park Dr.
500 N. Shoreline Blvd. Corpus Christi, Texas 78404
Corpus Christi, Texas 78471
County: Nueces
County: Nuaces
================================================================================
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of One Million Dollars ($1,000,000.00), or so much thereof as
------------------- -------------
may be advanced in immediately available funds, together with interest computed
daily on the outstanding principal balance hereunder, at an annual interest
rate, and in accordance with the payment schedule, indicated below.
[This Note contains some provisions preceded by boxes. If a box is marked, the
provision applies to this transaction; if it is not marked, the provision does
not apply to this transaction]
1. Rate.
Wall Street Journal Three Month LIBOR Rate. The Rate shall be the Wall
-------------------------------------------
Street Journal Three Month LIBOR Rate, plus 1.50 percent, per annum. The Rate
---------
will be adjusted on the 6th day of every July, October, January and March (the
--- ----------------------------------
"Adjustment Date") and remain fixed until the next Adjustment Date. If the
Adjustment Date in any particular month would otherwise fall on a day that is
not a Business Day (as herein defined), the Adjustment Date for that particular
month will be the first Business Day immediately following thereafter. The "Wall
Street Journal LIBOR Rate" is a rate of interest equal to the three month London
Interbank Offered Rate as published in the "Money Rates" section of the Wall
Street Journal on the immediately preceding business day as adjusted from time
to time in Bank's sole discretion for then applicable reserve requirements,
deposit insurance assessment rates and other regulatory costs. "Business Day"
means any day other than a Saturday, Sunday, or other day on which commercial
banks in Charlotte, North Carolina, are closed and a day on which dealings in
Dollar deposits are also open for business in London, England. "Dollars" shall
mean the lawful money of the United States of America.
<PAGE>
Page 13 of 18 Pages
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by applicable law. Borrower agrees that during
the full term hereof, the maximum lawful interest rate for this Note as
determined under Texas law shall be the indicated rate ceiling as specified in
Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate
ceiling exceeds the rate ceiling so determined then the higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to Borrower
or credited against principal, at the option of Bank.
2. Accrual Method. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the actual/360 day method (a daily amount of
interest is computed for a hypothetical year of 360 days; that amount is
multiplied by the actual number of days for which any principal is outstanding
hereunder). If interest is not to be computed using this method, the method
shall be: _____________________.
3. Rate Change Date. Any Rate based on a fluctuating index base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. If the Rate is to change on any other date or at any other
interval, the change shall be: ________________. In the event any index is
discontinued, Bank shall substitute an index determined by Bank to be
comparable, in its sole discretion.
4. Payment Schedule. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
Single Principal Payment. Principal shall be paid in full in a single
payment on June 15, 2000. Interest thereon shall be paid quarterly, commencing
------------- ---------
on July 6, 1999, end continuing on the same day of each successive month,
------------- ----
quarter or other period (as applicable) thereafter, with final payment of all
unpaid interest at the stated maturity of this Note.
5. Revolving Feature.
[ ] Borrower may borrow, repay and reborrow hereunder at any time, up, to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided, that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that the
borrowings hereunder do not exceed any borrowing base or other limitation on
borrowings by Borrower. Bank shall incur no liability for its refusal to advance
funds based upon its determination that any conditions of such further advances
have not been met. Bank records of the amounts borrowed from time to time shall
be conclusive proof thereof.
[ ] Uncommitted Facility. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents
executed in connection with this Note, Bank has no obligation to make
any advance, and that all advances are at the sole discretion of Bank.
<PAGE>
Page 14 of 18 Pages
[ ] Out-Of-Debt Period. For a period of at least __________
consecutive days during [ ] each fiscal year, [ ] any consecutive
12-month period, Borrower shall fully pay down the balance of this
Note, so that no amount of principal or interest and no other
obligation under this Note remains outstanding.
6. Automatic Payment.
[X] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number 5772061455. This
----------
authorization shall not affect the obligation of Borrower to pay such sums when
due, without notice, if there are insufficient funds in such account to make
such payment in full on the due date thereof, or if Bank fails to debit the
account.
7. Waivers, Consents and Covenants. Borrower, any indorser or guarantor hereof,
or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"): (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. Prepayments. Prepayments may be made in whole or in part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of principal
shall be applied in the inverse order of maturity, or in such other order as
Bank shall determine in its sole discretion. No prepayment of any other loan
shall be permitted without the prior written consent of Bank. Notwithstanding
such prohibition, if there is a prepayment of any such loan, whether by consent
of Bank, or because of acceleration or otherwise, Borrower shall, within 15 days
of any request by Bank, pay to Bank any loss or expense which Bank may incur or
sustain as a result of such prepayment. For the purposes of calculating the
amounts owed only, it shall be assumed that Bank actually funded or committed to
<PAGE>
Page 15 of 18 Pages
fund the loan through the purchase of an underlying deposit in an amount, and
for a term comparable to the loan, and such determination by Bank shall be
conclusive, absent a manifest error in computation.
9. Events of Default. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party;
(c) the death of any Obligor (if an individual); (d) the resignation or
withdrawal of any partner or a material owner/guarantor of Borrower, as
determined by Bank in its sole discretion; (e) the commencement of a proceeding
against any Obligor for dissolution or liquidation, the voluntary or involuntary
termination or dissolution of any Obligor or the merger or consolidation of any
Obligor with or into another entity; (f) the insolvency of, the business failure
of, the appointment of a custodian, trustee, liquidator or receiver for or for
any of the property of, the assignment for the benefit of creditors by, or the
filing of a petition under bankruptcy, insolvency or debtor's relief law or the
filing of a petition for any adjustment of indebtedness, composition or
extension by or against any Obligor; (g) the determination by Bank that any
representation or warranty made to Bank by any Obligor in any Loan Documents or
otherwise is or was, when it was made, untrue or materially misleading; (h) the
failure of any Obligor to timely deliver such financial statements, including
tax returns, other statements of condition or other information, as Bank shall
request from time to time; (i) the entry of a judgment against any Obligor which
Bank deems to be of a material nature, in Bank's sole discretion; (j) the
seizure or forfeiture of, or the issuance of any writ of possession, garnishment
or attachment, or any turnover order for any property of any Obligor; (k) the
determination by Bank that it is insecure for any reason; (l) the determination
by Bank that a material adverse change has occurred in the financial condition
of any Obligor; or (m) the failure of Borrower's business to comply with any law
or regulation controlling its operation.
10. Remedies upon Default. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligors a right, to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the principal
balance, and interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of principal and interest is paid in full. Upon a default under this Note, Bank
is hereby authorized at any time, at its option and without notice or demand, to
set off and charge against any deposit accounts of any Obligor (as well as any
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the control
of Bank or any of its agents, affiliates or correspondents, any and all
<PAGE>
Page 16 of 18 Pages
obligations due hereunder. Additionally, Bank shall have all rights and remedies
available under each of the Loan Documents, as well as all rights and remedies
available at law or in equity.
11. Non-Waiver. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed an behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
12. Applicable Law, Venue and Jurisdiction. Borrower agrees that this Note shall
be deemed to have been made in the State of Texas at Bank's address indicated at
the beginning of this Note and shall be governed by, and construed in accordance
with, the laws of the State of Texas, and is performable in the City and County
of Texas indicated at the beginning of this Note. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of Texas or the
United States courts located within the State of Texas. Nothing contained herein
shall, however, prevent Bank from bringing any action or exercising any rights
within any other state or jurisdiction or from obtaining personal jurisdiction
by any other means available under applicable law.
13. Partial Invalidity. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
14. Binding Effect. This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of Borrower or
Obligors hereunder can be assigned without prior written consent of Bank.
15. Controlling Document. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
16. YEAR 2000 REPRESENTATIONS AND WARRANTIES.
(A) Borrower has (i) begun analyzing the operations of Borrower and its
subsidiaries and affiliates that could be adversely affected by failure to
become Year 2000 compliant (that is, that computer applications, imbedded
<PAGE>
Page 17 of 18 Pages
microchips and other systems will be able to perform date-sensitive functions
prior to and after December 31, 1999) and; (ii) developed a plan for becoming
Year 2000 compliant in a timely manner, the implementation of which is on
schedule in all material respects. Borrower reasonably believes that it will
become Year 2000 compliant for its operations and those of its subsidiaries and
affiliates on a timely basis except to the extent that a failure to do so could
not reasonably be expected to have a material adverse effect upon the financial
condition of Borrower. (B) Borrower reasonably believes any suppliers and
vendors that are material to the operations of Borrower or its subsidiaries and
affiliates will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not reasonably be expected to
have a material adverse effect upon the financial condition of Borrower.
(C) Borrower will promptly notify Bank in the event Borrower determines that any
computer application which is material to the operations of Borrower, its
subsidiaries or any of its material vendors or suppliers will not be fully Year
2000 compliant on a timely basis, except to the extent that such failure could
not reasonably be expected to have a material adverse effect upon the financial
condition of Borrower.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. 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 INSTRUMENT, AGREEMENT OR DOCUMENT 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 THE COUNTY OF
-------------
ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED 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
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF 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.
<PAGE>
Page 18 of 18 Pages
(B) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
---------------------
BE DEEMED TO (1) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK 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 BANK HERETO (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. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSISTUTE 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.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
NOTICE OF FINAL AGREEMENT:
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS
BETWEEN THE PARTIES.
Bank: NationsBank, N.A. Corporate or Partnership Borrower:
By: /S/ TOM L. HUNT Paulson Ranch, Ltd.
---------------------------
Tom L. Hunt, Vice President By: Paulson Ranch Management, LLC
By: /S/ BERNARD A. PAULSON
---------------------------
Name: Bernard A. Paulson
Title: Member
----------------------------------
Attest (If Applicable)
[Corporate Seal]
