<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended February 28, 1997
-----------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From ____________ to ____________.
Commission File Number 0-18656
--------
PONDER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2268672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5005 Riverway Drive, Suite 550
Houston, Texas 77056
(Address of principal executive offices, zip code)
(713) 965-0653
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at March 31, 1997
----- -----------------------------
<S> <C>
Common Stock, $.01 par value 13,271,324
</TABLE>
<PAGE> 2
\ PONDER INDUSTRIES, INC., AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Condensed Consolidated Balance Sheets as of February 28, 1997, and
August 31, 1996 3
Condensed Consolidated Statements of Operations for the Three Months and Six Months
Ended February 28/29, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended February 28/29, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
PART II OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Other Information 14
Item 6: Exhibits and Reports on Form 8-K 14
</TABLE>
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<PAGE> 3
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28,
1997 August 31,
ASSETS (Unaudited) 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,300 $ 397,927
Receivables, net 5,190,589 3,646,960
Other receivable 500,000 500,000
Parts and supplies 3,444,529 3,046,288
Prepaid expenses and other 243,737 514,464
------------ ------------
Total current assets 9,413,155 8,105,639
------------ ------------
PROPERTY AND EQUIPMENT 31,772,153 28,170,569
Less-Accumulated depreciation and amortization (13,685,188) (12,644,782)
------------ ------------
18,086,965 15,525,787
------------ ------------
INVESTMENT IN JOINT VENTURE 309,996 --
OTHER ASSETS 2,233,322 2,184,435
DEFERRED ASSETS, net 833,242 853,408
GOODWILL, net 1,398,119 1,232,807
------------ ------------
4,774,679 4,270,650
------------ ------------
$ 32,274,799 $ 27,902,076
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 4
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
February 28,
1997 August 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt and other $ 2,746,303 $ 1,922,814
Accounts and notes payable, trade 5,398,358 2,863,477
Accrued liabilities 1,142,640 2,122,559
------------ ------------
Total current liabilities 9,287,301 6,908,850
------------ ------------
LONG-TERM DEBT, less current maturities 8,128,429 4,148,207
------------ ------------
OTHER LONG-TERM LIABILITIES 706,506 449,418
------------ ------------
DEFERRED TAXES PAYABLE 898,502 233,081
------------ ------------
CONVERTIBLE DEBENTURES 8,400,000 9,150,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 50,000,000 shares, issued
12,699,997 shares and 12,131,347 shares at 1997 and 1996, respectively, of
which 289,873 are held as treasury shares 127,000 121,313
Additional paid-in capital 22,722,934 21,880,361
Cumulative foreign currency translation adjustment (13,068) 23,596
Accumulated deficit (16,709,074) (13,775,188)
------------ ------------
6,127,792 8,250,082
LESS:
Note receivable for common stock (63,540) (63,540)
Deferred compensation (182,453) (146,284)
Treasury stock (1,027,738) (1,027,738)
------------ ------------
Total stockholders' equity 4,854,061 7,012,520
------------ ------------
$ 32,274,799 $ 27,902,076
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 5
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28/29 February 28/29
------------------------------ -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
TOOL RENTALS AND SALES $ 5,247,917 $ 2,036,006 $ 10,389,042 $ 4,181,857
COSTS OF SERVICE AND SALES 2,276,776 1,085,952 4,479,396 1,932,917
------------ ------------ ------------ -----------
Gross profit 2,971,141 950,054 5,909,646 2,248,940
------------ ------------ ------------ -----------
EXPENSES:
Operating 2,819,163 1,191,730 5,139,443 2,017,729
General and administrative 1,692,967 485,360 2,850,021 915,269
------------ ------------ ------------ -----------
4,512,130 1,677,090 7,989,464 2,932,998
------------ ------------ ------------ -----------
Operating loss (1,540,989) (727,036) (2,079,818) (684,058)
OTHER INCOME (EXPENSE):
Interest, net (565,543) (145,714) (919,306) (212,267)
Gain (loss) on disposal of assets 48,005 (6,044) 48,005 (1,254)
Other 6,276 155,762 17,233 186,862
------------ ------------ ------------ -----------
LOSS BEFORE DISCONTINUED OPERATIONS (2,052,251) (723,032) (2,933,886) (710,717)
DISCONTINUED OPERATIONS -- 1,400,000 -- 1,400,000
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ (2,052,251) $ 676,968 $ (2,933,886) $ 689,283
============ ============ ============ ===========
EARNINGS (LOSS) PER SHARE $ (.17) $ .08 $ (.24) $ .09
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING
12,352,524 7,974,260 12,298,187 7,405,578
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-5-
<PAGE> 6
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended February 28/29
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,933,886) $ 689,283
Adjustments to reconcile net income (loss) to net cash used in
operating activities-
Depreciation and amortization 1,136,770 325,360
(Gain) loss on disposal of assets (48,005) 1,254
Gain from discontinued operations -- (1,400,000)
Deferred compensation expense 54,740 --
Noncash interest expense 506,662 --
Net change in operating assets and liabilities-
Receivables (1,543,629) (735,502)
Parts and supplies (398,241) (107,370)
Prepaid expenses and other 270,727 97,599
Accounts and notes payable, trade 2,534,881 255,348
Accrued and other liabilities (1,013,118) 97,775
------------ -----------
Net cash used in continuing operating activities (1,433,099) (776,253)
------------ -----------
CASH USED IN DISCONTINUED OPERATIONS -- (510,390)
------------ -----------
Net cash used in operating activities (1,433,099) (1,286,643)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,215,101) (257,143)
Proceeds from asset sales 205,024 52,745
Investment in joint venture (115,431) --
------------ -----------
Net cash used in investing activities (3,125,508) (204,398)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (7,697,552) (3,773,077)
Financing and debt collateral payments (233,245) 122,433
Proceeds from long-term debt borrowings 12,162,441 4,050,230
Proceeds from issuance of common stock -- 911,000
------------ -----------
Net cash provided by financing activities 4,231,644 1,310,586
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (36,664) --
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (363,627) (180,455)
CASH AND CASH EQUIVALENTS, beginning of period 397,927 180,455
------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 34,300 $ --
============ ===========
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Six Months
Ended February 28/29
--------------------------
1997 1996
------------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest $ 397,701 $176,627
============= ========
Cash paid for income taxes $ -- $ --
============= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired for debt $ -- $925,474
============= ========
Assets acquired and liabilities assumed in connection with acquisitions $ 845,021 $ --
============= ========
Assets contributed in connection with joint venture $ 194,565 $ --
============= ========
Capital lease obligation incurred $ 136,121 $ --
============= ========
Common stock issued in connection with acquisitions $ 18,601 $ --
============= ========
Common stock issued in connection with debenture conversions $ 738,750 $ --
============= ========
Deferred compensation accrued for stock option grants $ 90,909 $ --
============= ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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<PAGE> 8
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by Ponder Industries, Inc., and subsidiaries (collectively referred to
as the Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. However, all adjustments have been made to
the accompanying financial statements which are, in the opinion of the
Company's management, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows for the periods
covered. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented herein not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain reclassifications have been made to prior year balances to conform with
current year presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," in June 1996. This
statement provides accounting and reporting standards for, among other things,
the transfer and servicing of financial assets, such as factoring receivables
with recourse and will require the Company to classify its financial assets
pledged as collateral separately in the financial statements. This statement is
effective for transactions occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is not permitted. In
December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS No. 125." SFAS No. 127 postpones some, but not all,
of the provisions of SFAS No. 125 to December 31, 1997. The Company believes
the adoption of these statements will not have an impact on the financial
condition or results of operations of the Company.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS No.
128 replaces the presentation of Primary Earnings Per Share (EPS) with Basic
EPS and requires dual presentation of Basic and Diluted EPS on the face of the
statements of operations and requires a reconciliation of the numerator and
denominator of the Basic EPS computation to the numerator and denominator of
the Diluted EPS computation. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were
-8-
<PAGE> 9
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Diluted EPS is computed
similarly to Fully Diluted EPS pursuant to Accounting Principles Board Opinion
No. 15, "Earnings Per Share." SFAS No. 128 is effective for financial
statements issued after December 15, 1997, and earlier application is not
permitted. SFAS No. 128 requires restatement of all prior period EPS data
presented. Management has determined that SFAS No. 128 will not impact EPS for
the three and six months ended February 28, 1997, because dilutive per share
amounts are not applicable for loss periods.
3. LONG-TERM DEBT:
In December 1996, the Company entered into a revolving account transfer and
purchase agreement from a lender which allows the Company to factor up to $4
million of its eligible accounts receivable at an interest rate equal to the
higher of 7 percent or the Base Rate, as defined, plus 5.5 percent (13.75
percent at February 28, 1997). This financing is with the same lender which
provided a $2.5 million Inventory Revolver and $3.5 million Term Loan in
November 1996 as discussed in the notes included in the Company's latest Annual
Report on Form 10-K. The Company's obligations under this agreement are secured
by the Company's accounts receivable not factored, its inventory and by 1,000
shares of one of its subsidiaries, a limited guarantor. The agreement requires
compliance with the same covenants as those under the Inventory Revolver and
Term Loan. The agreement expires in December 1998. At February 28, 1997,
$1,616,961 was owed to the lender under this agreement and was included in
long-term debt.
4. CONTINGENCIES:
In October 1995, the Securities and Exchange Commission (the Commission)
notified the Company that the staff of the Commission intended to recommend
that the Commission institute a cease and desist proceeding against the Company
and various former officers and directors of the Company on the basis of
alleged violations of the Securities Act of 1934 (the Exchange Act), primarily
related to the Company's accounting treatment with respect to revenue
recognition for the Company's former operations in Azerbaijan in the Company's
periodic reports filed with the Commission in late fiscal 1992 and fiscal 1993
and the Company's press release in August 1992 concerning the results of the
Azerbaijan operations. The Company has requested that the Commission not follow
the recommendations of the staff on the grounds that its accounting treatment
with respect to the Azerbaijan operations was appropriate under the then
existing circumstances and that the revenue was recognized in good faith.
Recently, the staff indicated it would not recommend action concerning the
Exchange Act filings but did intend to recommend that the Commission take
action with respect to the press release. That recommendation is currently
pending. In April 1997, the Company submitted a settlement offer to the
Commission. The settlement offer requires no monetary payment by the Company.
The Company had been a defendant in a lawsuit by a former employee seeking
damages for a wrongful termination. The suit was filed in December 1993. The
suit sought approximately $317,000 in unpaid wages and value of $142,695 for
38,052 shares of stock he would have earned during the remainder of his
contract term. In May of 1995, the former employee sought to enjoin the Company
from conducting an auction sale of certain assets; as a result of those
injunctive proceedings, the Court ordered that $200,000 of the proceeds from
the auction be tendered into the registry of the Court to satisfy any possible
adverse judgment against
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<PAGE> 10
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Company. On April 7, 1997, a final judgment was entered whereby the former
employee will recover the sum of $200,000 out of the funds held in the registry
of the Court and will be issued 77,922 shares of common stock of the Company.
Included in general and administrative expenses for the three months ended
February 28, 1997, is $265,000 of accrued settlement costs relating to
disposition of this suit.
In August 1996, a case was filed in the United States District Court for the
Western District of New York alleging that the Company breached an obligation
to convert certain debentures held by the plaintiff into the Company's common
stock. The plaintiff asserts damages in an amount in excess of $50,000,
attorney's fees and costs and seeks an order compelling the Company to convert
the plaintiff's debentures into common stock. The Company is contesting the
plaintiff's claims and has responded to the plaintiff's complaint by filing
counterclaims and third-party claims against the plaintiff, the Company's other
convertible debenture holders and the placement agent on the convertible
debenture offering alleging various violations of the Securities Exchange Act,
common law fraud, civil conspiracy, negligent misrepresentation, breach of
contract, breach of fiduciary duty, negligence, indemnification and seeking a
declaration that the Company has no obligation to convert the debentures and no
liability for failure to so convert. Also, in August 1996, an action was filed
in the United States District Court for the Northern District of Illinois,
Eastern Division, by two other convertible debenture holders of the Company who
allege that the Company breached an obligation to convert certain debentures
held by the plaintiffs into the Company's common stock. The plaintiffs seek a
declaratory judgment setting forth the rights and liabilities of the parties
and an award of shares of common stock or an undisclosed amount of money
allegedly due them. The Company is contesting plaintiffs' claims and has
removed the action to federal court and has moved to transfer it to the Western
District of New York pursuant to a forum selection clause in the agreements
between the parties. The plaintiffs have recently agreed to the transfer of the
action to the Western District of New York.
The Company is also a party to additional claims and legal proceedings arising
in the ordinary course of business. Although no assurances can be given, the
Company believes it has meritorious defenses to all of the above actions and
intends to defend itself vigorously. The Company believes it is unlikely that
the final outcome of any of the claims or proceedings to which the Company is a
party, including those described above, would have a material adverse effect on
the Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the
resolution of any particular claim or proceeding would not have an adverse
effect on the Company's results of operations for the interim period in which
such resolution occurred.
5. SUBSEQUENT EVENTS:
On March 31, 1997, the Company received $450,000 under a Regulation S offering
of 511,200 shares.
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<PAGE> 11
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to Ponder Industries, Inc., ("the Company")
and its subsidiaries that are based on the beliefs of the Company's management
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and words or phrases of similar
import, as they relate to the Company or its subsidiaries or Company
management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitations, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision,
seasonality, distribution networks, product introductions and acceptance,
technological change, changes in industry practices, onetime events and other
factors described herein. Based upon changing conditions, should any one or
more of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
The Company does not intend to update these forward-looking statements.
The following discussion is included to describe the Company's financial
position and results of operations for the three-month and six-month periods
ended February 28, 1997 and February 29, 1996. The condensed consolidated
financial statements and notes thereto contain detailed information that should
be referred to in conjunction with this discussion.
BUSINESS REVIEW
Ponder is an international oil field service and rental tool company that
specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells. The Company also rents specialized oil
field equipment such as pressure control equipment, tools, pipe and tubing used
in the drilling, completion and workover of wells. Ponder currently has 21
locations domestically and 2 internationally serving the North Sea area.
Demand for the Company's services and rentals depends primarily on the number
of oil and gas wells being drilled, the depth and drilling conditions of such
wells and the level of workover activity. Drilling and workover activity is
largely dependent on the prices for oil and natural gas. Demand for oil and
natural gas the past year has allowed for higher prices than the average prices
for the past several years. World oil prices have been in the mid to near $20s
per barrel for several months and many industry analysts are forecasting this
situation to continue throughout 1997. The continuation of favorable market
conditions should provide Ponder with the business environment necessary to
return to profitability.
LIQUIDITY AND CAPITAL RESOURCES
The working capital decrease of approximately $1,071,000 and increase in
long-term debt of $3,980,000 is the result of continued operating losses and
equipment purchases relating to the Company's aggressive
11
<PAGE> 12
expansion program. Since the beginning of fiscal 1996, the Company has
expanded from four domestic locations to twenty-one domestic and two
international locations, resulting in substantially increased equipment
purchases and operating and general and administrative costs.
In March 1997, the Company received net proceeds of approximately $450,000
from a Regulation S offering of 511,200 shares of common stock.
Management is currently evaluating the results of this aggressive expansion
program and has begun certain internal restructuring and cost reduction actions
relative to store profitability, staffing requirements and general and
administrative expenses. Management believes that these reductions will not
impair the Company's ability to maintain revenue growth. Management believes
that the planned cost reductions and short term limited expansion will provide
positive cash flow from operations and with the existing credit facilities will
provide the Company with sufficient capital resources and liquidity to manage
its routine operations.
In December 1996, the Company entered into a revolving account transfer and
purchase agreement from a lender which allows the Company to factor up to $4
million of its eligible accounts receivable at an interest rate equal to the
higher of 7 percent or the Base Rate, as defined, plus 5.5 percent (13.75
percent at February 28, 1997). This financing is with the same lender which
provided a $2.5 million Inventory Revolver and $3.5 million Term Loan in
November 1996 as discussed in the notes included in the Company's latest Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
A net loss of $2,052,251, or $.17 per share, was recorded for the three months
ended February 28, 1997, compared to net income of $676,968, or $.08 per share
for the same period of the prior year. The Company's operating loss was
$1,540,989 or $.12 per share, compared to an operating loss of $727,036, or
$.09 per share for the same period of the prior year.
Revenues increased $3,211,911, or 158%, to $5,247,917 for the three months
ended February 28, 1997, compared to $2,036,006 for the same period of the
prior year. The increase is due to a significant increase in the Company's
marketing effort and an increase in the number of operating locations.
Cost of sales and services increased $1,190,824, or 110%, to $2,276,776 from
$1,085,952 and operating expenses increased $1,627,433, or 137%, to $2,819,163
from $1,191,730. These increases are due to the increase in sales activity,
establishing new store locations and the addition of operating personnel.
General and administrative expenses increased $1,207,607, or 249%, to
$1,692,967 as compared to $485,360 for the comparable prior period. The
Company has significantly increased its regional and corporate sales group and
has increased its corporate and administrative staff as a result of its
expansion effort. Additionally, the Company has incurred increased accounting,
legal and public corporation expenses associated with the increase in business
activity.
The Company's gross profit margin was 57% for the three months ended February
28, 1997 as compared to 47% for the comparable prior period. The increase is
due to increased sales as a result of the Company's expansion effort.
Net interest expense increased $419,829 to $565,543 as compared to $145,714 for
the comparable prior period. The increase is due primarily to $248,936 noncash
interest and debt issue cost amortization on the 8% convertible debentures
issued effective April 26, 1996. The Company's increase in bank debt and other
financing arrangements and an increase in the average interest rate of bank
debt has resulted in an approximate $171,000 increase in interest expense.
12
<PAGE> 13
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
A net loss of $2,933,886, or $.24 per share, was recorded for the six months
ended February 28, 1997, compared to net income of $689,283, or $.09 per share
for the same period of the prior year. The Company's operating loss was
$2,079,818 or $.17 per share, compared to an operating loss of $684,058, or
$.09 per share for the same period of the prior year.
Revenues increased $6,207,185, or 148%, to $10,389,042 for the six months ended
February 28, 1997, compared to $4,181,857 for the same period of the prior
year. The increase is due to a significant increase in the Company's marketing
effort and an increase in the number of operating locations.
Cost of sales and services increased $2,546,479, or 132%, to $4,479,396 from
$1,932,917 and operating expenses increased $3,121,714, or 155%, to $5,139,443
from $2,017,729. These increases are due to the increase in sales activity,
establishing new store locations and the addition of operating personnel.
General and administrative expenses increased $1,934,752, or 211%, to
$2,850,021 as compared to $915,269 for the prior period. The Company has
significantly increased its regional and corporate sales group and has
increased its corporate and administrative staff as a result of its expansion
effort. Additionally, the Company has incurred increased accounting, legal and
public corporation expenses associated with the increase in business activity.
The Company's gross profit margin was 57% for the six months ended February 28,
1997 as compared to 54% for the comparable prior period. The increase is due to
increased sales as a result of the Company's expansion efforts.
Net interest expense increased $707,039 to $919,306 as compared to $212,267 for
the comparable prior period. The increase is due primarily to $520,975 noncash
interest and debt issue cost amortization on the 8% convertible debentures
issued effective April 26, 1996. The Company's increase in bank debt and other
financing arrangements and an increase in the average interest rate of bank
debt has resulted in an approximate $186,000 increase in interest expense.
13
<PAGE> 14
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - For a description of legal proceedings against
the Company, see Note 4 of the notes to condensed consolidated
financial statements included herein.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 - Loan Agreement for KBK Financial, Inc.
*10.2 - Collateral Security Agreement dated November 27, 1996.
*10.3 - Security Agreement -- Pledge
*10.4 - Revolving Account Transfer and Purchase Agreement.
*11 - Computation of Earnings (Loss) Per Share.
*27 - Financial Data Schedule.
(b) Reports on Form 8-K - None
- ---------------
* Filed herewith
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<PAGE> 15
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.
PONDER INDUSTRIES, INC.
By: /s/ Larry D. Armstrong
---------------------------------
Larry D. Armstrong
President, Chief Executive Officer
and Chairman of the Board of
Directors
By /s/ Eugene L. Butler
---------------------------------
Eugene L. Butler
Executive Vice President,
Chief Financial Officer and
Director
Dated: April 11, 1997
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
*10.1 - Loan Agreement for KBK Financial, Inc.
*10.2 - Collateral Security Agreement dated November 27, 1996.
*10.3 - Security Agreement -- Pledge
*10.4 - Revolving Account Transfer and Purchase Agreement.
*11 - Computation of Earnings (Loss) Per Share.
*27 - Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K - None
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.1
KBK FINANCIAL, INC.
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of November 27, 1996, is
made by and between KBK FINANCIAL, INC. ("KBK") and the Borrower described
below:
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, KBK and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. BORROWER:
Ponder Industries, Inc.
B. BORROWER'S ADDRESS & PLACE OF BUSINESS
Borrower's chief executive office is located at:
5005 Riverway, Suite 550
Houston, Texas 77056
C. Cash Equivalents: Cash Equivalents means any of the following:
(a) securities with maturities of 180 days or less from the
date of acquisition thereof issued or fully guaranteed or insured as
to payment of principal and interest by the United States or any
agency thereof,
(b) certificates of deposit with maturities of 180 days or
less from the date of acquisition thereof issued by, and deposit
accounts at, any commercial bank having capital and surplus equal to
or greater than $250,000,000,
(c) commercial paper of a domestic issuer rated at least
either A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service, Inc. with maturities of 180 days or less from the
date of acquisition thereof; and
(d) securities of a domestic municipal issuer rated at least
either AAA by Moody's Investors Service, Inc. or AAA by Standard &
Poor's Corporation with maturities of 180 days or less from the date
of acquisition.
D. Collateral: Collateral means the property and assets of the
Borrower and its Subsidiaries described in Section 2.G. hereof and in the
Security Instruments.
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<PAGE> 2
E. Contingent Liabilities: Contingent Liabilities means any and all
liabilities of a Person, direct or indirect, for or in connection with the
obligations, stock or dividends of any other Person, whether by guaranty,
endorsement, agreement to purchase or repurchase, agreement to lease, agreement
to supply or advance funds (including, without limitation, agreements to
maintain working capital, solvency or other balance sheet conditions or
agreements to purchase stock or make capital contributions) or otherwise.
F. Convertible Debentures: Convertible Debentures means the
Borrower's 8% convertible debentures due April 26, 1999 in the aggregate
principal amount of $11,000,000.00.
G. Current Assets: Current Assets means the aggregate amount of all
of its assets which would, in accordance with GAAP, properly be defined as
current assets.
H. Current Liabilities: Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity date
which is more than one year from the date as of which such computation is being
made.
I. Eligible Inventory: Eligible Inventory means all of Borrower's
Inventory, excluding however: (a) all inventory in which KBK does not have a
first priority perfected security interest; (b) any Inventory located on leased
premises which is not covered by a lien waiver agreement in form and substance
satisfactory to KBK, duly executed by the owner of the premises; (c) any
Inventory located in any jurisdiction other than the State of Arkansas,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, New
Mexico, Oklahoma, Texas or West Virginia; (d) raw materials and work in
process; and (e) Inventory on consignment. Inventory will be valued based on
the lower of Borrower's cost or market value. The term "cost" shall mean the
amount actual paid for those specific goods held in inventory.
J. Environmental Laws: Environmental Laws means any and all federal,
state, local and foreign statutes, laws, regulations, rules, orders, licenses,
agreements or other governmental restrictions relating to the environment or to
emissions, discharges or releases of pollutants or industrial, toxic or
hazardous substances into the environment, or otherwise relating to the
manufacture, processing, treatment, transport or handling of pollutants or
industrial, toxic or hazardous substances.
K. ERISA: ERISA means the Employee Retirement Income Security Act of
1974, as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
L. Event of Default: Event of Default has the meaning given it in
Section 7 hereof.
M. GAAP: GAAP means those generally accepted accounting principles
and practices which are recognized as such by the Financial Accounting
Standards Board (or any generally recognized successor), consistently applied
throughout the period involved.
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<PAGE> 3
N. Hazardous Materials: Hazardous Materials include all materials
defined as hazardous wastes or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products,
oil and asbestos.
O. Indemnified Claims: Indemnified Claims means any and all claims,
demands, actions, causes of action, judgments, suits, liabilities, obligations,
losses, damages and consequential damages, penalties, fines, costs, fees,
expenses and disbursements (including without limitation, fees and expenses of
attorneys and other professional consultants and experts in connection with any
investigation or defense) of every kind or nature, known or unknown, existing
or hereafter arising, foreseeable or unforeseeable, which may be imposed upon,
threatened or asserted against or incurred or paid by any Indemnified Person at
any time and from time to time, because or resulting from, in connection with
or in any way relating to arising out of any transaction, act, omission, event
or circumstance in any way connected with or contemplated by this Agreement or
the other Loan Documents or any action taken or omitted by any such Indemnified
Person under or in connection with any of the foregoing (including, but not
limited to any investigation, litigation, proceeding, enforcement of KBK's
rights, or defense of KBK's actions related to or arising out of this
Agreement, the other Loan Documents, or the Loans or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto.
P. Indemnified Persons: Indemnified Persons shall collectively mean
KBK and its officers, directors, shareholders, employees, attorneys,
representatives and their respective successors, heirs and assigns.
Q. Inventory: Inventory means all goods, now owned or hereafter
acquired by a Person and wherever located, which are held for sale or lease or
are to be furnished under any contract of service (including, but not limited
to raw materials, work in process, finished goods and materials used or
consumed in the manufacture or production thereof, goods in which the Person
has an interest in mass or a joint or other interest or rights of any kind, and
goods which have been returned to or repossessed or stopped in transit by such
Person) and anything else defined as "inventory" in the UCC. Without
limitation of the foregoing, Inventory shall include such Person's (i) revenue
producing tools, (ii) components, subassemblies, and expendable (replacement)
parts of or for revenue producing tools, (iii) revenue producing tools in
production, and (iv) raw materials used to build the assets described in the
foregoing clauses (i), (ii) and (iii).
R. Inventory Line of Credit: Inventory Line of Credit means the
revolving line of credit for purchases of inventory established pursuant to
Section 2.A. hereof.
S. Liens: Lien means any interest in property securing an obligation
owed to, or a claim by, a Person other than the owner of the property, whether
such interest is based on the common law, statute or contract, and including
but not limited to the security interest or lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes.
T. Loan(s): Loan(s) means collectively any and all loans and
advances heretofore or hereafter made by KBK to the Borrower pursuant to either
the Inventory Line of Credit or the Term Loan, or both, referenced in Section 2
hereof.
U. Loan Documents: Loan Documents means this Loan Agreement, the
Notes, the Maintenance Agreement, the Security Instruments and any and all
other
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<PAGE> 4
security agreements, pledge agreements, documents, instruments, guarantees,
certificates and agreements executed and/or delivered by Borrower, any
guarantor or third party in favor of KBK in connection with any Loan.
V. Material Adverse Effect: Material Adverse Effect means (a) a
material adverse change in, or a material adverse effect upon, the operations,
business, properties or condition (financial or otherwise) of the Borrower and
its Subsidiaries taken as a whole, or the Borrower, or the Guarantor; (b) a
material impairment of the ability of the Borrower or the Guarantor to perform
under any Loan Document to which it is a party; or (c) a material adverse
effect upon the legality, validity, binding effect or enforceability against
the Borrower or the Guarantor of any Loan Document to which it is a party.
W. Notes: Notes means the Revolving Credit Note and the Term Note,
and any and all renewals, extensions, modifications, increases, or amendments
thereof.
X. Obligations: Obligations means all indebtedness, obligations and
liabilities owing by Borrower to KBK arising under this Agreement and the other
Loan Documents, and all other indebtedness, obligations and liabilities owing
by Borrower to KBK, whether presently existing or hereafter arising, direct or
indirect, primary or secondary, joint or several, fixed or contingent, and
whether originally payable to KBK or to a third party and subsequently acquired
by KBK (including, without limitation, all indebtedness, obligations and
liabilities of Borrower to KBK arising by promissory note, discount, indemnity,
guaranty, letter of credit or as established by law or by a court of competent
jurisdiction).
Y. Permitted Liens: Permitted Liens has the meaning assigned to it
in Section 6.B hereof.
Z. Person: Person means any corporation, partnership, joint venture,
trust estate, individual, unincorporated business entity or governmental
department, administrative agency or instrumentality.
AA. Plan: Plan means any pension benefit plan subject to Title IV of
ERISA maintained by Borrower or any affiliate thereof with respect to which
Borrower has a fixed or contingent liability.
BB. Purchase Documents: Purchase Documents means an account transfer
and purchase agreement if, as and when same may be executed by and between
Borrower, as seller, and KBK, as purchaser, and any and all renewals,
extensions or rearrangements thereof and the documents, agreements and
instruments executed and delivered in connection therewith (including, without
limitation, all documents, agreements and instruments evidencing, securing,
governing, guaranteeing and/or pertaining to the Obligations owing thereunder).
CC. Security Instruments: Security Instruments means the Collateral
Security Agreements, Pledge Agreements, and the Guaranty executed in connection
with this Agreement in accordance with Section 2.G hereof, and all financing
statements, stock powers, assignments, documents and instruments related
thereto, and any other security agreement, deed of trust or mortgage now or
hereafter granted in favor of KBK, and all renewals, extensions, rearrangements
and modifications thereof, from time to time executed by Borrower or any of its
Subsidiaries.
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<PAGE> 5
DD. Subordinated Indebtedness: Subordinated Indebtedness means the
indebtedness of a Person, calculated in accordance with GAAP, heretofore or
hereafter incurred, that, by the express terms of the instrument evidencing or
creating such indebtedness or by the terms of a subordination agreement in form
and substance satisfactory to KBK, is validly and effectively made subordinate
and subject in right to payment, to whatever extent KBK may require, to the
prior payment of all of the Borrower's Obligations to KBK.
EE. Subsidiary: Subsidiary means any corporation of which more than
50 percent of the issued and outstanding securities having ordinary voting
power for the election of directors is owned or controlled, directly or
indirectly, by a Person and, or, one or more of its Subsidiaries.
FF. Tangible Net Worth: Tangible Net Worth means the amount by which
total assets exceed total liabilities in accordance with GAAP, plus
Subordinated Indebtedness, less any intangible assets as defined by GAAP.
GG. Term Loan: Term Loan means the term loan established pursuant to
Section 2.B hereof to refinance existing secured indebtedness of Borrower.
HH. Termination Date: Termination Date means November 27, 2001.
II. Termination Event: Termination Event means (a) the occurrence
with respect to any Plan of (i) a reportable event described in Sections
4043(b)(5) of ERISA or (ii) any other reportable event described in Section
4043 of ERISA other than a reportable event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver
by such corporation under Section 4043(a) of ERISA, (b) the withdrawal of
Borrower or any affiliate of Borrower from any Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(c) any event or condition which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Plan.
JJ. UCC: UCC means the Uniform Commercial Code as in effect in the
state, the law of which is applicable.
KK. U.S. Subsidiaries: U.S. Subsidiaries means any Subsidiary of the
Borrower incorporated under the laws of the United States of America or any
state thereof.
LL. Accounting Terms: All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to such terms
under GAAP, as in effect from time to time, consistently applied, with respect
to the financial statements referenced in Section 5.B. hereof.
MM. Construction: Terms defined in the UCC which are used and not
otherwise defined herein shall have the meanings given them in the UCC. The
terms defined in this Agreement which refer to a particular agreement,
instrument or document also refer to and include all renewals, extensions and
modifications of such agreement, instrument or document. All addenda, exhibits
and schedules attached to this Agreement are a part hereof for all purposes.
Words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
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<PAGE> 6
2. LOANS.
A. Loans.
(i) Inventory Line of Credit: KBK hereby agrees to make
advances to Borrower from time to time prior to the Termination Date in
the aggregate principal amount at any one time outstanding of up to
$2,500,000.00 (the "Revolving Facility Amount"). The obligation to repay
the Inventory Line of Credit shall be evidenced by a promissory note (the
promissory note together with any and any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as the
"Revolving Credit Note") having a maturity date, repayment terms and
interest rate as set forth in the Revolving Credit Note. The Revolving
Credit Note form is attached hereto as Exhibit "A".
(ii) Term Loan: KBK hereby agrees to make a loan to Borrower
in the principal amount of $3,500,000 (the "Term Facility Amount"). The
obligation to repay the Term Loan shall be evidenced by a promissory note
(the promissory note together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as the
"Term Note") having a maturity date, repayment terms and interest rate as
set forth in the Term Note. The Term Note form is attached as Exhibit "B".
The principal of the Term Loan is given in renewal, extension and
rearrangement, but not novation or discharge, of the outstanding principal
balance of that certain Term Promissory Note dated July 27, 1995 executed
by Borrower and payable to the order of American Bank of Texas in the
original principal amount of $2,500,000.00 and that certain Promissory Note
dated October 31, 1995 executed by Borrower and payable to the order of
American Bank of Texas in the original principal amount of $200,000.00.
Notwithstanding any assignment of any of the notes to KBK, Borrower agrees
that KBK shall not be obligated to make any loans or advances thereunder,
it being intended that KBK's obligations shall be solely as set forth in
this Agreement.
B. Adjustments to Contract Rate; Tiered Pricing Schedule. The
initial interest rate under the Notes shall be the Contract Rate set forth
therein. Once each fiscal year during the term of this Agreement, the Contract
Rate may be increased or decreased on the terms and conditions set forth below.
The Contract Rate may be decreased upon request by the Borrower made within 60
days after receipt by KBK of the Borrower's annual audited financial statements
if the Borrower satisfies the conditions for a decrease in the Contract Rate
set forth in the Tiered Pricing Schedule attached hereto as Schedule 2.B.
Subject to Section 11.F. hereof, the Contract Rate may be increased by KBK
within 60 days after receipt by KBK of the Borrower's annual audited financial
statements if the conditions set forth in the Tiered Pricing Schedule for an
increase in the Contract Rate are found to exist. All such changes to the
Contract Rate shall be effective as of the first day of the month following the
month in which such notification is received. Following any such increase or
decrease in the Contract Rate, the Contract Rate shall not be adjusted prior to
receipt of the Borrower's annual audited financial statements for the
succeeding fiscal year. Notwithstanding the foregoing, the Base Rate (as such
term is defined in the Notes) shall vary as provided in the Notes.
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<PAGE> 7
C. Maintenance; Mandatory Prepayments.
(a) The aggregate principal amount of all amounts from time to time
outstanding pursuant to the Revolving Credit Note shall not at any time exceed
the Revolving Note Maximum Amount, which shall mean the lesser of (i) the
Revolving Facility Amount or (ii) the Borrowing Base, which shall mean the sum
of (x) 25% of total Eligible Inventory consisting of replaceable/consumable
Inventory (more particularly described by type in the Maintenance Certificate
attached hereto as Exhibit C) and (y) 50% of total Eligible Inventory
consisting of non-consumable Inventory (more particularly described by type in
the Maintenance Certificate attached hereto as Exhibit C), less the outstanding
principal balance of the Term Note, from time to time periodically determined
as required herein.
(b) The aggregate principal amount of all amounts from time to time
outstanding pursuant to the Term Note shall not at any time exceed the Term
Note Maximum Amount, which shall mean the lesser of (i) the Term Facility
Amount or (ii) the Borrowing Base, less the outstanding principal balance of
the Revolving Credit Note, from time to time periodically determined as
required herein.
(c) The aggregate amount of advances under the Notes shall at no time
exceed the respective Maximum Amounts, as determined based on the most recently
received Maintenance Certificate provided by the Borrower. KBK shall be under
no obligation to make any advance to Borrower under the Revolving Credit Note
in the event that any request for an advance is not accompanied by a
Maintenance Certificate dated not more than 45 days preceding the date of the
advance request, or if the reporting requirements are not current or any Event
Default has occurred.
(d) In the event the aggregate principal outstanding balance of
advances under the Revolving Credit Note or the Term Note exceeds the Revolving
Note Maximum Amount or the Term Note Maximum Amount, respectively, Borrower
shall immediately and without notice or demand of any kind, make such payments
(each a "Mandatory Prepayment") as shall be necessary to reduce the principal
balance of the applicable Note below the Maximum Amount applicable thereto.
D. Commitment Fee. Subject to Section 11.F. hereof, Borrower shall
pay to KBK a commitment fee in the amount of $60,000.00 (one percent (1.0%) of
the Revolving Facility Amount and the Term Facility Amount). Such fee is due
and payable contemporaneously with the execution hereof by KBK, is fully earned
when due and, subject to Section 11.F. hereof, nonrefundable when paid.
Borrower hereby authorizes KBK, at its sole discretion, to deduct the
commitment fee from the first advance under the Notes or to debit Borrower's
account with the Bank. The portion of any up-front deposit delivered to KBK by
the Borrower which is in excess of KBK's costs and legal fees may, at KBK's
option, be applied by KBK to the payment of the commitment fee. Borrower and
KBK acknowledge and agree that the commitment fee is intended as reasonable
compensation to KBK for making the inventory line of credit and the term loan
available under the terms of this Agreement and for no other purpose.
E. Prepayments. The principal of the Notes may be prepaid in whole
or in part (but any partial prepayment shall be in increments of at least
$10,000.00) at any time upon 24 hours prior written notice to KBK with respect
to the Revolving Credit Note, 10 days prior written notice to KBK with respect
to the Term Note, and payment of all accrued, unpaid interest through the date
of prepayment. If any such prepayment is paid from earnings of Borrower
(calculated on a consolidated basis), from proceeds of an
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<PAGE> 8
offering of Borrower's equity securities, or from proceeds of a refinancing by
KBK, then Borrower shall not be required to pay any penalty or premium for the
privilege of making such prepayment. If any such prepayment is made from any
other source of funds, then, subject to Section 11.F. hereof, Borrower shall
pay a premium to KBK for the privilege of making such prepayment if the
outstanding balance of the Note being so prepaid is less than or equal to
$1,000.00 after giving effect to such prepayment, such premium to be calculated
as follows: (i) as to any prepayment occurring prior to the first anniversary
date hereof, an amount equal to four percent (4%) of the Revolving Facility
Amount or four percent (4%) of the then outstanding principal balance of the
Term Note, or both, as the case may be; (ii) as to any prepayment occurring
after the first anniversary date hereof but prior to the second anniversary
date hereof, an amount equal to three percent (3%) of the Revolving Facility
Amount or three percent (3%) of the outstanding principal balance of the Term
Note, or both, as the case may be; and (iii) as to any prepayment occurring
after the second anniversary date hereof, an amount equal to two percent (2%)
of the Revolving Facility Amount or two percent (2%) of the outstanding
principal balance of the Term Note, or both, as the case may be. All partial
prepayments of the Term Note shall be applied in inverse order of maturity,
without reducing the amount or altering the due date of the remaining
installments. Amounts of principal so prepaid under the Revolving Credit Note
may be reborrowed prior to the Termination Date. Amounts of principal so
prepaid under the Term Note may not be reborrowed.
F. Use of Proceeds. The proceeds of the Inventory Line of Credit
shall be used by Borrower exclusively to purchase Inventory and for working
capital for general corporate operating purposes. The proceeds of the Term
Loan shall be used by Borrower exclusively to refinance existing secured
indebtedness of Borrower owed to American Bank of Texas and to purchase
Inventory. All loans evidenced by the Notes are and shall be for business or
commercial purposes and not primarily for personal, family, household or
agricultural use, as such terms are used or defined in Texas Revised Civil
Statutes, Article 5069-1.04, Texas Credit Code, Regulation Z promulgated by the
Board of Governors of the Federal Reserve System, and Titles I and V of the
Consumer Credit Protection Act.
G. Security.
(a) Payment of the Notes and the Obligations and the performance of
the covenants set forth in this Agreement and the other Loan Documents will be
secured, directly or indirectly, by a first priority (except as between and KBK
and the holders of Permitted Liens) perfected security interest, mortgage,
assignment or lien, as the case may be, in and upon the following described
property and assets:
(i) All present and future accounts, inventory, equipment, documents,
instruments, general intangibles, chattel paper (as such terms are defined
in the UCC), notes receivable, drafts, acceptances, rental agreements and
lease agreements relating to any of the foregoing, and contract rights now
owned or existing and hereafter acquired or arising, wherever located, of
the Borrower and Ponder Energy Services, Inc., a Delaware corporation
("Ponder - Delaware"), all books and records pertaining to the foregoing,
and all the proceeds thereof, which property and assets are more
particularly described in, and which security interests will be evidenced
by, Collateral Security Agreements in form and substance satisfactory to
KBK; and
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<PAGE> 9
(ii) a pledge of 100% of the issued and outstanding shares of
capital stock of Ponder - Delaware, such pledge to be evidenced by a Pledge
Agreement in form and substance satisfactory to KBK; and
(iii) all sums due to Borrower from KBK by way of advances,
reserves, residuals and any other amounts so due at any time, and all
funds of Borrower in the possession or control of KBK, from whatever
source; and
(iv) all sums now or hereafter on deposit in any deposit account
maintained by KBK or a third party as agent or bailee for KBK for the
deposit and collection of remittance drafts and other proceeds of
Collateral, whether held as a general or special account, or otherwise.
(b) Payment of the Notes and the Obligations and the performance
of the covenants set forth in this Agreement and the other Loan Documents will
be guaranteed by Ponder - Delaware (hereinafter sometimes referred to as the
"Guarantor"), each such guaranty to be evidenced by a Guaranty in form and
substance satisfactory to KBK.
(c) The Borrower will, and will cause Ponder - Delaware and any
other U.S. Subsidiary acquiring assets pursuant to Section 6.A hereof to,
execute, acknowledge and deliver to KBK such instruments, chattel mortgages,
security agreements, security agreement-pledges, statements, assignments and
financing statements, in form and substance acceptable to KBK as in the good
faith and discretion of counsel for KBK may be necessary to enforce, grant to
KBK and perfect the security interests, liens, assignments and mortgages on the
Collateral. Each of the Borrower and KBK agrees that all Collateral now or
hereafter securing any of the Obligations hereunder also shall serve any and
all other indebtedness and liabilities now or hereafter owing by the Borrower
to KBK.
H. Cross-Collateralization; Limitations.
(a) Cross-Collateralization. All present and future Collateral
securing the Obligations of Borrower under this Agreement, the Notes and the
other Loan Documents shall also secure all obligations of Borrower, as seller,
to KBK under the Purchase Documents if, as and when said Purchase Documents are
executed by Borrower and KBK. Any and all collateral now or at any time
hereafter granted by Borrower to KBK as security for Borrower's obligations, as
seller, under the Purchase Documents shall also secure all Obligations of
Borrower under this Agreement, the Notes and the Other Loan Documents.
(b) Preferential Application of Proceeds of Certain Collateral.
Notwithstanding the provisions of Subsection 2.H.(a) hereof, it is the
intention of Borrower, as seller, and KBK, as purchaser, under the Purchase
Documents that any and all transactions entered into by and between Borrower
and KBK pursuant thereto shall be true sales and not transactions intended as
security. Nothing herein shall affect the parties' characterization of the
transactions evidenced by the Purchase Documents, nor shall it alter, diminish
or impair KBK's rights under the Purchase Documents as a purchaser of any
assets of Borrower which would otherwise constitute Accounts Collateral
(hereinafter defined). Any such Accounts Collateral sold by Borrower and
purchased by KBK under the Purchase Documents shall be deemed purchased and
sold free and clear of any security interest in such assets in favor of KBK
under this
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<PAGE> 10
Agreement and the Security Instruments, whether as original collateral or as
proceeds of original collateral. Without limitation of the foregoing, after
the occurrence of an Event of Default hereunder or an event of default under
the Purchase Documents: (i) all residuals and reserves of Accounts Collateral
shall be applied to retire Borrower's obligations (including, without
limitation, reasonable attorneys' fees and expenses of counsel for KBK), as
seller, to KBK under the Purchase Documents in preference and priority to
Borrower's Obligations to KBK under this Agreement, the Notes and the other
Loan Documents until such obligations under the Purchase Documents have been
paid in full, before any such residuals and reserves are applied to Borrower's
Obligations hereunder; and (ii) all proceeds of Inventory Collateral (hereafter
defined) shall be applied to retire Borrower's Obligations under this
Agreement, the Notes and the other Loan Documents until such Obligations have
been paid in full, including principal, interest and expenses (including,
without limitation, reasonable attorneys' fees and expenses of counsel) before
any such proceeds shall be applied to Borrower's obligations under the Purchase
Documents, notwithstanding the actual order of creation, attachment or
perfection of such liens and security interests in Accounts Collateral and
Inventory Collateral or proceeds. As used herein, the term "Accounts
Collateral" shall mean all of Borrower's present and future accounts,
documents, instruments, general intangibles, chattel paper (as such terms are
defined in the UCC), notes receivable, drafts, acceptances, rental agreements
and lease agreements relating to any of the foregoing, and contract rights. As
used herein, the term "Inventory Collateral" shall mean all of Borrower's
present and future inventory and equipment (as such terms are defined in the
UCC).
I. Payments. Borrower authorizes KBK to effect all payments
(including Mandatory Prepayments) under the Revolving Credit Note and the Term
Note, and all fees and expenses payable by Borrower hereunder, including,
without limitation, (i) the commitment fee payable pursuant to Section 2.D
hereof and (ii) after and during the continuation of a Default, (A) all
out-of-pocket expenses incurred in connection with the field audits conducted
by KBK and its representatives with respect to and in connection with the
Collateral, and (B) the fees, expenses and disbursements of KBK's counsel, by
debiting Borrower's account number 1824132698 at Bank One Texas, N.A. (the
"Bank"), ABA Routing Number 111000614 (the "Operating Account"). This
authorization shall not affect the obligation of Borrower to pay such sums when
due. KBK shall use reasonable efforts to notify the Borrower of the amount of
each debit and the application thereof to the Obligations, but KBK shall not
have any liability to the Borrower for failure to give any such notice.
3. CONDITIONS PRECEDENT TO ADVANCES.
A. KBK shall not be obligated to make any advance hereunder
(including the first) until it shall have received the following documents,
duty executed in form and substance satisfactory to KBK and its counsel:
(a) This Agreement, the Notes and the other Loan Documents and such
evidence of filings, acknowledgments or acceptances of any such documents as
KBK may reasonably request or require, all duly executed and delivered by all
parties thereto. The Security Instruments shall be effective to grant to KBK
first priority (except as between KBK and the holders of Permitted Liens) Liens
in all of the Collateral (and all such Liens are perfected);
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<PAGE> 11
(b) Written opinion or opinions, dated the Closing Date, of counsel
for the Borrower and the Guarantor in form and substance satisfactory to KBK
covering all such matters as KBK may require;
(c) Guaranty of Ponder - Delaware guaranteeing all obligations of
Borrower under the Notes and the Loan Documents;
(d) A Compliance Certificate of the President and Secretary of the
Borrower, in which such officers certify to the satisfaction of the conditions
set out in Section 3.B hereof;
(e) Certificates certifying to the due formation, valid existence,
qualification as a foreign corporation and good standing of the Borrower and
its Subsidiaries in their respective states of organization and each
jurisdiction where such qualification and good standing are necessary, issued
by the appropriate authorities of such jurisdictions;
(f) A copy of a resolution or resolutions passed by the Boards of
Directors of the Borrower and the Guarantor certified by the respective chief
executive officer, a managing director or a Vice President and the Secretary or
an Assistant Secretary as being in full force and effect on the Closing Date,
each of which corporate resolutions authorizing, as applicable, the borrowings
provided for herein and the execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents, and any other instrument or
agreement required hereunder and providing as to the incumbency, and containing
the specimen signature or signatures, of the person or persons authorized to
execute and deliver this Agreement, the Notes and the other Loan Documents and
any other instrument or agreement required hereunder;
(g) A summary of the insurance coverage of the Borrower with respect
to the Collateral, which shall be in form, scope and substance reasonably
satisfactory to KBK, together with certificates from each insurer required
pursuant to Section 5.C hereof;
(h) Evidence satisfactory to KBK that as of the Closing Date KBK has a
first priority (except as between KBK and the holders of Permitted Liens)
perfected Lien on the Collateral and that there exist no Liens (other than
Permitted Liens) on any property of the Borrower or any of its Subsidiaries;
(i) The fees then payable pursuant to Sections 2.D. and 10 of this
Agreement including, without limitation, (i) all out-of-pocket expenses
incurred in connection with the field audits conducted by KBK and its
representatives with respect to and in connection with the Collateral and (ii)
the fees, expenses and disbursements of KBK's counsel, shall have been paid to
KBK (or such counsel, as applicable);
(j) KBK shall be satisfied that the Convertible Debentures, copies of
which shall have been delivered to KBK, are eligible for treatment as
Subordinated Indebtedness for purposes of this Agreement;
(k) Landlord waiver agreements, in form and substance satisfactory to
KBK, duly executed and acknowledged by Borrower and each lessor of premises
where any tangible Collateral is located;
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<PAGE> 12
(l) Completion of searches satisfactory to KBK of the applicable
filing officers of the States of Arkansas, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Michigan, Mississippi, New Mexico, Oklahoma, Texas and West
Virginia, showing (i) no Liens on any of the Collateral, except Liens in favor
of KBK and Permitted Liens; and (ii) no Liens on any other property or assets
of the Borrower and its Subsidiaries except Permitted Liens;
(m) Completion of the preliminary audit report of Arthur Andersen &
Co. of the Company for the fiscal year ending August 31, 1996;
(n) Certificates for all shares of Ponder - Delaware stock to be
pledged to KBK pursuant to Subsection 2.G.(a)(ii) hereof, accompanied by stock
powers executed in blank, with signatures guaranteed;
(o) Lockbox and cash collateral agreements, in form and substance
satisfactory to KBK, duly executed and delivered by the Borrower and the Bank;
(p) Borrower shall have established the Operating Account at the Bank;
(q) Such assignments and documentation, in form an substance
satisfactory to KBK, as KBK may require in connection with the assignment or
termination of Borrower's indebtedness to American Bank of Texas to be
refinanced with the proceeds of the Term Loan, and the assignment to KBK, or
termination, as KBK may determine, of any and all Liens and security interests
securing such indebtedness, except any Liens and security interests securing
indebtedness which will be Permitted Indebtedness and Liens on and after the
date hereof, duly executed and delivered by Borrower and American Bank of
Texas; and
(r) Such other evidence as KBK may reasonably request to establish the
consummation of the transactions contemplated hereby, the taking of all
proceedings in connection herewith and compliance with the conditions set forth
in this Agreement.
B. Furthermore, KBK shall not be obligated to make any advance
(including the first) unless: (i) all representations and warranties made in
the Loan Documents are true on and as of the date of such advance (except to
the extent that the facts upon which such representations and warranties are
based have been changed by the transactions contemplated in this Agreement) as
if such representations and warranties had been made as of the dale of such
advance, (ii) the Borrower has performed and complied with all agreements and
conditions required in the Loan Documents to be performed or complied with by
it on or prior to the date of such advance, (iii) no Event of Default, or an
event with which the passage of time or the giving of notice shall become an
Event of Default, has occurred hereunder, (iv) such advance shall not be
prohibited by any law or any regulation or any order of any court or
governmental agency or authority, and (v) the financial reports delivered to
KBK show no Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to KBK as follows:
A. Good Standing. Borrower and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and is qualified and authorized to do
business and is in good standing in all jurisdictions in which such
qualification and good standing are necessary.
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<PAGE> 13
B. Authority and Compliance. Borrower and the Guarantor has full
power and authority to execute and deliver their respective Loan Documents and
to incur and perform the obligations provided for therein, all of which have
been duly authorized by all proper and necessary action of the appropriate
governing body of Borrower. No consent or approval of any governmental
authority or other third party is required as a condition to the validity of
any Loan Document, and Borrower is in compliance with all laws and regulatory
requirements to which it is subject in all material respects.
C. Binding Agreement. This Agreement executed by Borrower, and the
other Loan Documents executed by Borrower and the Guarantor, constitutes valid
and legally binding obligations of Borrower and the Guarantor, enforceable in
accordance with their terms.
D. Litigation. Except as disclosed on Schedule 4.D. hereof, there is
no proceeding involving Borrower or any Subsidiary pending or, to the knowledge
of Borrower, threatened before any court or governmental authority, agency or
arbitration authority, except as disclosed to KBK in writing and acknowledged
by KBK prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or the Guarantor and no provision
of any existing agreement, mortgage, indenture or contract binding on Borrower
or affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the
other Loan Documents.
F. Ownership of Assets. Borrower and its Subsidiaries have good
title to their assets, and their assets are free and clear of Liens, except
Permitted Liens.
G. Financial Statements. The financial statements of Borrower
heretofore delivered to KBK have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present the
financial condition of Borrower and its Subsidiaries as of the date or dates
thereof, and there has been no material adverse change in Borrower's financial
condition or operations, or the financial condition or operations of any
Subsidiary, since July 31, 1996. All factual information furnished by Borrower
to KBK in connection with this Agreement and the other Loan Documents is and
will be accurate and complete on the date as of which such information is
delivered to KBK and is not and will not be incomplete by the omission of any
material fact necessary to make such information not misleading.
H. Liens and Security Interests. The security interests, mortgages
and liens attaching to the Collateral at all times will constitute valid and
enforceable first priority (except as between KBK and the holders of Permitted
Liens) perfected security interests, mortgages and liens in favor of KBK,
subject to no prior or superior Lien, mortgage, security interest or
encumbrance, except as otherwise permitted by this Agreement or the other Loan
Documents. Before any funding under the Notes, the Borrower and the Guarantor
will have taken, or will have participated with KBK in taking, all necessary
action and make all necessary filings to provide KBK with perfected, first
priority (except as otherwise permitted by the Agreement) security interests,
mortgages and liens in the Collateral under the laws of all applicable
jurisdictions.
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<PAGE> 14
I. Chief Executive Office. The address set forth in Section 1.B.
hereof is Borrower's mailing address and its chief executive office. Borrower
shall not change its mailing address or chief executive office without thirty
(30) days prior written notice to KBK.
J. True and Correct Information. All information provided by
Borrower to KBK during its evaluation of the transactions anticipated by and in
connection with this Agreement, including applications, reports, financial
statements, and the statements made therein were true and correct at the time
made and remain true and correct at the time that this Agreement is executed.
K. Taxes. Borrower has filed all federal, state and local tax
reports and returns required by any law or regulation to be filed by it and has
either duly paid all taxes, duties and charges indicated due on the basis of
such returns and reports, or made adequate provision for the payment thereof,
and the assessment of any material amount of additional taxes in excess of
those paid and reported is not reasonably expected. There is no tax lien
notice against Borrower presently on file, judgment entered against Borrower or
levy on or attachment of its property outstanding.
L. Full Disclosure. There is no fact which Borrower has not
disclosed to KBK in writing which could cause a Material Adverse Effect or
which is necessary to disclose in order to keep the foregoing representations
and warranties from being misleading.
M. ERISA Compliance. Borrower is in compliance with ERISA concerning
Borrower's Plan, if any, or is not required to contribute to any
"multi-employer plan" as defined in Section 4001 of ERISA.
N. Compliance with Laws. Borrower and its Subsidiaries are
conducting its business in material compliance with all applicable laws,
including but not limited to applicable Environmental Laws and the Fair Labor
Standards Act, and has and is in compliance with all licenses and permits
required under any such laws. Borrower does not have any known material
contingent liability under any Environmental Law.
O. Assumed Names; Subsidiaries. Borrower does business under no
trade or assumed names, except Ponder Fishing Tools, Dikor, Tiger Machines, and
Runyon. Borrower's direct and indirect Subsidiaries are listed on Schedule
4.P. hereto. Except as set forth in Schedule 4.P. hereto, Borrower has no
investments, directly or indirectly, in any Person.
P. Solvency. Each of the Borrower and each Guarantor (i) is solvent,
(ii) is able to and anticipates that it will be able to meet its debts as they
mature, (iii) has adequate capital to conduct the businesses in which it is
engaged, and (iv) owns and will own property having a value, both at fair
valuation and at present fair saleable value, greater than the amount required
to pay its debts and obligations.
Q. Continuation of Representation and Warranties. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any future
advance under any Loan.
5. AFFIRMATIVE COVENANTS. Unless and until all agreements by and between
KBK and Borrower have matured or canceled and until full payment and
performance of all obligations of Borrower under the Loan Documents or any
other
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<PAGE> 15
agreement, specifically including but not limited to any agreement regarding
the purchase and sale of Borrower's accounts receivable, Borrower will, and
will cause each of its Subsidiaries to:
A. Financial Condition. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP, in each instance calculated for
Borrower and its Subsidiaries on a consolidated basis, throughout the period
specified:
(i) Debt Service Coverage Ratio: Maintain a ratio of (a)
earnings before interest, depreciation and amortization at the end of
each fiscal quarter, to (b) all principal and interest due in such quarter
on all amortizing loans, all interest due in such quarter on all
non-amortizing loans, all payments due in such quarter on capital leases,
and all discounts due KBK in such quarter on all accounts sold under the
Purchase Documents, of not less than: 1.15 to 1.0 as of the fiscal quarter
ending August 31, 1997; 1.25 to 1.0 as of the fiscal quarter ending
November 30, 1997 and as of the end of each fiscal quarter thereafter
through the fiscal quarter ending May 31, 1998; and 1.50 to 1.0 as of the
fiscal quarter ending August 31, 1998 and as of the end of each fiscal
quarter thereafter.
(ii) Tangible Net Worth: Maintain Tangible Net Worth on a pro
forma basis (i.e., add back purchased accounts and factored balance) of not
less than $13,500,000.00 at all times.
B. Financial Statements and Other Information. Furnish to KBK:
(i) As soon as available, but in any event within 120 days
after the last day of each fiscal year of Borrower, a consolidated and
consolidating statement of income and a consolidated and consolidating
statement of cash flows of Borrower and its Subsidiaries for such fiscal
year, and a consolidated and consolidating balance sheet of Borrower and
its Subsidiaries as of the last day of such fiscal year, together with an
auditors' report thereon (with no material qualifications) by an
independent certified public accountant, and (b) within 45 days after the
last day of each month, monthly unaudited consolidated and consolidating
statements of income and statement of cash flows of Borrower and its
Subsidiaries for each month and unaudited consolidated and consolidating
balance sheets of Borrower and its Subsidiaries as of the end of each
month. Borrower represents and warrants that each such statement of income
and statement of cash flows will fairly present, in all material respects,
the results of operations and cash flows of Borrower and its Subsidiaries
for the period set forth therein, and that each such balance sheet will
fairly present, in all material respects, the financial condition of
Borrower and its Subsidiaries as of the date set forth therein, all in
accordance with GAAP consistently applied.
(ii) Within 45 days after the last day of each month, a
compliance certificate (which may be combined with the Maintenance
Certificate) for (and executed by an authorized representative of) Borrower
concurrently with and dated as of the date of delivery of each of the
financial statements as required in paragraphs (i) and (ii) above,
containing a certification that (a) the financial statements of even date
are true and correct, and (b) the Borrower is not in default under the
terms of this
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<PAGE> 16
Agreement, any other agreement with KBK or any other agreement for borrowed
money or lease agreement with any other party, and (c) the computations and
conclusions, with respect to compliance with this Agreement, and the other
Loan Documents, including computations of all quantitative covenants have
been accurately calculated in compliance with the methods detailed herein.
(iii) Not later than 45 days after and as of the end of each
month, a Maintenance Certificate signed by the designated officer, in the
form set forth in Exhibit "C" attached hereto and made part hereof.
(iv) Promptly upon their becoming available, copies of: (a)
all financial statements, reports, notices and proxy statements sent or
made available by the Borrower or any of its Subsidiaries to security
holders; (b) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by the Borrower or any of its
Subsidiaries with any securities exchange or with the U.S. Securities and
Exchange Commission or any governmental authority; and (c) all press
releases and other statements made available by the Borrower or any of its
Subsidiaries to the public concerning the financial condition of the
Borrower or any of its Subsidiaries.
(v) Promptly after the filing thereof with the United States
Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, and (ii) immediately upon becoming aware of the occurrence of
any "reportable event," as such term is defined in Section 4043 of ERISA,
or of any "prohibited transaction," as such term is defined in Section 4975
of the Code in connection with any Plan or any trust created thereunder, a
notice signed by the President or a principal financial officer of the
Borrower specifying the nature thereof, what action the Borrower is taking
or proposes to take with respect thereto and, when known, any action taken
by the Internal Revenue Service with respect thereto.
(vi) Such additional information, reports and records
respecting the business operations and financial condition of Borrower and the
Subsidiaries, respectively, from time to time, as KBK may reasonably request,
including copies of its tax returns filed with the Internal Revenue Service and
evidence of payment of related taxes.
C. Insurance. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets and liability insurance, all to be with such companies and in such
amounts as are satisfactory to KBK and with respect to insurance on the
Collateral, to contain a mortgagee clause naming KBK as a loss payee or an
additional insured (as applicable) as its interest may appear and providing for
at least 30 days prior notice to KBK of any cancellation thereof, in an amount
not less than the maximum amount which may be borrowed under the Loan.
Satisfactory evidence of such insurance will be supplied to KBK prior to
funding under the Loan(s) and 30 days prior to each policy renewal.
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<PAGE> 17
D. Maintenance of Corporate Existence and Properties. The Borrower
will, and will cause each of its Subsidiaries to, (i) continue to engage in the
businesses presently being operated, (ii) maintain its corporate existence and
good standing in each jurisdiction in which it is required to be qualified, if
its failure to be so qualified would have a material adverse effect, (iii) keep
and maintain all franchises, permits, licenses and properties useful and
necessary in the conduct of its business in good order and condition if failure
to do so would have a material adverse effect, and (iv) duly observe and
conform to all material requirements of any governmental authorities relative
to the conduct of its business or the operation of its properties or assets, if
such failure duly to observe and conform to such requirements would have a
material adverse effect or could result in criminal prosecution.
E. Adverse Conditions or Events. Promptly advise KBK in writing of
(i) any condition, event or act which comes to its attention that would or
might cause a Material Adverse Effect, (ii) any litigation filed by or against
Borrower in excess of $100,000.00, (iii) any event that has occurred that would
constitute an Event of Default under any of the Loan Documents, and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $250,000.00.
F. Taxes and Other Obligations. Pay all of its taxes, assessments
and other obligations, including, but not limited to, taxes, costs or other
expenses arising out of this transaction, as the same becomes due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. Maintenance. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. Notification of Environmental Claims. Borrower shall immediately
advise KBK in writing of (i) any and all enforcement, cleanup, remedial,
removal, or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting Borrower's
business operations; and (ii) all claims made or threatened by any third party
against Borrower relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials. Borrower
shall immediately notify KBK of any remedial action taken by Borrower with
respect to Borrower's business operations.
I. Environmental Compliance. The conduct of Borrower's business
operations do not and will not violate any Environmental Laws (including any
rule of common law and any judicial interpretation thereof). Borrower will
continue to comply with all Environmental Laws now or hereafter applicable to
Borrower other than those the failure with which to comply could not reasonably
be expected to result in a Material Adverse Effect and shall obtain, at or
prior to the time required by applicable Environmental Laws, all environmental,
health and safety permits, licenses and other authorizations necessary for its
operations other than those the failure of which to obtain could not reasonably
be expected to result in a Material Adverse Effect. Borrower will not use or
permit any other party to use any Hazardous Materials at any of Borrower's
places of business or at any other property owned by Borrower except such
materials as are incidental to Borrower's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
Environmental Laws other than those
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<PAGE> 18
the failure with which to comply could not reasonably be expected to result in
a Material Adverse Effect.
J. Further Assurances. The Borrower will, and cause each of its
Subsidiaries to, at any time and from time to time, execute and deliver such
further instruments and take such further action as may reasonably be requested
by KBK, in order to cure any defects in the execution and delivery of, or to
comply with or accomplish to covenants and agreements contained in this
Agreement, the Notes or the other Loan Documents.
K. Maintenance of Books and Records; Inspection. The Borrower will,
and will cause each of its Subsidiaries to, maintain accounting books and
records satisfactory to KBK and in conformity with GAAP throughout the period
specified, and permit KBK's officers or authorized representatives to examine
Borrower's books of account and other records, and to discuss its affairs,
finances and accounts with the officers of the Borrower and its Subsidiaries,
and the Borrower's and its Subsidiaries' independent certified public
accountants (provided that the cost to Borrower of such discussions with
accountants shall not exceed $2,000.00 per annum), at all reasonable times and
as often as may be reasonably requested by KBK. Without limitation of the
foregoing, Borrower shall permit KBK to inspect and audit Collateral, at such
reasonable times and as often as may be reasonably requested by KBK, and pay
KBK an auditing fee of up to $2,000.00 per audit. It is anticipated that there
will be four (4) audits annually, but KBK reserves the right to audit more
frequently in KBK's reasonable discretion. Unless written notice of another
location is given to KBK, Borrower's books and records will be located at
Borrower's office at 511 Commerce Drive, Alice, Texas or at Borrower's chief
executive office as set forth above.
L. Rights to Immediate Possession of Collateral. As an accommodation
to Borrower, KBK is not presently taking possession of original collateral;
however, Borrower acknowledges that KBK's willingness to lend funds hereunder,
and an essential part of KBK's collateral protection for the Loan, depends upon
KBK's right and ability to obtain immediate possession of such original
collateral and copies of books, records, and computer software and records of
Borrower. Without limiting the foregoing, if requested by KBK, KBK shall have
the right to appoint an agent of KBK at Borrower's expense for the purpose of
taking possession of original collateral on the premises of Borrower. Borrower
and each of the Guarantors agrees to fully cooperate with KBK or KBK's agent in
the event that KBK shall exercise its rights hereunder.
KBK acknowledges that Borrower will from time to time sell inventories
in the ordinary course of their business, and such sales shall be made free and
clear of the security interest of KBK in such inventory to the extent provided
in Section 9.307(a) of the Texas Business and Commerce Code. Therefore, if KBK
or its agent shall have taken possession of original collateral, then, at the
request of Borrower prior to the occurrence of an Event of Default, or made
after the occurrence of an Event of Default if such Event of Default has been
specifically waived by KBK for purposes of this Section, KBK or its agents
shall make available to Borrower the inventoried asset which is being sold in
the ordinary course of business by Borrower free and clear of KBK's security
interest as contemplated by the preceding sentence; provided, that after the
occurrence of an Event of Default, unless specifically waived, if KBK or its
agent shall have taken possession of the original collateral, Borrower shall
continue to deliver possession of all original collateral to KBK and shall
cooperate in the implementation of such procedures as KBK shall deem necessary
for protection of its interests hereunder, including, without
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limitation, the utilization of a collateral account with KBK for deposit of all
payments received from Account Debtors and related items. In the event that
KBK shall designate an agent as set forth in this Section 5.L, KBK shall be
entitled to implement a procedure whereby the information provided in any or
all Maintenance Certificates submitted hereunder shall be confirmed or verified
by such agent to KBK's satisfaction prior to any funding hereunder.
6. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents (and without limiting any
requirement of any other Loan Documents), Borrower will not, and will not
permit any of its Subsidiaries to:
A. Limitations on Fundamental Changes: Disposition of Assets. (a)
Enter into any merger or consolidation with or into any Person, except (i) any
Subsidiary of the Borrower may merge, consolidate or combine with or into the
Borrower (provided that the Borrower shall be the continuing or surviving
corporation), or with any one or more Subsidiaries of the Borrower (provided
that, if any such transaction shall be between (A) a Subsidiary and a wholly
owned Subsidiary, the wholly owned Subsidiary shall be the continuing or
surviving corporation and (B) a Subsidiary and an U.S. Subsidiary, the U.S.
Subsidiary shall be the continuing or surviving corporation), and (ii) the
Borrower may merge, consolidate or combine with or into any other Person
(provided that (A) the Borrower shall be the continuing or surviving
corporation, (B) no Default or Event of Default has occurred and is continuing,
and (C) no Default or Event of Default would occur as a result of such merger,
consolidation or combination); (b) form any new Subsidiary; (c) liquidate or
dissolve itself (or suffer any liquidation or dissolution); (d) convey, sell,
lease (other than leases of inventory entered into in the ordinary course of
business), charter or otherwise dispose of all or substantially all of its
property, assets or business; provided that the Borrower may transfer all or
substantially all of the assets of any of the Borrower's divisions to an
existing or hereafter acquired U.S. Subsidiary, so long as (i) no Default or
Event of Default has occurred and is continuing, (ii) no Default or Event of
Default would occur as a result thereof, (iii) any and all such U.S.
Subsidiaries shall, prior to any such transfers, enter into a valid, binding
and enforceable (A) security agreement (granting KBK a first priority perfected
security interest in such U.S. Subsidiaries of the types described in the
Security Agreement) and take all other action necessary to grant to KBK a first
priority security interest in such assets, and (B) guaranty agreement
guarantying the payment and performance of the Obligations, in each case in
form and substance acceptable to KBK, and (iv) in each instance each such U.S.
Subsidiary promptly delivers an opinion of counsel acceptable to KBK in form,
scope and substance acceptable to KBK with respect thereto, or (e) except in
the ordinary course of business, enter into any arrangement, directly or
indirectly, whereby the Borrower or its applicable Subsidiary would sell or
transfer any properties (other than real property), either now owned or
thereafter acquired, and then or thereafter lease as lessee such properties or
any part thereof or any other property (other than real property) to be used
for substantially the same purpose.
B. Liens. Grant, suffer or permit any contractual or noncontractual
Lien on or security interest in its assets, except in favor of KBK, or fail to
promptly pay when due all lawful claims, whether for labor, materials or
otherwise except for Permitted Liens which are limited to: (i) Liens granted
to KBK; (ii) pledges or deposits made to secure payment of unemployment
insurance, pensions or social security programs; (iii) Liens imposed by
mandatory provisions of law such as for materialmen's, mechanic's,
warehousemen's, landlord's (including contractual landlord's liens), securing
indebtedness whose payment is not yet due, or if the same are being contested
in good
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faith and as to which adequate reserves have been provided; (iv) Liens for
taxes, assessments and governmental charges or levies imposed upon a Person or
upon such Person's income or profits or property, if the same are not yet due
and payable or if the same are being contested in good faith and as to which
adequate reserves have been provided; (v) Liens on assets of Panther Oil Tools
(UK), Ltd. securing indebtedness for borrowed money permitted under Section 6.D
hereunder not exceeding an aggregate principal amount at any one time
outstanding of $1,000,000.00; (vi) Liens securing indebtedness listed on
Schedule 6.D. hereof, provided that any Liens securing such indebtedness shall
be limited to the specific property and assets subject to such Lien on the date
hereof, and provided further, that any such Liens shall be promptly released or
terminated of record promptly after payment thereof, and (vii) Liens arising
under purchase money security interests on any equipment consisting of motor
vehicles or other titled rolling stock acquired or held by the Borrower or its
Subsidiaries in the ordinary course of business, securing indebtedness incurred
or assumed for the purpose of financing all or any part of the cost of
acquiring such property; provided that (A) any such Lien attached to such
property concurrently with or within 20 days after the acquisition thereof, (B)
such Lien attached solely to the property so acquired in such transaction, (C)
the principal amount of the debt secured thereby does not exceed 100% of the
cost of such property, and (D) the principal amount of the indebtedness secured
by any and all such purchase money security interests shall not at any time
exceed $500,000.00 in the aggregate.
C. Loans, Advances and Investments. Make or permit to remain
outstanding any advances, loans or extensions of credit to, or purchase or own
any stock, bonds, notes, debentures, or other securities of, or make any
investments in, any Person except (i) accounts, instruments, chattel paper, and
general intangibles (as defined in the UCC) arising or acquired, and trade
credit extended, in the ordinary course of business as presently conducted,
(ii) Cash Equivalents, (iii) advances, loans, extensions of credit to, or
investments in, Panther Oil Tools (UK), Ltd. not exceeding an aggregate amount
of U.S. $1,000,000.00 at any one time outstanding, (iv) advances, loans, or
extensions of credit to officers and employees of the Borrower and its
Subsidiaries made in the ordinary course of business not to exceed $50,000.00
in the aggregate outstanding at any one time, (v) investments in Borrower's
Subsidiaries that are outstanding on July 31, 1996, and (vi) investments in
Dubai joint venture not exceeding an aggregate amount of U.S.$2,500,000.00 at
any one time outstanding.
D. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, or otherwise) other than to KBK, except for (i) normal
trade debts incurred in the ordinary course of Borrower's or its Subsidiaries'
business, (ii) indebtedness for borrowed money secured by purchase money
security interests in accordance with Section 6.B(vii) hereof not to exceed the
amount set forth in Section 6.B(vii) hereof, and (iii) indebtedness listed on
Schedule 6.D. hereof. Borrower and/or its Subsidiaries, as applicable, may
renew, extend, modify or refinance any indebtedness listed on Schedule 6.D.,
but shall not increase the principal amount of any such indebtedness, except
(i) by rolling accrued interest on such indebtedness into principal; and (ii)
for increases in indebtedness for borrowed money of Panther Oil Tools (UK),
Ltd. to Royal Bank of Scotland or any financial institution replacing the Royal
Bank of Scotland up to an aggregate principal amount outstanding at any time of
U.S.$1,000,000.00.
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<PAGE> 21
E. Limitations on Contingent Liabilities. Create, assume or suffer
to exist any Contingent Liabilities, except (i) for endorsements of instruments
for collection in the ordinary course of business, and (ii) any such liability
in favor of KBK.
F. Dividends and Distributions. Declare or make any distribution
(other than dividends payable in capital stock of Borrower) on any shares of
any class of its capital stock or, or apply any of its property or assets to
the purchase, redemption or other retirement of any shares of any class of
capital stock; provided, however, any wholly owned Subsidiary of the Borrower
may declare and make distributions on its capital stock to the Borrower.
G. Character of Business. (i) Engage in any lines of business or
business ventures other than the oil field tool rental and service business,
(ii) change in any material respect its methods of operation or manner of doing
business, (iii) without prior written notice to KBK, carry on its business at
any location or locations other than those presently in existence, or (iv)
change its name, its identity as a corporation or its corporate structure.
H. Convertible Debentures. (i) Make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner, any
payment or distribution in cash or property in respect of the Convertible
Debentures, to the extent that the Borrower has the option, under the terms
currently provided in the Convertible Debentures, to make such payment or
distribution in the Borrower's securities, (ii) issue securities with a
restrictive legend upon conversion by a holder of Convertible Debentures if
such would permit the debenture holder to redeem the Convertible Debenture for
cash, (iii) modify or amend the Convertible Debentures to make them payable in
cash or property of the Borrower, or (iv) grant any security for the
Convertible Debentures.
I. ERISA Compliance. Permit at any time any Plan maintained by it
to:
(i) Engage in any "prohibited transaction," as such term is
defined in Section 4975 of the Code, which could reasonable be expected to
have a material adverse effect;
(ii) Incur any "accumulated funding deficiency," as such term
is defined in Section 302 of ERISA, which could reasonable be expected to
have a material adverse effect; or
(iii) Terminate any such Plan in a manner which could result in
the imposition of a lien on the property of the Borrower pursuant to
Section 4068 of ERISA.
J. Transactions with Affiliates and Other Persons. Engage in any
transaction with an affiliate, which individually or together with other
transactions subject to this Section 6.J. is material, on terms less favorable
to it than would be obtainable at the time in comparable transactions with
Persons not affiliated with the Borrower or its Subsidiaries, as the case may
be. The Borrower will not, and will not permit any of its Subsidiaries to,
incur, create or assume any commitments to make payments, whether as rental or
otherwise, under any lease, rental or other arrangement, written or oral, for
the use of any other Person if, under the terms of any such agreements, the
amount of rentals payable thereunder is greater than a fair market rental.
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<PAGE> 22
7. DEFAULT. Borrower shall be in default under this Agreement, each of
the other Loan Documents and any and all other agreements with KBK upon the
happening of one or more of the following (each an "Event of Default"):
A. Borrower shall fail to pay as and when due any amount owed to KBK
under the Notes or any of the Loan Documents;
B. Borrower or any Guarantor fails to timely and properly observe,
keep or perform any obligation or other term, covenant, agreement or condition
of the Purchase Documents or any other agreement, promissory note, security
agreement, assignment or other contract securing or evidencing any other
obligation or agreement between Borrower or any Guarantor and KBK or any
affiliate of KBK, and such failure continues after the applicable grace or
notice period, if any, specified in the relevant document, or Borrower or KBK
terminates any Purchase Document for any reason;
C. Any representation or warranty of Borrower or the Guarantors made
herein or in the Loan Documents or the Purchase Documents, or in any report,
certificate, schedule, financial statement, profit and loss statement or other
statement furnished by Borrower or the Guarantors, or by any other person on
behalf of Borrower or the Guarantors, to KBK is not true and correct in any
material respect when made;
D. Any of Borrower or it Subsidiaries shall fail to timely and
properly observe, keep or perform any term, covenant, agreement or condition
made herein or in the Loan Documents; provided, however, if any of Borrower or
its Subsidiaries shall fail to timely and properly observe, keep or perform any
term, covenant, agreement or condition in Section 5.B hereof, such failure with
respect to Section 5.B hereof shall be an Event of Default if such failure with
respect to Section 5.B hereof shall continue unremedied for a period of ten
(10) days after the earlier of (A) the date upon which the Borrower knew or
reasonably should have known of such failure with respect to Section 5.B or (B)
the date upon which written notice thereof is given to the Borrower by KBK;
E. The Borrower or any of its Subsidiaries (i) fails to pay any
principal of or interest (including, without limitation, any such payment
payable solely by issuance of capital stock) on any obligation or obligations
to Charles Hale/Apex Tools or to the holders of the Convertible Debentures
beyond the period of grace, if any, provided for in the instrument or agreement
under which the same was created, or (ii) fails to observe or perform any other
term, condition or agreement contained in any obligation or obligations to
Charles Hale/Apex Tools or the holders of the Convertible Debentures, or in any
instrument or agreement evidencing, securing or relating thereto, if the effect
thereof is to cause or permit the holder or holders of such obligation (or
trustee or an agent on behalf of such holder or holders) to cause any such
obligation to become due prior to its stated maturity;
F. There shall be commenced by or against Borrower or any of its
Subsidiaries any voluntary or involuntary case under the United States
Bankruptcy Code, or any assignment for the benefit of creditors, or the
appointment of a receiver, trustee, conservator or custodian for a substantial
portion of its assets;
G. Borrower or any of its Subsidiaries shall become insolvent in that
its debts and obligations are greater than the fair value or fair saleable
value of its assets, or Borrower or any of its Subsidiaries is generally not
paying its debts as they become due;
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<PAGE> 23
H. The occurrence of a Material Adverse Effect;
I. Borrower or any Subsidiary shall have a federal or state tax lien
filed against any of its properties;
J. Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$25,000.00 exists with respect to any Plan of Borrower, or (ii) any Termination
Event occurs with respect to any Plan of Borrower and the then current value of
such Plan's benefit liabilities exceeds the then current value of such Plan's
assets available for the payment of such benefit liabilities by more than
$25,000.00;
K. Borrower or any Subsidiary suffers the entry against it of a final
judgment for the payment of money in excess of $100,000.00 that continues to be
unstayed and in effect for a period of 15 days (not covered by insurance
satisfactory to KBK in its sole discretion).
8. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default
described in Section 7.F, all of the obligations owing by Borrower to KBK under
any of the Loan Documents (including but not limited to the advances) shall
thereupon be immediately due and payable, without demand, presentment, notice
of demand or of dishonor and nonpayment, notice of intention to accelerate or
notice of acceleration or any other notice or declaration of any kind, all of
which are hereby expressly waived by Borrower. During the continuance of any
other Event of Default, KBK at any time and from time to time may without
notice to Borrower declare any or all of the obligations owing by Borrower to
KBK under any of the Loan Documents (including but not limited to the advances)
immediately due and payable, all without demand, presentment, notice of demand
or of dishonor and nonpayment, notice of intention to accelerate or notice of
acceleration, or any notice or declaration of any kind, all of which are hereby
expressly waived by Borrower. After any such acceleration (whether automatic
or due to declaration by KBK), any obligation of KBK to make any further
advances or loans of any kind under any agreement with Borrower shall be
permanently terminated. Without limitation of the foregoing, if an Event of
Default shall occur KBK shall have all rights, powers and remedies available
under each of the Loan Documents as well as all rights and remedies available
at law or in equity. KBK may, but shall not be obligated to, notify Borrower
of the occurrence of any Event of Default. KBK shall use reasonable efforts to
notify Borrower of any action taken by KBK after the occurrence of an Event of
Default, but KBK shall not be liable to Borrower for any failure to give any
such notice.
KBK shall have no obligation to make any advance at any time when the
conditions precedent to funding described herein have not been met to KBK's
satisfaction, any Event of Default or an event with which the passage of time
or the giving of notice shall become an Event of Default shall exist, or if
Borrower shall have repudiated or made any anticipatory breach of any of its
obligations under any Loan Document. Any advance requested by Borrower at such
time may be declined by KBK, in whole or in part, in KBK's sole discretion,
without prior notice.
9. NOTICES. All notices, requests or demands which any party is required
or may desire to give to any other party under any provision of this Agreement
must be delivered in writing, by certified or registered mail, by messenger
delivery, or by telecopy to the other party at the following address and
telecopy numbers (provided that any notices of default hereunder shall be
confirmed by certified or registered mail or by
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<PAGE> 24
messenger delivery and shall be deemed given or made as set forth in clauses A
or B below, as applicable):
BORROWER:
Ponder Industries, Inc.
Attn: Chief Financial Officer
5005 Riverway, Suite 550
Houston, Texas 77050
Telecopy: (713) 850-7730
KBK:
KBK Financial, Inc.
Attn: Jeffrey P. Kassing
Legal Department
301 Commerce Street
2200 City Center II
Fort Worth, Texas 76102
Telecopy: (817) 335-9339
or to such other address or telecopy number as any party may designate by
written notice to the other party. Each such notice, request and demand shall
be deemed given or made as follows:
A. If sent by messenger delivery, upon delivery;
B. If sent by certified or registered mail, upon the earlier of (i)
the date of receipt or (ii) five (5) days after deposit in the U.S. Mail,
postage prepaid; and
C. If sent by telecopy, upon confirmation of delivery.
10. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to KBK
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees, including local
domestic counsel and foreign counsel), incurred by KBK in connection with (a)
negotiation and preparation of this Agreement and each of the Loan Documents,
(b) KBK's continued administration thereof, and (c) collection and enforcement
thereof.
11. MISCELLANEOUS. Borrower and KBK further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
KBK under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
KBK, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by KBK of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
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<PAGE> 25
B. Applicable Law. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of the State of Texas and applicable United States
federal law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of KBK, and then shall be effective only in the specified instance
and for the purpose for which given. This Loan Agreement is binding upon
Borrower, its successors and assigns, and inures to the benefit of KBK, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without KBK's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Loan Agreement.
Without limiting the generality of the foregoing, KBK may from time to time
grant participations in all or any part of the Obligations to any person or
entity on such terms and conditions as may be determined by KBK in its sole and
absolute discretion, provided that the grant of such participation shall not
relieve KBK of its obligations hereunder nor create any additional obligations
of Borrower.
D. Documents. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to KBK shall be in
form and content satisfactory to KBK and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances. If any provision of this Agreement shall
conflict with or be inconsistent with any provision of any of the other loan
documents executed in connection herewith, then the terms, conditions and
provisions of this Agreement shall prevail.
F. Interest. It is the intention of the parties hereto to comply
with applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Agreement, the Notes, the other Loan Documents, or in any of
the documents or instruments securing the payment thereof or otherwise relating
thereto, in no event shall this Agreement, the Notes, the other Loan Documents,
or such documents or instruments require the payment or permit the payment,
taking, reserving, receiving, collection or charging of any sums constituting
interest under applicable laws which exceed the maximum amount permitted by
such laws. If any such excess interest is called for, contracted for, charged,
taken, reserved, or received in connection with the loan evidenced by this
Agreement, the Notes, the other Loan Documents or any of the documents or
instruments securing the payment thereof or otherwise relating thereto, or in
any communication by KBK or any other person to the Borrower or any other
person, or in the event all or part of the principal or interest of the Notes
shall be prepaid or accelerated, so that under any of such circumstances or
under any other circumstance whatsoever the amount of interest contracted for,
charged, taken, reserved, or received on the amount of principal actually
outstanding from time to time under this Agreement, the Notes, or the other
Loan Documents shall exceed the maximum
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<PAGE> 26
amount of interest permitted by applicable usury laws, then in any such event
it is agreed as follows: (i) the provisions of this paragraph shall govern and
control, (ii) neither the Borrower nor any other person now or hereafter liable
for the payment of the Notes shall be obligated to pay the amount of such
interest to the extent such interest is in excess of the maximum amount of
interest permitted by applicable usury laws, (iii) any such excess which is or
has been received notwithstanding this paragraph shall be credited against the
then unpaid principal balance of the Notes, or, if the Notes has been or would
be paid in full, refunded to the Borrower, and (iv) the provisions of the Notes
and the documents securing the payment thereof and otherwise relating thereto,
and any communication to the Borrower, shall immediately be deemed reformed and
such excess interest reduced, without the necessity of executing any other
document, to the maximum lawful rate allowed under applicable laws as now or
hereafter construed by courts having jurisdiction hereof or thereof. Without
limiting the foregoing, all calculations of the rate of interest contracted
for, charged, taken, reserved, or received in connection herewith which are
made for the purpose of determining whether such rate exceeds the maximum
lawful rate shall be made to the extent permitted by applicable laws by
amortizing, prorating, allocating and spreading during the period of the full
term of the loan, including all prior and subsequent renewals and extensions,
all interest at any time contracted for, charged, taken, reserved, or received.
The terms of this paragraph shall be deemed to be incorporated in every loan
document, security instrument, and communication relating to this Agreement,
the Notes, the other Loan Documents and loan. The term "applicable usury laws"
shall mean such laws of the State of Texas or the laws of the United States,
whichever laws allow the higher rates of interest, as such laws now exist;
provided, however, that if such laws shall hereafter allow higher rates of
interest, then the applicable usury laws shall be the laws allowing the higher
rates, to be effective as of the effective date of such laws.
G. Indemnity. Borrower hereby indemnifies and agrees to hold the
Indemnified Persons harmless from and against any and all Indemnified Claims.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED
CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED PERSON, but shall exclude any of
the foregoing resulting from such Indemnified Person's gross negligence or
willful misconduct. Upon notification and demand, Borrower agrees to provide
defense of any Indemnified Claim and to pay all costs and expenses of counsel
selected by an Indemnified Person in respect thereof any Indemnified Person
against whom any Indemnified Claim may be asserted reserves the right to settle
or compromise any such Indemnified Claim as such Indemnified Person may
determine in its sole discretion, and the obligations of such Indemnified
Person, if any, pursuant to any such settlement or compromise shall be deemed
included within the Indemnified Claims. Except as specifically provided in
this section, Borrower waives all notices from any Indemnified Person. The
provisions of this Section shall survive the termination of this Agreement.
H. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding.
12. GOVERNING LAW, SUBMISSION TO PROCESS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS. BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN KBK AND BORROWER
BY ANY MEANS ALLOWED
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<PAGE> 27
UNDER APPLICABLE LAW. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY
RELATED TO THIS AGREEMENT OR ANY OTHER RELATIONSHIP BETWEEN KBK AND BORROWER
SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL
COURTS LOCATED IN THE STATE OF TEXAS HAVING JURISDICTION. THE PARTIES HERETO
HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER.
13. WAIVER OF JURY TRIAL. BORROWER AND KBK EACH HEREBY IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
14. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
DESCRIBED HEREIN SET FORTH THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE
PARTIES HERETO WITH RESPECT TO THE TRANSACTION CONTEMPLATED HEREIN AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. NO MODIFICATION OR AMENDMENT OF OR SUPPLEMENT TO
THIS AGREEMENT OR TO SUCH ACKNOWLEDGMENT SHALL BE VALID OR EFFECTIVE UNLESS THE
SAME IN WRITING AND SIGNED BY THE PARTY AGAINST WHOM IT IS SOUGHT TO BE
ENFORCED.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
KBK: BORROWER:
KBK FINANCIAL, INC. PONDER INDUSTRIES, INC.
By: By:
----------------------------- -----------------------------
Name: Name:
Title: Title:
Exhibits
- --------
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Term Note
Exhibit C - Maintenance Certificate
Schedules
- ---------
Schedule 2.B. - Tiered Pricing Schedule
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<PAGE> 1
EXHIBIT 10.2
COLLATERAL SECURITY AGREEMENT
(For Loan Transactions)
THIS COLLATERAL SECURITY AGREEMENT (FOR LOAN TRANSACTIONS) (this
"Agreement") dated the 27th of November, 1996, is executed by PONDER
INDUSTRIES, INC., a Delaware corporation, authorized to do business in Texas,
whose address for notice hereunder is 5005 Riverway Drive, Suite 550, Houston,
Texas 77056 ("Borrower") and KBK FINANCIAL, INC., a Delaware corporation,
authorized to do business in Texas, and doing business as PII/KBK Acceptance
Corporation, whose address for notice hereunder is 2200 City Center II, 301
Commerce Street, Fort Worth, Texas 76102 ("Secured Party").
SECTION 1. CREATION OF SECURITY INTEREST. Borrower hereby grants to
Secured Party a security interest in the property described in Section 2 of
this Agreement (the "Collateral") to secure performance and payment of (i)
those certain promissory notes (the "Notes") of even date herewith, in the
original principal amounts of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000), and THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000),
executed by Borrower, payable to the order of Secured Party, bearing interest
and being payable in the manner provided in the Notes, (ii) all renewals,
extensions, modifications and rearrangements of either of the Notes, (iii) all
obligations of Borrower under this Agreement, that certain Loan Agreement (the
"Loan Agreement") of even date herewith by and between Borrower and Secured
Party, and any related instrument or agreement, and any and all extensions,
renewals, modifications or rearrangements thereof, (iv) all obligations of
Borrower, as seller, under a Revolving Account Transfer and Purchase Agreement
(the "Batch Purchase Agreement") if, as and when executed by and between
Borrower and KBK, and any and all extensions, renewals, modifications or
rearrangements thereof, and all related instruments and agreements (all of the
foregoing described in this Section 1 is referred to herein as the "Secured
Indebtedness").
Some of the terms used herein are defined in the Loan Agreement to
which reference is hereby made for all purposes.
SECTION 2. COLLATERAL. The Collateral of this Agreement is:
All Accounts. All accounts, contract rights, rights to the
payment of money including, but not limited to, tax refund claims, insurance
proceeds, proceeds from tort claims and any rent payable due or to become due
under any rent or lease contracts (hereinafter sometimes collectively referred
to as "Accounts"), now owned or existing as well as any and all that may
hereafter arise or be acquired by Borrower, and all the proceeds and products
thereof, including without limitation, all notes, drafts, acceptances,
instruments and chattel paper arising therefrom, and all returned or
repossessed goods arising from or relating to any such accounts, or other
proceeds or products of any sale, lease, rental or other disposition of
Borrower's inventory.
All Inventory. All of Borrower's inventory, including all
goods, merchandise, raw materials, goods or work in process, finished goods and
other tangible personal property, wheresoever located, now owned or hereafter
acquired and held for sale, rent or lease or furnished or to be furnished under
contracts for service or used or consumed in Borrower's business and all
additions and accessions thereto and contracts with respect thereto and all
documents of title evidencing or representing any part thereof, and all
products and proceeds thereof. Without limitation of the foregoing, inventory
shall include all of Borrower's (i) revenue producing tools, (ii) components,
subassemblies, and expendable (replacement) parts of or for revenue producing
tools,
<PAGE> 2
(iii) revenue producing tools in production, and (iv) raw materials used to
build the assets described in the foregoing clauses (i), (ii) and (iii).
All Equipment. All equipment of every nature and description
whatsoever now owned or hereafter acquired by Borrower including all
appurtenances and additions thereto and substitutions therefor, wheresoever
located, including all tools, parts and accessories used in connection
therewith. As used herein, the term "equipment" shall not include inventory as
herein defined.
General Intangibles. All general intangibles including, but
not limited to, goodwill, engineering drawings and customer lists, and other
personal property now owned or hereafter acquired by Borrower other than goods,
accounts, chattel paper, documents and instruments.
Chattel Paper. All of Borrower's interest under chattel
paper, lease agreements and other instruments or documents, whether now
existing or owned by Borrower or hereafter arising or acquired by Borrower,
evidencing both a debt and security interest in or lease of specific goods.
Instruments. All of Borrower's now owned or existing as well
as hereafter acquired or arising instruments (other than stock of the
Subsidiaries) and documents.
Rental Agreements. Without limiting the foregoing, all of the
Borrower's right, title and interest in and to the following whether now
existing or hereafter arising or entered into: all agreements (the "Rental
Agreements") entered into by Borrower, as lessor, for the lease, rental or
conditional sale of inventory or equipment, or both (together with all monies
and claims for monies which may arise out of the Rental Agreements, all claims,
rights, powers, privileges and remedies of Borrower thereunder and, to the
extent not included in the foregoing, any and all proceeds of any and all of
the foregoing).
Residuals. All sums due to Borrower from Secured Party
by way of advances, reserves, residuals, and any other amounts so due at any
time.
Other. All sums now or hereafter on deposit in any deposit
account maintained by Secured Party or a third party as agent or bailee for KBK
for the deposit and collection of remittance drafts and other proceeds of
Collateral, and all money received from any source and held or due to Borrower
by Secured Party, and all money heretofore delivered or which shall hereafter
be delivered to or come into the possession, custody or control of Secured
Party in any manner or for any purpose whatever during the existence of this
Agreement, and whether held as reserves or a general or special account, or
otherwise, including, without limitation, all rights, title and interest of
Borrower in and to Deposit Account No. _________ at Bank One Texas, N.A.,
Houston, Texas.
The term "Collateral" as used in this Agreement shall mean and
include, and the security interest shall cover, all of the property described
in this Section 2, as well as any accessions, additions and attachments thereto
and the proceeds and products thereof, including without limitation, all cash,
general intangibles, accounts, inventory, equipment, fixtures, notes, drafts,
acceptances, securities, instruments, chattel paper, insurance proceeds payable
because of loss or damage, or other property, benefits or
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rights arising therefrom, and in and to all returned or repossessed goods
arising from or relating to any of the property described herein or other
proceeds of any sale, rental, lease or other disposition of such property.
All terms not otherwise defined herein or defined in the Loan
Agreement and which are defined in the Uniform Commercial Code adopted in the
State of Texas in effect on the date of execution hereof, shall have the
meaning ascribed to them in the Uniform Commercial Code adopted in the State of
Texas in effect as of the date of execution hereof and set forth in any
amendment to the Uniform Commercial Code adopted in the State of Texas to
become effective after the date of execution hereof.
SECTION 3. PAYMENT OF OBLIGATIONS.
3.1 Direct Obligations. Borrower shall pay to Secured Party all
amounts owing under the Notes in the manner specified in the Notes and shall
pay to Secured Party any sum or sums due or which may become due pursuant to
any other document, agreement or instrument evidencing the Secured
Indebtedness.
3.2 Expenses. Borrower shall pay to Secured Party on demand all
expenses and expenditures, including reasonable attorneys' fees and other legal
expenses incurred or paid by Secured Party in exercising or protecting its
interests, rights and remedies under this Agreement, plus interest thereon at
the maximum non-usurious rate permitted by applicable law with respect to
Borrower.
3.3 Acceleration. Borrower shall pay immediately, without notice,
the entire unpaid Secured Indebtedness to Secured Party upon the occurrence of
an Event of Default hereunder and/or the acceleration of the Secured
Indebtedness as provided for in the Loan Agreement.
SECTION 4. BORROWER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Borrower represents, warrants and agrees that:
4.1 Valid Accounts. Each Account will represent the valid and
legally enforceable indebtedness of a bona fide account debtor arising from the
sale or lease of goods or rendition of services by Borrower, will be subject to
no setoffs, counterclaims or defenses; the amount shown as to each Account on
Borrower's books will be the true and undisputed amount owing and unpaid
thereon, payable in full at the time referred to in the invoice or, if no time
is specified, within thirty (30) days from the date of the particular invoice,
and Borrower has no knowledge of any fact or circumstance that would impair the
validity or enforceability of any Account.
4.2 Title: No Financing Statement. Except for (i) security
interests granted hereby and under the Batch Purchase Agreement, (ii) any other
security interests in favor of Secured Party, and (iii) Permitted Liens,
absolute title to all the Collateral, free and clear of all liens, security
interests and encumbrances, is, or at the time of acquisition thereof will be,
vested in Borrower. The liens and security interests in the Collateral in favor
of Secured Party shall be first priority, perfected liens and security
interest. No financing statement or security agreement covering any of the
Collateral or its proceeds is on file in any public office, except as herein
set forth.
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4.3 Information. All information supplied and statements made by
Borrower or any guarantor of all or any part of the Secured Indebtedness in any
financial, credit or accounting statement or application for credit prior to,
contemporaneously with or subsequent to the execution of this Agreement are and
shall be true, correct, complete, valid and genuine.
4.4 Place of Business: Records: Inspections. The chief executive
office of Borrower is the address shown on the first page of this Agreement.
Borrower will immediately notify Secured Party in writing of any change in
Borrower's chief executive office. Borrower will (i) keep such books and
records pertaining to the Collateral at such chief executive office and at such
office or offices of Borrower as shall be approved in writing by Secured Party;
(ii) permit Secured Party or its officers, agents, attorneys or accountants at
any time to inspect the Collateral and the books and records of Borrower
pertaining to the Collateral, and assist in such inspections; and (iii) furnish
to Secured Party such information and reports regarding the Collateral as
Secured Party may from time to time require.
4.5 Collateral Locations. (a) To the best of Borrower's
knowledge, the Borrower has possession and control of its inventory and
equipment, except for (i) inventory rented, leased, subleased, consigned for
sale or rental, sold by conditional sale or on demonstration to any customer or
sales agent in the ordinary course of the Borrower's business, (ii) inventory
or equipment in transit in the ordinary course of the Borrower's business,
(iii) inventory or equipment under repair or maintenance by parties other than
the Borrower, (iv) inventory and equipment in the possession of persons who are
providing specialized fabrication of component parts in the ordinary course of
the Borrower's business and (v) equipment at store points and sales locations
owned or leased by Borrower and leased or subleased to third parties or
otherwise not occupied by the Borrower.
(b) To the best of Borrower's knowledge, the list attached hereto
as Exhibit "A" accurately and completely describes all current locations of any
and all inventory and equipment owned by Borrower except for the inventory and
equipment described in the foregoing subclauses 4.5(a)(i) through (v).
(c) Commencing on the date hereof, Revenue Producing Assets with
an original cost basis of not less that $12,000,000.00 will be located at all
times in Eligible Jurisdictions (as hereinafter defined). For purposes of this
clause 4.5(c), the term "Revenue Producing Assets" shall include Borrower's
revenue producing tools, components, subassemblies, and expendable
(replacement) parts of or for revenue producing tools, revenue producing tools
in production, and raw materials sued to build the foregoing assets, but shall
not include any assets (other than those assets for which the Borrower has
properly complied with the filing and notice requirements of Section 9.115 of
the UCC) sold or delivered on a "sale on approval" or a "sale or return"(as
each of those terms are defined in Section 2.326 of the UCC), or on
consignment, on memorandum, or on a guaranteed sale basis (collectively, the
"Consignment Assets"), and the original cost basis of any of such Consignment
Assets shall not be included in the calculation of the original cost basis of
the Revenue Producing Assets pursuant to this clause 4.5(c). All of Borrower's
equipment that are based in the United States of America will be located at all
times in Eligible Jurisdictions (except for equipment described in subclauses
4.5(a)(ii), 4.5(a)(iii), and 4.5(a)(iv) above, which, to the extent
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they are not located in Eligible Jurisdictions, shall at no time constitute a
material portion of the Borrower's equipment based in the United States). The
Term "Eligible Jurisdictions" means at any time with respect to any Collateral
(i) the states listed on Exhibit B attached hereto or, if any such state is
designated on Exhibit B as a "Non-Central Filing State," the counties or
parishes listed on Exhibit B and (ii) any other jurisdiction in the United
States in which Collateral is located so long as Borrower delivers to Secured
Party written notice that Collateral is, or is to be, located in that
jurisdiction within sufficient time to permit Secured Party to continue its
security interest in such Collateral on a continuous basis and Borrower
provides to Secured Party financing statements or other documents reasonably
required by Secured Party to perfect a first priority security interest
(subject only to Permitted Liens) in such Collateral.
4.6 Notice to Clients. At any time and from time to time upon
Secured Party's request after the acceleration of the Secured Indebtedness,
Borrower will give such notice in writing as Secured Party may require to any
or all account debtors and lessees indebted on all or any of the Accounts and
Rental Agreements and, if Secured Party shall so request, deliver to Secured
Party copies of any and all such notices.
4.7 Fees and Assessments; No Encumbrances. Borrower shall
promptly pay when due all taxes, assessments, license fees, registration fees,
and governmental charges levied or assessed against Borrower or with respect to
the Collateral or any part thereof except for those being contested in good
faith by appropriate proceedings and against which Borrower has set up adequate
reserves in accordance with GAAP. Borrower shall keep the Collateral,
including the proceeds from any disposition thereof, free from liens,
encumbrances, and security interests. Borrower will not pledge, mortgage or
otherwise encumber, or create or suffer a security interest to exist in, any of
the Collateral to or in favor of anyone other than Secured Party or under the
Batch Purchase Agreement.
4.8 Additional Documentation. Borrower will sign and execute
alone or with Secured Party any financing statement or other document or
procure any document, and pay all connected costs, necessary to create or
perfect the security interests, rights and remedies intended to be created by
this Agreement under the laws of each jurisdiction where any of the Collateral
may be located. Borrower shall furnish, at Borrower's sole cost and expense, a
waiver agreement in form and substance satisfactory to Secured Party, of all
liens of any landlord relating to any portion of the Collateral that is or that
may be located on leased premises.
4.9 Protective Action. Borrower will, at its own expense, do,
make, procure, execute and deliver all acts, things, writings and assurances as
Secured Party may at any time request to protect, assure or enforce its
interests, rights and remedies created by, provided in or emanating from this
Agreement.
4.10 Insurance. Borrower will have and maintain or cause to be
maintained insurance at all times with respect to all its properties (including
the Collateral) against risks of fire, theft and such other risks as are
customary in Borrower's industry and consistent with good business practices.
4.11 Accounts as Proceeds. All Accounts and Rental Agreements that
are proceeds of Inventory shall be subject to the security interest granted
hereby and all of the other terms and provisions hereof.
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4.12 Condition. Borrower shall maintain, service and repair the
Collateral so as to keep it in good working order and condition in all material
respects. Borrower shall replace within a reasonable time all parts that may
be worn out, lost, destroyed or otherwise rendered unfit for use, with
appropriate replacement parts except that tools which, in the ordinary course
of its business, Borrower determines to be worn out or obsolete may be sold as
scrap. Borrower shall obtain and maintain in good standing at all times all
applicable material permits, licenses, registrations and certificates relating
to the Collateral in all material respects.
4.13 No Transfer or Pledge. Except as otherwise provided herein or
in the Loan Agreement with respect to inventory, Borrower shall not, without
the prior written consent of Secured Party, sell, assign, transfer, lease,
charter, encumber, pledge, mortgage, hypothecate or dispose of the Collateral,
or any part thereof, or interest therein, or offer or contract to do any of the
foregoing except for sales and dispositions of Collateral which is worn out,
obsolete or not necessary to Borrower's operations and which occur in the
ordinary course of Borrower's business.
4.14 Notices and Reports. Borrower shall promptly notify Secured
Party of any additions or changes to Exhibit A hereto. Borrower shall furnish
such other reports, information and data regarding the Collateral and such
other matters as Secured Party may reasonably request from time to time.
4.15 Protection of Collateral. Secured Party, at its option, at
any time before or after the occurrence and during the continuance of an Event
of Default, but without any obligation whatsoever to do so, may (a) discharge
taxes, claims, charges, liens, security interests, assessments or other
encumbrances of any and every nature whatsoever (other than Permitted Liens) at
any time levied, placed upon or asserted against the Collateral, or any portion
thereof, (b) place and pay for insurance on the Collateral, or any portion
thereof, to the extent such insurance is required by the Loan Agreement,
including insurance that only protects Secured Party's interest, (c) pay for
the repair, improvement, testing, maintenance and preservation of the
Collateral, or any portion thereof, (d) pay any filing, recording,
registration, licensing or certification fees or other fees and charges related
to the Collateral, or any portion thereof, or (e) take any other action to
preserve and protect the Collateral, or any portion thereof, and Secured
Party's rights and remedies under this Agreement as Secured Party may deem
necessary or appropriate. Borrower agrees that Secured Party shall have no
duty or obligation whatsoever to take any of the foregoing actions. Borrower
agrees to promptly reimburse Secured Party upon demand for any payment made or
any expense incurred by the Secured Party pursuant to this authorization. These
payments and expenditures, together with interest thereon from date incurred
until paid by Borrower accruing at a rate equal to the rate then being paid by
the Borrower with respect to loans made pursuant to the Loan Agreement, which
Borrower agrees to pay, shall constitute additional Obligations and shall be
secured by and entitled to the benefits of this Agreement.
4.16 Use of Inventory. Unless and until the privilege of Borrower
to use inventory in the ordinary course of Borrower's business is revoked by
Secured Party upon the occurrence and during the continuance of an event of
default, Borrower may use the inventory in any manner not consistent with this
Agreement, may sell or lease that part of the Collateral consisting of
inventory provided that all such sales and leases are in the ordinary course of
business, and may use and consume any raw materials or supplies that are
necessary in order to carry on Borrower's business. A sale in the
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ordinary course of business does not include a transfer in partial or total
satisfaction of a debt.
SECTION 5. EVENTS OF DEFAULT. Borrower shall be in default under
this Agreement (herein called an "Event of Default") upon the happening of any
of the following events:
(1) The occurrence of a default or an event of default
under the Notes;
(2) The occurrence of a default or an Event of Default
under the Loan Agreement or the Batch Purchase Agreement;
(3) The default by Borrower in the punctual performance
of any of the obligations, covenants, terms or provisions contained or referred
to in this Agreement; or
(4) Any warranty, representation, or statement made by or
on behalf of Borrower in connection with this Agreement, the Notes, the Loan
Agreement or the Batch Purchase Agreement proves to have been false in any
material respect when made or furnished or becomes materially false while any
of the Secured Indebtedness is outstanding.
SECTION 6. SECURED PARTY'S RIGHTS AND REMEDIES.
6.1 Rights Exclusive of an Event of Default.
(a) Secured Party shall at all times have the right to
apply the proceeds of any of the Collateral as set forth herein immediately
upon receipt or collection of such proceeds, including the express right of
setoff against any sums owed by or held by Secured Party to or for Borrower.
(b) Secured Party shall not be required to take any steps
necessary to preserve the rights of the Collateral, except as required by law.
Secured Party's duty with respect to the Collateral shall be solely to use
reasonable care in the custody and preservation of Collateral in Secured
Party's possession. Borrower agrees Secured Party shall have no responsibility
for the operation or condition of the Collateral including, without limitation,
any items acquired with the proceeds of the Notes.
(c) Secured party shall have the rights and remedies of a
secured party under the Texas Business and Commerce Code and under the other
applicable laws of each state having jurisdiction over the Collateral or any
part thereof. The rights and remedies of Secured Party hereunder are
cumulative, and the exercise of any one or more of the rights or remedies
provided for herein shall not be construed as a waiver of any of the other
rights or remedies of Secured Party. At its option, Secured Party may exercise
any and all rights and remedies available to it under the Notes and the Loan
Agreement.
(d) Borrower agrees that, in performing any act under
this Agreement, time shall be of the essence and Secured Party's acceptance of
a partial or delinquent payment or payments, or the failure of Secured Party to
exercise any right or remedy,
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shall not be a waiver of any obligation of Borrower or any right of Secured
Party or constitute a waiver of any other similar default subsequently
occurring.
6.2 Rights in Event of Default.
(a) Upon the occurrence of an Event of Default hereunder,
and at any time thereafter, in addition to the rights granted pursuant to
Section 6.1 hereof, but subject to the provisions of the Notes, Secured Party
may declare the Secured Indebtedness immediately due and payable. Upon the
acceleration of the Secured Indebtedness, Secured Party shall have the right to
sell, lease or otherwise dispose of any or all of the Collateral and the right
to take possession of the Collateral, and for that purpose Secured Party may
enter upon any premises on which the Collateral or any part thereof may be
situated and remove the Collateral or books and records evidencing same, or may
require Borrower to assemble the Collateral and make it available to Secured
Party at a place to be designated by Secured Party which is reasonably
convenient to both parties. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will send Borrower reasonable notice of the time and
place of any public sale thereof or of the time after which any private sale or
other disposition thereof is to be made. The requirement of sending reasonable
notice shall be met if such notice is mailed, postage prepaid, to Borrower at
the address designated in this Agreement at least five (5) days before the time
of the sale or disposition. Expenses of retaking, holding, preparing for sale,
selling or the like shall include Secured Party's attorneys' fees and legal
expenses, plus interest thereon at the maximum non-usurious rate permitted by
applicable law with respect to Borrower and shall constitute part of the
Secured Indebtedness. Borrower shall remain liable for any deficiency.
(b) Secured Party may, but is not obligated to, exercise
at any time and from time to time after the acceleration of the Secured
Indebtedness, in its name or in the name of Borrower, all or any of Borrower's
rights including, but not limited to, the following powers, with respect to all
or any of the Collateral:
(1) to instruct account debtors and lessees to
pay Accounts and Rental Agreements directly to Secured Party or to a
post office box address over which Secured Party has control;
(2) to demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due upon or by
virtue thereof;
(3) to receive, take, execute, sign, endorse,
transfer, assign and deliver any and all checks, notes, drafts,
documents and other negotiable and non-negotiable instruments and
chattel paper taken or received by Secured Party in connection
therewith;
(4) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto;
(5) to sell, transfer, assign or otherwise deal
in or with the Collateral or the proceeds or avails thereof or the
relative goods, as fully and effectually as if Secured Party were the
absolute owner thereof; and
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(6) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments with reference
thereto;
provided, however, the exercise by Secured Party of or failure to so exercise
any such authority shall in no manner affect Borrower's liability to Secured
Party hereunder or under the Notes or under any other document, agreement or
instrument evidencing or securing any of the Secured Indebtedness, and provided
further that Secured Party shall be under no obligation or duty to exercise any
of the powers hereby conferred upon it and it shall be without liability for
any act or failure to act in connection with any of the Collateral.
(c) Any amounts held, realized or received by Secured
Party from any sale or other disposition of the Collateral or any part thereof,
and all amounts received by Secured Party pursuant to the collection of any
Accounts, shall be applied by Secured Party in the following order:
(1) First, to all costs, expenses and liabilities
of Secured Party (including attorneys' fees and expenses) incurred in
connection with the custody, preservation, use or operation of the
Collateral; the sale of, collection from or other realization upon
Collateral; and the exercise of Secured Party's rights under this
Agreement;
(2) Second, to the payment of the Secured
Indebtedness and/or the protection of Secured Party's interest in the
Collateral;
(3) Third, to the payment or other satisfaction
of any other liens or encumbrances upon any of the Collateral;
(4) Fourth, to Borrower or its successors or
assigns, or such other party as may be legally entitled thereto, or as
a court of competent jurisdiction may direct.
(d) Secured Party may remedy any default and may waive
any default without waiving the default remedied or without waiving any other
prior or subsequent default.
(e) SECURED PARTY MAY ENFORCE ITS RIGHTS UNDER THIS
AGREEMENT WITHOUT RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING, AND
BORROWER EXPRESSLY WAIVES, RENOUNCES AND KNOWINGLY RELINQUISHES ANY LEGAL RIGHT
WHICH MIGHT OTHERWISE REQUIRE SECURED PARTY TO ENFORCE ITS RIGHTS BY JUDICIAL
PROCESS. IN SO PROVIDING FOR A NON JUDICIAL REMEDY, BORROWER RECOGNIZES AND
CONCEDES THAT SUCH A REMEDY IS CONSISTENT WITH THE USAGE OF THE TRADE, IS
RESPONSIVE TO COMMERCIAL NECESSITY AND IS THE RESULT OF BARGAINING AT ARMS
LENGTH. NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT BORROWER OR SECURED
PARTY FROM RESORTING TO JUDICIAL PROCESS AT EITHER PARTY'S OPTION.
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SECTION 7. ADDITIONAL AGREEMENTS.
7.1 Parties. Secured Party", "Borrower", and "account debtor" as
used in this Agreement include all successors, assigns, legal representatives,
heirs, executors and receivers, of those parties.
7.2 Section Headings. The section headings appearing in this
Agreement have been inserted for convenience only and shall be given no
substantive meaning or significance whatever in construing the terms and
provisions of this Agreement.
7.3 Use of Copies. Any carbon, photographic or other reproduction
of this Agreement or any financing statement signed by Borrower is sufficient
as a financing statement for all purposes, including without limitation, filing
in any state as may be permitted by the provisions of the Uniform Commercial
Code of such state.
7.4 Defined Terms. Terms used in this Agreement which are defined
in the Texas Business and Commerce Code are used with the meanings as therein
defined.
7.5 Gender. The use of any gender in this Agreement shall be
applicable to all genders.
7.6 Severability. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable, such provision shall be fully severable,
and the remaining provisions of this Agreement shall be in full force and
effect.
7.7 Applicable Law: Place of Payment. The law governing this
Agreement shall be that of the State of Texas, and all payments and obligations
shall be made and performed in Fort Worth, Tarrant County, Texas, unless
otherwise agreed.
7.8 Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be personally delivered, or sent by
registered or certified mail, to the addresses set forth on the first page of
this Agreement. The date of personal delivery, or the date of mailing, shall be
deemed to be the date of notice. Any party may, by proper written notice
hereunder, change the address to which notices to such party shall thereafter
be sent.
7.9 Assignment by Secured Party. This Agreement and Secured
Party's rights hereunder may be assigned by Secured Party, and in any such case
the assignee shall be entitled to all of the rights, privileges and remedies
granted in this Agreement to Secured Party.
7.10 Waiver of Rights. Borrower waives any right to require
Secured Party to file suit against any other party or take any other action
against such other party or such other party's property as a prerequisite to
Secured Party's taking any action or bringing any suit against Borrower under
this Agreement.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
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7.11 Savings Clause. The usury savings clause provided in Section
11.F of the Loan Agreement is incorporated by reference into this Agreement and
is made a part hereof for all purposes; it being agreed that all rights and
remedies of Secured Party hereunder are subject to and entitled to the benefit
of the terms of such usury savings clause.
EXECUTED AND EFFECTIVE as of the date first set forth above.
BORROWER:
PONDER INDUSTRIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Exhibits
- --------
Exhibit A - Location of Collateral
Exhibit B - States in Which Collateral is Located
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EXHIBIT 10.3
SECURITY AGREEMENT -- PLEDGE
PONDER INDUSTRIES, INC., a Delaware corporation ("Pledgor"), whose
address is 5005 Riverway, Suite 550, Houston, Texas 77056, and KBK FINANCIAL,
INC. d/b/a PII/KBK ACCEPTANCE CORPORATION ("Secured Party"), a Delaware
corporation, whose address is 2200 City Center II, 301 Commerce Street, Fort
Worth, Texas 76102, agree as follows:
ARTICLE 1.
Creation of Security Interest
In order to secure the prompt and unconditional payment of the
indebtedness herein referred to and the performance of the obligations,
covenants, agreements and undertakings herein described, Pledgor hereby grants
to Secured Party a security interest in and mortgages, assigns, transfers,
delivers, pledges, sets over and confirms to Secured Party all of Pledgor's
remedies, powers, privileges, rights, titles and interests (including all power
of Pledgor, if any, to pass greater title than it has itself) of every kind and
character now owned or hereafter acquired, created or arising in and to the
following:
(i) all of the securities listed on Exhibit A,
hereto attached and hereby made a part hereof;
(ii) all dividends (cash or otherwise), rights to
receive dividends, stock dividends, dividends paid in stock,
distributions upon redemption or liquidation, distributions as a
result of split-ups, recapitalizations or rearrangements, stock
rights, rights to subscribe, voting rights, rights to receive
securities, and all new securities and other property which Pledgor
may hereafter become entitled to receive on account of the foregoing
(Pledgor hereby agreeing that in the event Pledgor receives any such
new securities, Pledgor will immediately deliver the same to Secured
Party to be held by Secured Party subject to the terms and provisions
of this Agreement);
all accessions, appurtenances and additions to and substitutions for any of the
foregoing and all products and proceeds of any of the foregoing, together with
all renewals and replacements of any of the foregoing, all accounts,
receivables, accounts receivable, instruments, notes, chattel paper, documents
(including all documents of title), books, records, contract rights and general
intangibles arising in connection with any of the foregoing (including all
insurance and claims for insurance affected or held for the benefit of Plegor
or Secured Party in respect of the foregoing). All of the properties and
interests described in this Article are herein collectively called the
"Collateral." The inclusion of proceeds does not authorize Pledgor to sell,
dispose of or otherwise use the Collateral in any manner not authorized herein.
<PAGE> 2
ARTICLE 2.
Secured Indebtedness
2.1 This Agreement is made to secure all of the following present
and future debt and obligations:
(a) All indebtedness now and hereafter evidenced and to
be evidenced by (i) the promissory note dated concurrently herewith in the face
amount of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000), bearing
interest at the rate or rates therein stated, principal and interest payable to
the order of Secured Party on the dates therein stated, executed by Pledgor,
(ii) any and all past, concurrent, or future modifications, extensions,
renewals, rearrangements, replacements and increases of such note
(collectively, the "Revolving Note").
(b) All indebtedness now and hereafter evidenced and to
be evidenced by (i) the promissory note dated concurrently herewith in the face
amount of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS ($3,500,000), bearing
interest at the rate or rates therein stated, principal and interest payable to
the order of Secured Party on the dates therein stated, executed by Pledgor,
(ii) any and all past, concurrent, or future modifications, extensions,
renewals, rearrangements, replacements and increases of such note
(collectively, the "Term Note" and, together with the Revolving Note, the
"Notes").
(c) All obligations of Pledgor under (i) that certain
Loan Agreement of even date herewith by and between Pledgor and Secured Party,
and (ii) any and all past, concurrent, or future modifications, extensions,
renewals, rearrangements, replacements and increases of such agreement
(collectively, the "Loan Agreement").
(d) All other obligations, if any, described or referred
to in any other place in this Agreement.
(e) Any and all sums and the interest which accrues on
them as provided in this Agreement which Secured Party may advance or which
Pledgor may owe Secured Party pursuant to this Agreement on account of
Pledgor's failure to keep, observe or perform any of Pledgor's covenants under
this Agreement.
(f) All present and future debts and obligations under or
pursuant to (1) any papers ("Credit Documents") now or in the future governing,
evidencing, guaranteeing or securing or otherwise relating to payment of all or
any part of the debt evidenced by the Notes, or (2) all supplements,
amendments, restatements, renewals, extensions, rearrangements, increases,
expansions or replacements of them.
2.2 The term "Debt" means and includes the Notes and all other
debt and obligations described or referred to in Section 2.1. The Debt
includes interest and other obligations accruing or arising after (a)
commencement of any case under any bankruptcy
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or similar laws by or against Pledgor or any other person or entity now or
hereafter primarily or secondarily obligated to pay all or any part of the Debt
(Pledgor and each such other person or entity being herein called an "Obligor")
or (b) the obligations of any Obligor shall cease to exist by operation of law
or for any other reason. The Debt also includes all reasonable attorneys' fees
and any other expenses incurred by Secured Party in enforcing any of the Credit
Documents. Any Collateral Obligor (as defined in Article 5) shall be deemed to
be an "Obligor" for all purposes under this Agreement.
ARTICLE 3.
Representations and Warranties
Pledgor represents and warrants as follows:
(a) Except in favor of Secured Party, Pledgor is the
legal and equitable owner and holder of good and marketable title to the
Collateral free of any adverse claim and free of any security interest or
encumbrance except only for the security interest granted hereby in the
Collateral and those other security interests (if any) expressly referred to or
described in this Agreement (such warranty to supersede any provision contained
in this Agreement limiting the liability of Pldegor). Pledgor agrees to defend
the Collateral and its proceeds against all claims and demands of any person at
any time claiming the Collateral, its proceeds or any interest in either.
Pledgor has not heretofore signed any financing statement directly or
indirectly affecting the Collateral or any part of it which has not been
completely terminated of record, and no such financing statement signed by
Pledgor is now on file in any public office except only those statements (if
any) true and correct copies of which Pledgor has actually delivered to Secured
Party.
(b) The location of Pledgor is the address set forth at
the beginning of this Agreement and in this regard, Pledgor's location is
defined to mean (i) Pledgor's place of business if Pledgor has only one such
place of business; (ii) Pledgor's chief executive office if Pledgor has more
than one place of business; or (iii) Pledgor's residence if Pledgor has no
place of business.
(c) All of Pledgor's books and records with regard to the
Collateral are maintained and kept at the address of Pledgor set forth in this
Agreement.
(d) (i) Pledgor is duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full legal
right, power and authority to execute, deliver and perform its obligations
under this Agreement to which Pledgor is a party, and (ii) Pledgor's execution,
delivery and performance of this Agreement have been duly authorized by all
necessary action under Pledgor's organizational documents and otherwise.
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(e) Pledgor's execution, delivery and performance of this
Agreement and any other Credit Documents to which Pledgor is a party do not and
will not require (i) any consent of any other person or entity or (ii) any
consent, license, permit, authorization or other approval (including foreign
exchange approvals) of any court, arbitrator, administrative agency or other
governmental authority, or any notice to, exemption by, any registration,
declaration or filing with or the taking of any other action in respect of, any
such court, arbitrator, administrative agency or other governmental authority.
(f) Neither execution nor delivery of this Agreement, nor
the fulfillment of or compliance with the terms and provisions hereof or
thereof will (i) violate any constitutional provision, law or rule, or any
regulation, order or decree of any governmental authority or the basic
organizational documents of Pledgor or (ii) conflict with or result in a breach
of the terms, conditions or provisions of, or cause a default under, any
agreement, instrument, franchise, license or concession to which Pledgor is a
party or bound.
(g) This Agreement is Pledgor's valid and legally binding
obligation, enforceable in accordance with its respective terms.
(h) Pledgor is now solvent, and no bankruptcy or
insolvency proceedings are pending or contemplated by or--to the best of
Pledgor's knowledge, threatened--against Pledgor. Pledgor's liabilities and
obligations under this Agreement and any other Credit Documents to which
Pledgor is a party do not and will not render Pledgor insolvent, cause
Pledgor's liabilities to exceed Pledgor's assets or leave Pledgor with too
little capital to properly conduct all of its business as now conducted or
contemplated to be conducted.
(i) The liens and security interests of this Agreement
will constitute valid and perfected first and prior liens and security
interests on the Collateral, subject to no other liens, security interests or
charges whatsoever.
(j) None of the proceeds of the Notes or the other Debt
will be used for the purpose of purchasing or carrying, directly or indirectly,
any margin stock or for any other purpose which would make such credit a
"purpose credit" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System.
(k) The Collateral is genuine, free from any restriction
on transfer, duly and validly authorized and issued, constituting the valid and
legally binding obligation of the issuer or issuers thereof (each an "Issuer"),
enforceable in accordance with its terms, and fully paid and non-assessable,
and is hereby duly and validly pledged and hypothecated to Secured Party in
accordance with law. The Issuer has only one class of authorized stock, which
is common stock.
(l) The Collateral constitutes 100% of the issued and
outstanding shares of common stock of the Issuer now owned by Pledgor. Pledgor
agrees that it will
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(i) to the best of its ability, cause the Issuer not to issue any stock, other
securities or ownership interest in addition to or in substitution for the
shares of stock constituting the Collateral, except to the Secured Party, (ii)
pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock, other securities or other
ownership interests of each Issuer, and (iii) pledge hereunder, immediately
upon its acquisition (directly or indirectly) thereof, any and all shares of
stock, other securities or other ownership interests of any entity which, after
the date of this Agreement, becomes a Subsidiary of Pledgor.
(m) The value of the consideration received and to be
received by Pledgor is reasonably worth at least as much as the liability and
obligation of Pledgor incurred or arising under this Agreement and all related
papers and arrangements. Pledgor's board of directors have determined that
such liability and obligation may reasonably be expected to substantially
benefit Pledgor directly or indirectly. Pledgor has had full and complete
access to the underlying papers relating to the Debt and all other papers
executed by any Obligor or any other person or entity in connection with the
Debt, has reviewed them and is fully aware of the meaning and effect of their
contents. Pledgor is fully informed of all circumstances which bear upon the
risks of executing this Agreement and which a diligent inquiry would reveal.
Pledgor has adequate means to obtain from the makers of the Notes on a
continuing basis information concerning such makers' financial condition, and
is not depending on Secured Party to provide such information, now or in the
future. Pledgor agrees that Secured Party shall have no obligation to advise
or notify Pledgor or to provide Pledgor with any data or information. The
execution and delivery of this Agreement is not a condition precedent (and
Secured Party has not in any way implied that the execution of this Agreement
is a condition precedent) to Secured Party's making, extending or modifying any
loan to Pledgor or to any other financial accommodation to or for Pledgor.
ARTICLE 4.
Covenants
4.1 Pledgor covenants and agrees with Secured Party as follows:
(a) Pledgor shall furnish to Secured Party such
instruments as may be required by Secured Party to assure the transferability
of the Collateral when and as often as may be requested by Secured Party.
(b) Pledgor will cause to be paid before delinquency all
taxes, charges, liens and assessments heretofore or hereafter levied or
assessed against the Collateral, or any part thereof, or against Secured Party
for or on account of the Debt or the interest created by this Agreement and
will furnish Secured Party with receipts showing payment of such taxes and
assessments at least ten (10) days before the applicable default date therefor.
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(c) If the validity or priority of this Agreement or of
any rights, titles, security interests or other interests created or evidenced
hereby shall be attacked, endangered or questioned or if any legal proceedings
are instituted with respect thereto, Pledgor will give prompt written notice
thereof to Secured Party and at Pledgor's own cost and expense will diligently
endeavor to cure any defect that may be developed or claimed, and will take all
necessary and proper steps for the defense of such legal proceedings, and
Secured Party (whether or not named as a party to legal proceedings with
respect thereto) is hereby authorized and empowered to take such additional
steps as in its judgment and discretion may be necessary or proper for the
defense of any such legal proceedings or the protection of the validity or
priority of this Agreement and the rights, titles, security interests and other
interests created or evidenced hereby, and all expenses so incurred of every
kind and character shall constitute sums advanced pursuant to Section 4.2 of
this Agreement.
(d) Pledgor will, on request of Secured Party, (i)
promptly correct any defect, error or omission which may be discovered in the
contents of this Agreement or in any other instrument executed in connection
herewith or in the execution or acknowledgment thereof; (ii) execute,
acknowledge, deliver and record or file such further instruments (including
further security agreements, financing statements and continuation statements)
and do such further acts as may be necessary, desirable or proper to carry out
more effectively the purposes of this Agreement and such other instruments and
to subject to the security interests hereof and thereof any property intended
by the terms hereof and thereof to be covered hereby and thereby including
specifically any renewals, additions, substitutions, replacements or
appurtenances to the then Collateral; and (iii) execute, acknowledge, deliver,
procure and record or file any document or instrument (including specifically
any financing statement) deemed advisable by Secured Party to protect the
security interest hereunder against the rights or interests of third persons,
and Pledgor will pay all costs connected with any of the foregoing.
(e) Notwithstanding the security interest in proceeds
granted herein, Pledgor will not sell, lease, exchange, lend, rent, assign,
transfer or otherwise dispose of, or pledge, hypothecate or grant any security
interest in, or permit to exist any lien, security interest, charge or
encumbrance against, all or any part of the Collateral or any interest therein
or permit any of the foregoing to occur or arise or permit title to the
Collateral, or any interest therein, to be vested in any other party, in any
manner whatsoever, by operation of law or otherwise, without the prior written
consent of Secured Party.
(f) To the extent not prohibited by applicable law,
Pledgor will pay all costs and expenses and reimburse Secured Party for any and
all expenditures of every character incurred or expended from time to time,
regardless of whether or not a default shall have occurred, in connection with
(a) the preparation, negotiation, documentation, closing, renewal, revision,
modification, increase, review or restructuring of any loan or credit facility
secured by this Agreement, including legal, accounting, auditing,
architectural, engineering and inspection services and disbursements, or in
connection with collecting or attempting to enforce or collect the Notes or
this Agreement, (b)
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Secured Party's evaluating, monitoring, administrating and protecting any of
the Collateral and (c) Secured Party's creating, perfecting and realizing upon
Secured Party's security interests in and liens on any of the Collateral, and
all costs and expenses relating to Secured Party's exercising any of its rights
and remedies under any Credit Document or at law, including all appraisal fees,
consulting fees, filing fees, taxes, brokerage fees and commissions, title
review and abstract fees, Uniform Commercial Code search fees, other fees and
expenses incident to title searches, reports and security interests, escrow
fees, attorneys' fees, legal expenses, court costs, other fees and expenses
incurred in connection with any complete or partial liquidation of any of the
Collateral and all fees and expenses for any professional services relating to
any of the Collateral or any operations conducted in connection with it;
provided, that no right or option granted by Pledgor to Secured Party or
otherwise arising pursuant to any provision of this or any other instrument
shall be deemed to impose or admit a duty on Secured Party to supervise,
monitor or control any aspect of the character or condition of any of the
Collateral or any operations conducted in connection with it for the benefit of
Pledgor or any other person or entity other than Secured Party. Pledgor agrees
to indemnify, defend and hold Secured Party, its shareholders, directors,
officers, agents, attorneys, advisors and employees (collectively "Indemnified
Parties") harmless from and against any and all loss, liability, obligation,
damage, penalty, judgment, claim, deficiency, expense, action, suit, cost and
disbursement of any kind or nature whatsoever (including interest, penalties,
attorneys' fees and amounts paid in settlement), REGARDLESS OF WHETHER CAUSED
IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES,
imposed on, incurred by or asserted against the Indemnified Parties growing out
of or resulting from any Credit Document or any transaction or event
contemplated therein (except that such indemnity shall not be paid to any
Indemnified Party to the extent such loss, etc. directly results from the gross
negligence or willful misconduct of that Indemnified Party). If any person or
entity (including Pledgor or any of its affiliates) ever alleges gross
negligence or willful misconduct by an Indemnified Party, the full amount of
indemnification provided for in this Section shall nonetheless be paid upon
demand, subject to later adjustment or reimbursement at such time--if any--as a
court of competent jurisdiction enters a final judgment as to the extent and
effect of the alleged gross negligence or willful misconduct. Any amount to be
paid under this Section by Pledgor to Secured Party shall be a demand
obligation owing by Pledgor to Secured Party and shall bear interest from the
date of expenditure until paid at the Past Due Rate (hereinafter defined).
(g) Pledgor shall account fully and faithfully for and,
if Secured Party so elects, shall promptly pay or turn over to Secured Party
the proceeds in whatever form received from the sale or disposition or
realization in any manner of any of the Collateral, whether the Debt is mature
or not. Pledgor shall at all times keep the Collateral and its proceeds
separate and distinct from other property of Pledgor and shall keep accurate
and complete records of the Collateral and its proceeds. Pledgor shall, where
applicable, at Pledgor's own expense take all reasonable and appropriate steps
to enforce the collection of the Collateral and items representing proceeds
thereof.
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(h) Pledgor will not do or suffer to be done any act
whereby the value of any part of the Collateral may be lessened.
(i) Immediately upon acquiring knowledge thereof, Pledgor
will notify Secured Party by telephone (and confirm such notice in writing
within two (2) days) of the existence of any Event of Default, specifying the
nature and duration thereof and what action Pledgor has taken, is taking and
proposes to take with respect thereto. In no event shall silence by Secured
Party be deemed a waiver of a default or of an Event of Default. Pledgor will
take all such steps as are necessary or appropriate to remedy promptly any such
default or Event of Default.
(j) Pledgor shall furnish to Secured Party from time to
time such information relating to the Collateral as Secured Party may from time
to time request or as may be required from time to time by any Credit Document.
4.2 If Pledgor should fail to comply with any of
its agreements, covenants or obligations under this Agreement, the Notes or any
other Credit Document, then Secured Party (in Pledgor's name or in Secured
Party's own name) may perform them or cause them to be performed for Pledgor's
account and at Pledgor's expense, but shall have no obligation to perform any
of them or cause them to be performed. Any and all expenses thus incurred or
paid by Secured Party shall be Pledgor's obligations to Secured Party due and
payable on demand, or if no demand is sooner made, then they shall be due on or
before four (4) years after the respective dates on which they were incurred,
and each shall bear interest from the date Secured Party pays it until the date
Pledgor repays it to Secured Party, at the maximum nonusurious rate of interest
from time to time permitted by whichever of applicable Texas or federal law
from time to time permits the higher nonusurious interest rate (the "Ceiling
Rate"), or, only if applicable law imposes no maximum nonusurious rate, then at
the same rate as is provided for in the Notes first described in Section 2.1(a)
for interest on past due principal (the "Past Due Rate"). At all times, if
any, as Chapter One ("Chapter One") of Title 79, Texas Revised Civil Statutes
shall establish the Ceiling Rate for any purpose under this Agreement, the
Ceiling Rate shall be the "indicated rate ceiling" as defined in Chapter One
from time to time in effect. Upon making any such payment or incurring any
such expense, Secured Party shall be fully and automatically subrogated to all
of the rights of the person, corporation or body politic receiving such
payment. Any amounts owing by Pledgor to Secured Party pursuant to this or any
other provision of this Agreement shall automatically and without notice be and
become a part of the Debt and shall be secured by this and all other
instruments securing the Debt. The amount and nature of any such expense and
the time when it was paid shall be fully established by the affidavit of
Secured Party or any of Secured Party's officers or agents. Without notice to
Pledgor or any other person or entity, the Ceiling Rate and the Past Due Rate
shall automatically fluctuate upward and downward as and in any amount by which
the maximum nonusurious rate of interest permitted by such applicable law and
the rate of interest as provided for in the Notes first described in Section
2.1(a) for interest on past due principal fluctuate, respectively. The
exercise of the privileges granted to Secured Party in this Section shall in no
event be considered or constitute a cure of the default or a
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waiver of Secured Party's right at any time after an Event of Default to
declare the Debt to be at once due and payable, but is cumulative of such right
and of all other rights given by this Agreement, the Notes and the Credit
Documents and of all rights given Secured Party by law.
ARTICLE 5.
Assignment of Payments; Certain Powers of Secured Party; Voting Rights
Pledgor hereby authorizes and directs each Issuer and each other
person or entity obligated to make payment in respect of any of the Collateral
(each Issuer and other person or entity being herein called a "Collateral
Obligor") to pay over to Secured Party upon an Event of Default, as hereinafter
defined, its officers, agents or assigns, upon demand by Secured Party, all or
any part of the Collateral without making any inquiries as to the status or
balance of the Debt and without any notice to or further consent of Pledgor.
Pledgor hereby agrees to indemnify each Collateral Obligor and hold each
Collateral Obligor harmless from all expenses and losses which it may incur or
suffer as a result of any payment it makes to Secured Party pursuant to this
paragraph. To facilitate the rights of Secured Party hereunder, Pledgor hereby
authorizes Secured Party, its officers, employees, agents or assigns upon an
Event of Default:
(a) to notify Collateral Obligors of Secured Party's
security interest in the Collateral and to collect all or any part of the
Collateral without further notice to or further consent by Pledgor, and Pledgor
hereby constitutes and appoints Secured Party the true and lawful attorney of
Pledgor (such agency being coupled with an interest), irrevocably, with power
of substitution, in the name of Pledgor or in its own name or otherwise, to
take any of the actions described in the following clauses (b), (c), (d), (e),
(f) and (g);
(b) to ask, demand, collect, receive, receipt for, sue
for, compound and give acquittance for any and all amounts which may be or
become due or payable under the Collateral and to settle and/or adjust all
disputes and/or claims directly with any Collateral Obligor and to compromise,
extend the time for payment, arrange for payment in installments, otherwise
modify the terms of, or release, any of the Collateral, on such terms and
conditions as Secured Party may determine (without thereby incurring
responsibility to or discharging or otherwise affecting the liability of
Pledgor to Secured Party under this Agreement or otherwise);
(c) in its discretion to file any claim or take any other
action or proceeding which Secured Party may deem necessary or appropriate to
protect and preserve the rights, titles and interests of Secured Party
hereunder;
(d) to sign the name of Pledgor to financing statements,
drafts against Collateral Obligors, assignments or verifications of any of the
Collateral and notices to Collateral Obligors; and
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(e) to cause title to any or all of the Collateral to be
transferred into the name of Secured Party or any nominee or nominees of
Secured Party.
Unless and until an Event of Default, as hereinafter defined, shall have
occurred, Pledgor shall be entitled to exercise all voting and consensual
powers and rights pertaining to the Collateral or any part thereof for all
purposes not inconsistent with the terms of this Agreement and, except as
herein provided, shall be entitled to receive and retain all dividends on the
Collateral or any part thereof. Upon and after the occurrence of an Event of
Default, Secured Party shall have the right to the extent permitted by
applicable law (but shall not be obligated to exercise such right), and Pledgor
shall take all such action as may be necessary or appropriate to give effect to
such right, to vote and give consents, ratifications and waivers, and take any
other action with respect to any or all of the Collateral with the same force
and effect as if Secured Party were the owner thereof. All dividends in stock
or property representing stock, and all subscription warrants or any other
rights or options issued in connection with the Collateral, and all liquidating
dividends or distributions or return of capital upon or in respect of the
Collateral or any part thereof, or resulting from any split, revision or
reclassification of the Collateral or any part thereof or received in exchange
for the Collateral or any part thereof as a result of a merger, consolidation
or otherwise, shall be paid or transferred directly to Secured Party, or if
paid to or received by Pledgor, shall, immediately upon receipt thereof, be
paid over, transferred and delivered to Secured Party and shall be Collateral
pledged under and subject to the terms of this Agreement.
The powers conferred on Secured Party pursuant to this Article 5 are
conferred solely to protect Secured Party's interest in the Collateral and
shall not impose any duty or obligation on Secured Party to perform any of the
powers herein conferred. No exercise of any of the rights provided for in this
Article 5 shall constitute a retention of collateral in satisfaction of the
indebtedness as provided for in Section 9.505 of the Uniform Commercial Code of
Texas.
ARTICLE 6.
Events of Default
If any default, event of default or similar event (however
denominated) occurs under any of the Credit Documents or the Loan Agreement,
then that shall automatically constitute an "Event of Default" (herein so
called) under this Agreement.
ARTICLE 7.
Remedies in Event of Default
7.1 Upon the occurrence of an Event of Default, and at any time
thereafter:
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(a) Secured Party shall have the option of declaring,
without notice to any person, all Debt to be immediately due and payable.
(b) Secured Party may, without notice except as
hereinafter provided, sell the collateral or any part thereof at public or
private sale or at any broker's board or on any securities exchange (with or
without appraisal or having the Collateral at the place of sale) for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party
may deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold and may apply upon the purchase price therefor any of the
Debt and thereafter hold the same absolutely free from any right or claim of
whatsoever kind. Secured Party is authorized at any such sale, if Secured
Party deems it advisable or is required by applicable law so to do, (i) to
restrict the prospective bidders on or purchasers of any of the Collateral to a
limited number of sophisticated investors who will represent and agree that
they are purchasing for their own account for investment and not with a view to
the distribution or resale of any of the Collateral, (ii) to cause to be placed
on certificates for any or all of the Collateral a legend to the effect that
such security has not been registered under the Securities Act of 1933 and may
not be disposed of in violation of the provisions of said Act, and (iii) to
impose such other limitations or conditions in connection with any such sale as
Secured Party deems necessary or advisable in order to comply with said Act or
any other applicable law. Pledgor covenants and agrees that it will execute
and deliver such documents and take such other action as Secured Party deems
necessary or advisable in order that any such sale may be made in compliance
with applicable law. Upon any such sale Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right of whatsoever kind, including any equity or right of
redemption, stay or appraisal which Pledgor has or may have under any rule of
law or statute now existing or hereafter adopted. To the extent notice is
required by applicable law, Secured Party shall give Pledgor written notice at
the address set forth herein (which shall satisfy any requirement of notice or
reasonable notice in any applicable statute) of Secured Party's intention to
make any such public or private sale. Such notice (if any is required by
applicable law) shall be personally delivered or mailed, postage prepaid, at
least five (5) calendar days before the date fixed for a public sale, or at
least five (5) calendar days before the date after which the private sale or
other disposition is to be made, unless the Collateral is of a type customarily
sold on a recognized market, is perishable or threatens to decline speedily in
value. Such notice (if any is required by applicable law), in case of public
sale, shall state the time and place fixed for such sale or, in case of private
sale or other disposition other than a public sale, the time after which the
private sale or other such disposition is to be made. In case of sale at
broker's board or on a securities exchange, such notice shall state the board
or exchange at which such sale is to be made and the day on which the
Collateral or that portion thereof so being sold will first be offered for sale
at such board or exchange. Any public sale shall be held at such time or
times, within the ordinary business hours and at such place or places, as
Secured Party may fix in the notice of such sale. At any sale the Collateral
may be sold in one lot as an entirety or in separate parcels as Secured Party
may determine. Secured Party shall not
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be obligated to make any sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at any time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall incur no liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold, and in case of
any such failure, such Collateral may again be sold upon like notice. Each and
every method of disposition described in this Section shall constitute
disposition in a commercially reasonable manner. Each Obligor, to the extent
applicable, shall remain liable for any deficiency.
(c) Secured Party shall have all the rights of a secured
party after default under the Uniform Commercial Code of Texas and in
conjunction with, in addition to or in substitution for those rights and
remedies:
(i) it shall not be necessary that the Collateral
or any part thereof be present at the location of any sale pursuant to
the provisions of this Article; and
(ii) before application of proceeds of disposition
of the Collateral to the Debt, such proceeds shall be applied to the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling, leasing and the like and the reasonable attorneys' fees and
legal expenses incurred by Secured Party, each Obligor, to the extent
applicable, to remain liable for any deficiency; and
(iii) the sale by Secured Party of less than the
whole of the Collateral shall not exhaust the rights of Secured Party
hereunder, and Secured Party is specifically empowered to make
successive sale or sales hereunder until the whole of the Collateral
shall be sold; and, if the proceeds of such sale of less than the
whole of the Collateral shall be less than the aggregate of the Debt,
this Agreement and the security interest created hereby shall remain
in full force and effect as to the unsold portion of the Collateral
just as though no sale had been made; and
(iv) in the event any sale hereunder is not
completed or is defective in the opinion of Secured Party, such sale
shall not exhaust the rights of Secured Party hereunder and Secured
Party shall have the right to cause a subsequent sale or sales to be
made hereunder; and
(v) any and all statements of fact or other
recitals made in any bill of sale or assignment or other instrument
evidencing any foreclosure sale hereunder as to nonpayment of any
indebtedness or as to the occurrence of any default, or as to Secured
Party having declared all of
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such indebtedness to be due and payable, or as to notice of time,
place and terms of sale and the Collateral to be sold having been duly
given, as to any other act or thing having been duly done by Secured
Party, shall be taken as prima facie evidence of the truth of the
facts so stated and recited; and
(vi) Secured Party may appoint or delegate any one
or more persons as agent to perform any act or acts necessary or
incident to any sale held by Secured Party, including the sending of
notices and the conduct of sale, but in the name and on behalf of
Secured Party; and
(vii) demand of performance, advertisement and
presence of property at sale are hereby WAIVED and Secured Party is
hereby authorized to sell hereunder any evidence of debt it may hold
as security for the Debt. All demands and presentments of any kind or
nature are expressly WAIVED by Pledgor. Pledgor WAIVES the right to
require Secured Party to pursue any other remedy for the benefit of
Pledgor and agrees that Secured Party may proceed against any Obligor
for the amount of the Debt owed to Secured Party without taking any
action against any other Obligor or any other person or entity and
without selling or otherwise proceeding against or applying any of the
Collateral in Secured Party's possession.
7.2 All remedies herein expressly provided for are cumulative of
any and all other remedies existing at law or in equity and are cumulative of
any and all other remedies provided for in any other instrument securing the
payment of the Debt, or any part thereof, or otherwise benefiting Secured
Party, and the resort to any remedy provided for hereunder or under any such
other instrument or provided for by law shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies.
7.3 Secured Party may resort to any security given by this
Agreement or to any other security now existing or hereafter given to secure
the payment of the Debt, in whole or in part, and in such portions and in such
order as may seem best to Secured Party in its sole and uncontrolled
discretion, and any such action shall not in anywise be considered as a waiver
of any of the rights, benefits or security interests evidenced by this
Agreement.
7.4 To the full extent Pledgor may do so, Pledgor agrees that
Pledgor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force providing for any appraisement,
valuation, stay, extension or redemption, and Pledgor, for itself and its
successors and assigns, and for any and all persons ever claiming any interest
in the Collateral, to the extent permitted by law, hereby WAIVES and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
intention to accelerate and notice of acceleration of the Debt, and all rights
to a marshaling of the assets of Pledgor, including the Collateral, or to a
sale in
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<PAGE> 14
inverse order of alienation in the event of foreclosure of the security
interest hereby created
7.5 In the event that Pledgor or any other Obligor is the subject
of any insolvency, bankruptcy, receivership, dissolution, reorganization or
similar proceeding, federal or state, voluntary or involuntary, under any
present or future law or act, Secured Party is entitled to the automatic and
absolute lifting of any automatic stay as to the enforcement of its remedies
under the Credit Documents against the security for the Debt, including
specifically the stay imposed by Section 362 of the United States Federal
Bankruptcy Code, as amended. Pledgor hereby consents to the immediate lifting
of any such automatic stay, and will not contest any motion by Secured Party to
lift such stay. Pledgor expressly acknowledges that the security for the Debt
is not now and will never be necessary to any plan of reorganization of any
type.
ARTICLE 8.
Additional Agreements
8.1 Secured Party may waive any default without waiving any other
prior or subsequent default. Secured Party may remedy any default without
waiving the default remedied. The failure by Secured Party to exercise any
right, power or remedy upon any default shall not be construed as a waiver of
such default or as a waiver of the right to exercise any such right, power or
remedy at a later date. No single or partial exercise by Secured Party of any
right, power or remedy hereunder shall exhaust the same or shall preclude any
other or further exercise thereof, and every such right, power or remedy
hereunder may be exercised at any time and from time to time. No modification
or waiver of any provision hereof nor consent to any departure by Pledgor
therefrom shall in any event be effective unless the same shall be in writing
and signed by Secured Party and then such waiver or consent shall be effective
only in the specific instances, for the purpose for which given and to the
extent therein specified. No notice to nor demand on Pledgor in any case shall
of itself entitle Pledgor to any other or further notice or demand in similar
or other circumstances. Acceptance by Secured Party of any payment in an
amount less than the amount then due on the Debt shall be deemed an acceptance
on account only and shall not in any way affect the existence of a default
hereunder.
8.2 Secured Party may at any time and from time to time in writing
(a) waive compliance by Pledgor with any covenant herein made by Pledgor to the
extent and in the manner specified in such writing; (b) consent to Pledgor's
doing any act which hereunder Pledgor is prohibited from doing, or consent to
Pledgor's failing to do any act which hereunder Pledgor is required to do, to
the extent and in the manner specified in such writing; (c) release any part of
the Collateral, or any interest therein, from the security interest of this
Agreement; or (d) release any party liable, either directly or indirectly, for
the Debt or for any covenant herein or in any other instrument now or hereafter
securing the payment of the Debt, without impairing or releasing the liability
of
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<PAGE> 15
any other party. No such act shall in any way impair the rights of Secured
Party hereunder except to the extent specifically agreed to by Secured Party in
such writing.
8.3 Secured Party shall not be required to take any steps
necessary to preserve any rights against prior parties to any of the
Collateral.
8.4 The security interest and other rights of Secured Party
hereunder shall not be impaired by any indulgence, moratorium or release
granted by Secured Party, including but not limited to (a) any renewal,
extension or modification which Secured Party may grant with respect to the
Debt, (b) any surrender, compromise, release, renewal, extension, exchange or
substitution which Secured Party may grant in respect of any item of the
Collateral, or any part thereof or any interest therein, or (c) any release or
indulgence granted to any endorser, guarantor or surety of the Debt.
8.5 A carbon, photographic or other reproduction of this Agreement
or of any financing statement relating to this Agreement shall be sufficient as
a financing statement.
8.6 Pledgor will cause all financing statements and continuation
statements relating hereto to be recorded, filed, re-recorded and refiled in
such manner and in such places as Secured Party shall reasonably request and
will pay all such recording, filing, re-recording, and refiling taxes, fees and
other charges.
8.7 In the event the ownership of the Collateral or any part
thereof becomes vested in a person other than Pledgor, Secured Party may,
without notice to Pledgor, deal with such successor or successors in interest
with reference to this Agreement and to the Debt in the same manner as with
Pledgor, without in any way vitiating or discharging Pledgor's liability
hereunder or upon the Debt. No sale of the Collateral, and no forbearance on
the part of Secured Party and no extension of the time for the payment of the
Debt given by Secured Party shall operate to release, discharge, modify, change
or affect, in whole or in part, the liability of Pledgor hereunder for the
payment of the Debt or the liability of any other person hereunder for the
payment of the Debt, except as agreed to in writing by Secured Party.
8.8 Any other or additional security taken for the payment of any
of the Debt shall not in any manner affect the security given by this
Agreement.
8.9 To the extent that proceeds of the Debt are used to pay
indebtedness secured by any outstanding lien, security interest, charge or
prior encumbrance against the Collateral, such proceeds have been advanced by
Secured Party at Pledgor's request and Secured Party shall be subrogated to any
and all rights, security interests and liens owned by any owner or holder of
such outstanding liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests, charges or encumbrances
are released.
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<PAGE> 16
8.10 If any part of the Debt cannot be lawfully secured by this
Agreement, or if the lien, assignments and security interests of this Agreement
cannot be lawfully enforced to pay any part of the Debt, then and in either
such event, at the option of Secured Party, all payments on the Debt shall be
deemed to have been first applied against that part of the Debt.
8.11 This Agreement shall not be changed orally but shall be
changed only by agreement in writing signed by Pledgor and Secured Party. No
course of dealing between the parties, no usage of trade and no parole or
extrinsic evidence of any nature shall be used to supplement or modify any of
the terms or provisions of this Agreement.
8.12 This Agreement shall be binding upon Pledgor, and the heirs,
devisees, executors, administrators, personal representatives, trustees,
beneficiaries, conservators, receivers, successors and assigns of Pledgor,
including all successors in interest of Pledgor in and to all or any part of
the Collateral, and shall benefit Secured Party and its successors and assigns.
8.13 If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this Agreement shall not be
affected thereby, and this Agreement shall be liberally construed so as to
carry out the intent of the parties to it. Each waiver in this Agreement is
subject to the overriding and controlling rule that it shall be effective only
if and to the extent that (a) it is not prohibited by applicable law and (b)
applicable law neither provides for nor allows any material sanctions to be
imposed against Secured Party for having bargained for and obtained it.
8.14 Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of any of the Collateral in its possession
if it takes such action for that purpose as Pledgor requests in writing, but
failure of Secured Party to comply with such request shall not of itself be
deemed a failure to have exercised reasonable care, and no failure of Secured
Party to take any action so requested by Pledgor shall be deemed a failure to
exercise reasonable care in the custody or preservation of such Collateral.
Secured Party shall not be responsible in any way for any depreciation in the
value of the Collateral, nor shall any duty or responsibility whatsoever rest
upon Secured Party to take any steps to preserve rights against prior parties
or to enforce collection of the Collateral by legal proceedings or otherwise,
the sole duty of Secured Party, its successors and assigns, being to receive
collections, remittances and payments on such Collateral as and when made and
received by Secured Party and, at Secured Party's option, to apply the amount
or amounts so received, after deduction of any collection costs incurred, as
payment upon any of the Debt or to hold the same for the account and order of
Pledgor
8.15 In the event Pledgor instructs Secured Party, in writing or
orally, to deliver any or all of the Collateral to a third person, and Secured
Party agrees to do so, the following conditions shall be conclusively deemed to
be a part of Secured Party's agreement, whether or not they are specifically
mentioned to Pledgor at the time of such
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<PAGE> 17
agreement: (i) Secured Party shall assume no responsibility for checking the
genuineness or authenticity of any person purporting to be a messenger,
employee or representative of such third person to whom Pledgor has directed
Secured Party to deliver the Collateral, or the genuineness or authenticity of
any document of instructions delivered by such person; (ii) Pledgor will be
considered by requesting any such delivery to have assumed all risk of loss as
to the Collateral; (iii) Secured Party's sole responsibility will be to deliver
the Collateral to the person purporting to be such third person described by
Pledgor, or a messenger, employee or representative thereof; and (iv) Secured
Party and Pledgor hereby expressly agree that the foregoing actions by Secured
Party shall constitute reasonable care.
8.16 The pronouns used in this Agreement are in the masculine and
neuter genders but shall be construed as feminine, masculine or neuter as
occasion may require. "Secured Party," "Obligor" and "Pledgor" as used in this
Agreement include the heirs, devisees, executors, administrators, personal
representatives, trustees, beneficiaries, conservators, receivers, successors
and assigns of those parties.
8.17 The section headings appearing in this Agreement have been
inserted for convenience only and shall be given no substantive meaning or
significance whatever in construing the terms and provisions of this Agreement.
Terms used in this Agreement which are defined in the Texas Uniform Commercial
Code are used with the meanings as therein defined. Wherever the term
"including" or a similar term is used in this Agreement, it shall be read as if
it were written "including by way of example only and without in any way
limiting the generality of the clause or concept referred to."
8.18 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES
OF AMERICA FROM TIME TO TIME IN EFFECT.
8.19 Pledgor agrees that, if at any time all or any part of any
payment previously applied by Secured Party to the Debt is or must be returned
by Secured Party--or recovered from Secured Party--for any reason (including
the order of any bankruptcy court), this Agreement shall automatically be
reinstated to the same effect, as if the prior application had not been made,
and, in addition, Pledgor hereby agrees to indemnify Secured Party against, and
to save and hold Secured Party harmless from any required return by Secured
Party--or recovery from Secured Party--of any such payments because of its
being deemed preferential under applicable bankruptcy, receivership or
insolvency laws, or for any other reason.
8.20 This Agreement and the other Credit Documents embody the
entire agreement and understanding between Secured Party and Pledgor with
respect to their subject matter and supersede all prior conflicting or
inconsistent agreements, consents and understandings relating to such subject
matter. Pledgor acknowledges and agrees there is no oral agreement between
Pledgor and Secured Party which has not been incorporated in this Agreement and
the other Credit Documents.
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<PAGE> 18
8.21 Secured Party is hereby authorized at any time and from time
to time, without notice to any person or entity (and Pledgor hereby WAIVES any
such notice) to the fullest extent permitted by law, to set-off and apply any
and all monies, securities and other properties of Pledgor now or in the future
in the possession, custody or control of Secured Party, or on deposit with or
otherwise owed to Pledgor by Secured Party--including all such monies,
securities and other properties held in general, special, time, demand,
provisional or final accounts or for safekeeping or as collateral or otherwise
(but excluding those accounts clearly designated as escrow or trust accounts
held by Pledgor for others unaffiliated with Pledgor) --against any and all of
Pledgor's obligations to Secured Party now or hereafter existing under this
Agreement or any of the Credit Documents, irrespective of whether Secured Party
shall have made any demand hereunder or thereunder. Secured Party agrees to
use reasonable efforts to promptly notify Pledgor after any such set-off and
application, provided that failure to give--or delay in giving--any such notice
shall not affect the validity of such set-off and application or impose any
liability on Secured Party. Secured Party's rights under this Section are in
addition to other rights and remedies (including other rights of set-off) which
Secured Party may have.
8.22 Pledgor agrees that it shall never be entitled to be
subrogated to any of Secured Party's rights against any Obligor or any other
person or entity or any collateral or offset rights held by Secured Party for
payment of the Debt until final termination of this Agreement.
EXECUTED as of the day of November, 1996.
KBK FINANCIAL, INC. D/B/A
PII/KBK ACCEPTANCE
CORPORATION, a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
"Secured Party"
PONDER INDUSTRIES, INC., a Delaware
corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
"Pledgor"
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<PAGE> 1
EXHIBIT 10.4
REVOLVING ACCOUNT TRANSFER
AND PURCHASE AGREEMENT
(BATCH)
THIS REVOLVING ACCOUNT TRANSFER AND PURCHASE AGREEMENT (Batch) (this
"Agreement") dated as of December 24, 1996 is entered into by and between
PONDER INDUSTRIES, INC., a Delaware corporation ( "Seller") and KBK FINANCIAL,
INC., a Delaware corporation doing business as PII/KBK Acceptance Corporation
("KBK"). In consideration of the mutual covenants and agreements contained
herein, Seller and KBK hereby agree as follows:
SECTION 1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. The following definitions shall apply throughout this
Agreement:
"ACCOUNT PAYMENT" means that portion of the purchase price paid by KBK
to Seller from time to time for the Accounts purchased hereunder.
"ACCOUNT PAYMENT BASE" means an amount equal to 80% of Eligible
Accounts, as determined by KBK from time to time in its sole and
absolute discretion.
"ACCOUNT(S)" means the right of the Seller to payment for goods sold
or leased or for services rendered which is not evidenced by a
promissory note, together with anything else defined as an "account"
in the UCC, whether now existing or hereafter created or arising.
Accounts may also include chattel paper satisfactory to KBK in its
sole discretion.
"ACCOUNT DEBTOR" means the person or entity which is obligated on an
Account.
"AFFILIATE" means with respect to any person or entity in question,
any other person or entity owned or controlled by, or which owns or
controls or is under common control or is otherwise affiliated with
such person or entity in question.
"AVAILABILITY POOL" means, at the time of determination thereof, the
maximum amount available for an Account Payment to Seller, as
determined in accordance with the Availability Certificate.
"AVAILABILITY CERTIFICATE" means a certificate in the form of Exhibit
A attached hereto duly executed by an authorized officer of Seller.
"BASE RATE" means the per annum variable rate (based on a 360 day year
and actual days elapsed) established from time to time by KBK without
notice to Seller as its Base Rate for purposes of calculating variable
discounts under KBK's account transfer agreements.
"BATCH BALANCE" means, at the time of determination thereof, (i) the
sum of all Account Payments paid by KBK to Seller, plus all fees,
expenses and Discounts owing by Seller hereunder which are deducted
from the Availability Pool from time to time, less (ii) the amount of
all payments and collections received by KBK on the Accounts purchased
hereunder.
"BILL OF SALE" means the Bill of Sale in the form attached hereto as
Exhibit A-1 duly executed by an authorized officer of Seller.
"COLLATERAL" has the meaning given it in Section 8.1 hereof.
"COLLECTION REPORT" means a report that provides the daily collection
activity detailed by transaction which is in form and detail
satisfactory to KBK, such detail to include the customer's name,
payment date, invoice number and amount of payment for each
transaction.
"CONCENTRATION LIMIT" means the maximum amount of Accounts owing by
any single Account Debtor that may qualify as Eligible Accounts. In
no event shall the Concentration Limit for any Account Debtor exceed
five percent (5%) of Eligible Accounts.
"DEBIT ACCOUNT" means Account No. 1824132698 that Seller has with
BancOne Texas, N.A., Houston, Texas, over which KBK shall have
express written authority to debit pursuant to the terms of the
Agreement.
"DEFAULT RATE" means a per annum rate of interest (based on a 360 day
year and actual days elapsed) equal to the maximum rate permitted by
applicable law with respect to commercial loans.
"DISCOUNT" has the meaning given it in Section 4.1 hereof.
"DISCOUNT RATE" means a variable discount rate equal to the Base Rate
in effect on such day, plus (subject to adjustment as provided in
Section 4.1 and Schedule 4.1 hereof) five and one-half percent (5.50%)
per annum; provided, however, in no event shall the Discount Rate be
less than seven percent (7%) per annum and upon the occurrence of an
Event of Default, the Discount Rate shall automatically be eighteen
percent (18%) per annum. If the Base Rate changes after the date
hereof, the Discount Rate shall be automatically increased or
decreased, as the case may be, without notice to the Seller from time
to time as of the effective time of each change in the Base Rate.
<PAGE> 2
"DISPUTED ACCOUNTS" has the meaning given it in Section 9.5.
"ELIGIBLE ACCOUNTS" means, at the time of determination thereof, all
Accounts (including, for purposes of this Agreement, chattel paper
deemed satisfactory for purchase by KBK in its sole discretion)
purchased hereunder except the following: (i) any Account which by its
terms is payable more than thirty (30) days from the invoice date,
(ii) any Account which has been outstanding for more than ninety (90)
days from the invoice date, (iii) to the extent that the aggregate
outstanding amount owed by any single Account Debtor exceeds the
Concentration Limit, any amount in excess of the Concentration Limit
owed by such Account Debtor, (iv) any Account that is owed by an
Account Debtor which is an Affiliate of the Seller or an officer or
employee of the Seller, (v) any Account that arises out of a sale
made, goods shipped or services performed outside of the United States
or that is owed by an Account Debtor located outside the United States
(but KBK may, in its sole and absolute discretion, grant written
consent to Seller to include within Eligible Accounts some or all of
the Accounts owed to Seller by certain Account Debtors located outside
the United States), (vi) any Account that is owed by an Account Debtor
which is a creditor or supplier of the Seller, (vii) any Account that
is owed by an Account Debtor which has asserted any defense or offset
or which has contested any liability with respect to such Account,
(viii) any Account owed by an Account Debtor if more than 5% (in
dollar amount) of such Account Debtor's Accounts are ninety (90) days
or more past due, (ix) any Account the Account Debtor of which is the
United States or any department, agency or instrumentality thereof,
unless the right to payment under such Account is assigned to KBK in
full compliance with the Assignment of Claims Act of 1940, as amended
(31 U.S.C. 3727), (x) any Account the Account Debtor of which is any
state or any department, agency or subdivision thereof unless the
right to payment under such Account is assigned to KBK in full
compliance with such state's laws pertaining to the assignment of
claims, if any, (xi) any Account with respect to which Seller has
furnished a payment and/or performance bond and that portion of any
Account representing retainage, (xii) any Account owing by an Account
Debtor for which there has been instituted a proceeding in bankruptcy
or a reorganization under the United States Bankruptcy Code or other
law, whether state or federal, now or hereafter existing for the
relief of debtors, (xiii) any Account with respect to which goods are
placed on consignment or other terms by reason of which payment by the
Account Debtor may be conditioned, and (xiv) any Account (or portion
of an Account) which, KBK may designate from time to time, in its
reasonable discretion, for exclusion from Eligible Accounts. In
addition to the foregoing, (1) an Account shall not be deemed an
Eligible Account unless each of the representations and warranties set
forth in Section 7 of this Agreement are true and correct (and remain
true and correct at all times) with respect to such Account, and (2)
for purposes of determining the amount of an Account, all discounts,
allowances, credits and adjustments relating to such Account,
calculated on the basis of the shortest payment period provided with
respect to the related invoice, shall be deducted from the gross face
amount payable pursuant to such invoice.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, rules, orders, licenses,
agreements or other governmental restrictions relating to the
environment or to emissions, discharges or releases of pollutants or
industrial, toxic or hazardous substances into the environment, or
otherwise relating to the manufacture, processing, treatment,
transport or handling of pollutants or industrial, toxic or hazardous
substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA PLAN" means any pension benefit plan subject to Title IV of
ERISA maintained by the Seller or any Affiliate thereof with respect
to which the Seller or any Affiliate has a fixed or contingent
liability.
"EVENT OF DEFAULT" has the meaning given it in Section 12.
"FACILITY AMOUNT" means the amount of $4,000,000.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting
Standards Board (or any generally recognized successor), consistently
applied throughout the period involved.
"INDEMNIFIED CLAIMS" means any and all claims, demands, actions,
causes of action, judgments, suits, liabilities, obligations, losses,
damages and consequential damages, penalties, fines, costs, fees,
expenses and disbursements (including without limitation, fees and
expenses of attorneys and other professional consultants and experts
in connection with any investigation or defense) of every kind or
nature, known or unknown, existing or hereafter arising, foreseeable
or unforeseeable, which may be imposed upon, threatened or asserted
against or incurred or paid by any Indemnified Person at any time and
from time to time, because of or resulting from, in connection with or
in any way relating to or arising out of the purchase of any Account
hereunder or any other transaction, act, omission, event or
circumstance in any way connected with or contemplated by this
Agreement or the other Purchase Documents or any action taken or
omitted by any such Indemnified Person under or in connection with any
of the foregoing (including, but not limited to any investigation,
litigation, proceeding, enforcement of KBK's rights, or defense of
KBK's actions related to or arising out of this Agreement, the other
Purchase Documents, or the Account Payments or the use of the proceeds
thereof), whether or not any Indemnified Person is a party thereto.
"INDEMNIFIED PERSONS" shall collectively mean KBK and its officers,
directors, shareholders, employees, attorneys, representatives,
agents, Affiliates, successors and assigns.
"INVENTORY" means all goods, now owned or hereafter acquired by the
Seller and wherever located, which are held for sale or lease or are
to be furnished under any contract of service (including, but not
limited to raw materials, work in process, finished goods and
materials used or consumed in the manufacture or production
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<PAGE> 3
thereof, goods in which the Seller has an interest in mass or a joint
or other interest or rights of any kind, and goods which have been
returned to or repossessed or stopped in transit by the Seller) and
anything else defined as "inventory" in the UCC. Without limitation
of the foregoing, Inventory shall include Seller's (i) revenue
producing tools, (ii) components, subassemblies, and expendable
(replacement) parts of or for revenue producing tools, (iii) revenue
producing tools in production, and (iv) raw materials used to build
the assets described in the foregoing clauses (i), (ii) and (iii).
"INVOICES AND RELATED DATA" has the meaning given it in Section 6.5.
"LOAN AGREEMENT" means that certain Loan Agreement dated as of
November 27, 1996 by and between Seller, as borrower, and KBK, as
lender.
"LOAN DOCUMENTS" means the Loan Agreement and all promissory notes,
security agreements, pledge agreements, documents, instruments,
guarantees, certificates and agreements executed and/or delivered by
Seller, as borrower, any guarantor or third party in favor of KBK in
connection with the Loan Agreement.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or
condition (financial or otherwise) of Seller and its Subsidiaries
taken as a whole, or Seller, or the Guarantor; (b) a material
impairment of the ability of Seller or the Guarantor to perform under
any Purchase Document or Loan Document to which it is a party; or (c)
a material adverse effect upon the legality, validity, binding effect
or enforceability against Seller or the Guarantor of any Purchase
Document or Loan Document to which it is a party.
"OBLIGATIONS" means all indebtedness, obligations and liabilities
owing by Seller to KBK arising under this Agreement and the other
Purchase Documents, and all other indebtedness, obligations and
liabilities owing by Seller to KBK, whether presently existing or
hereafter arising, direct or indirect, primary or secondary, joint,
several, or joint and several, fixed or contingent, and whether
originally payable to KBK or to a third party and subsequently
acquired by KBK (including, without limitation, all indebtedness,
obligations and liabilities of Seller to KBK arising by promissory
note, discount, indemnity, guaranty, letter of credit or as
established by law or by a court of competent jurisdiction).
"PURCHASE DOCUMENTS" means this Agreement and the documents,
agreements and instruments required by KBK to be executed and
delivered in connection herewith (including, without limitation, all
other documents, agreements and instruments evidencing, securing,
governing, guaranteeing and/or pertaining to the Obligations owing
hereunder).
"REMITTANCE ADDRESS" means P.O. Box 297-895, Houston, Texas 77297.
"RESERVE" has the meaning given it in Section 5.1.
"SALES JOURNAL" means a report that will provide the daily sales
activity of Seller detailed by transaction which is in form and detail
satisfactory to KBK, such detail to include the customer's name, date
of sale, invoice number and sales amount for each transaction.
"SUBSIDIARY" means any corporation of which more than 50 percent of
the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or
indirectly, by a Person and, or, one or more of its Subsidiaries.
"TERM" has the meaning given it in Section 14.4.
"TERMINATION EVENT" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) of
ERISA or (ii) any other reportable event described in Section 4043 of
ERISA other than a reportable event not subject to the provision for
30-day notice to the Pension Benefit Guaranty Corporation pursuant to
a waiver by such corporation under Section 4043(a) of ERISA, (b) the
withdrawal of the Seller or any Affiliate of the Seller from any ERISA
Plan during a plan year in which it was a 'substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (c) any event or condition
which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
ERISA Plan.
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas.
1.2 CONSTRUCTION. Terms defined in the UCC which are used and not
otherwise defined herein shall have the meanings given them in the
UCC. The terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all
renewals, extensions and modifications of such agreement, instrument
or document. All addenda, exhibits and schedules attached to this
Agreement are a part hereof for all purposes. Words in the singular
form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
1.3 CALCULATIONS AND DETERMINATIONS. The Batch Balance shall be increased
by the amount of each Account Payment from the date each such payment
is made by KBK to Seller and shall be decreased within three business
days after KBK receives, in collected and immediately available funds,
proceeds of collection of Accounts. Unless otherwise expressly
provided herein or unless KBK otherwise consents, all financial
statements and reports furnished to KBK hereunder shall be prepared
and all financial computations and determinations pursuant hereto
shall be made in accordance with GAAP.
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SECTION 2. PURCHASES OF ACCOUNTS AND ACCOUNT PAYMENTS
2.1 ACCOUNT PAYMENTS. Subject to the terms of this Agreement, Seller
agrees to offer for sale from time to time and KBK agrees to purchase
all Accounts of Seller. It is the intention of the parties hereto
that all Accounts sold to KBK from time to time hereunder will be
considered and sold as one account or batch. The Account Payment paid
to Seller at any time hereunder shall be an amount up to the
Availability Pool at such time, as requested by Seller on the most
recent Availability Certificate delivered to KBK.
2.2 PURCHASE PRICE. The purchase price for Accounts which are Eligible
Accounts at the time of their sale to KBK is the amount of increase in
the Availability Pool on the date of, and as a result of, such sales,
plus the amount of increase in the Availability Pool when such
Accounts are collected, less the respective Discount. The
consideration provided by KBK to Seller for the purchase of any
Accounts which are not Eligible Accounts at the time of their sale to
KBK is the contingent increase in, and the amount of any increase in,
the Availability Pool if and when such Accounts are collected, less
the respective Discount; provided, however, if any such Accounts
become Eligible Accounts after their sale to KBK, the consideration
for the purchase of such Accounts shall also include the amount of
increase in the Availability Pool resulting from such Accounts
becoming Eligible Accounts.
2.3 NOTICE OF SALES. In connection with the initial sale of Accounts
hereunder, Seller shall deliver to KBK a signed and completed
Availability Certificate and a Bill of Sale which has a detailed aging
of Accounts attached thereto, all in form and detail satisfactory to
KBK. The Seller must give prior written notice to KBK of any
subsequent sales of Accounts by delivering to KBK a properly completed
Availability Certificate, together with (i) the Seller's Sales Journal
listing each Account originated or generated since the date of the
previous Availability Certificate, (ii) the Seller's Collection
Report listing all collections received on Accounts since the date of
the previous Availability Certificate, and (iii) the Seller's
Debit/Credit memo journal listing all returns, deductions and disputes
on Accounts since the date of the previous Availability Certificate.
2.4 VERIFICATION. Promptly after receiving each Availability Certificate
and other reports required by Section 2.3, KBK shall, based upon such
Availability Certificate and such other information provided or
otherwise available to KBK, verify and, if necessary, redetermine the
Availability Pool, which verification or redetermination, as the case
may be, shall take effect immediately and remain in effect until the
next such verification or redetermination. If all conditions
precedent to the sale of Accounts and the Account Payment requested by
such Availability Certificate have been met, then KBK will on the date
specified in such request purchase the subject Accounts and pay the
appropriate Account Payment to Seller by wire or ACH transfer to the
Debit Account or such other account of Seller as may hereafter be
designated in writing by Seller. KBK's acceptance of the Accounts
offered for sale by Seller from time to time hereunder shall be
evidenced by KBK adjusting the Availability Pool as a result of the
purchase of such Accounts. In the event KBK does not receive an
appropriately completed Availability Certificate and the other reports
required by Section 2.3, KBK shall have no obligation to verify the
Availability Pool, purchase any further Accounts or pay any additional
Account Payments until such time as KBK shall have received such
information.
2.5 SALE OF ACCOUNTS. Seller hereby sells, transfers, assigns and
otherwise conveys to KBK (as a sale by Seller and a purchase by KBK,
and not as security for any of the Obligations) all right, title, and
interest of Seller in and to the Accounts, together with all related
rights (but not obligations) of Seller with respect thereto, including
all contract rights, guarantees, letters of credit, liens in favor of
Seller, collateral, insurance and other agreements and arrangements of
whatever character from time to time supporting or securing payment of
such Accounts, all of the Invoices and Related Data (as defined in
Section 6.5 hereof) with respect to such Accounts and all right, title
and interest of Seller in any related goods, including Seller's rights
and remedies under Article 2, Part 7 of the UCC. The foregoing sale,
transfer, assignment and conveyance does not constitute and is not
intended to result in an assumption by KBK of any obligation of Seller
or any other person in connection with the Accounts or related rights
or under any agreement or instrument relating thereto. Seller agrees
to execute and deliver such bills of sale, assignments, letters of
credit, notices of assignment, financing statements (including
continuation statements) under the UCC and other documents, and make
such entries and markings in its books and records, and to take all
such other actions (including the negotiation, assignment or transfer
of negotiable documents, letters of credit or other instruments) as
KBK may request to further evidence or protect the sales and
assignments of Accounts and related rights to KBK hereunder, as well
as KBK's interest in any returned goods.
2.6 EXCESS BATCH BALANCE. The Batch Balance shall not at any time exceed
the lesser of (i) the Account Payment Base, and (ii) the Facility
Amount. If for any reason the Batch Balance should ever exceed the
Account Payment Base or the Facility Amount, whichever is less, Seller
shall immediately remit to KBK, in immediately available funds, an
amount equal to such excess, to be held by KBK as a Reserve pursuant
to the provisions of Section 5 hereof.
SECTION 3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE. KBK's obligation hereunder
to purchase any Accounts or pay any Account Payment for the purchase
of any such Accounts (including the first purchase) under the terms
and conditions of this Agreement shall be subject to the conditions
precedent that as of the date of any such purchase or payment and
after giving effect thereto: (i) KBK has received this Agreement and
all other Purchase Documents which have all been appropriately
executed by Seller and all other proper parties, (ii) all
representations and warranties made in this Agreement and the other
Purchase Documents are true on and as of the date of such Account
Payment (except to the extent that the facts upon which such
representations and warranties are based have been changed by the
transactions contemplated in this Agreement) as if such
representations and warranties had been made as of the date of such
purchase of Accounts and Account Payment, (iii) Seller has performed
and complied with all agreements and conditions required in the
Purchase Documents to be performed or complied with by it on or prior
to the date of such purchase of Accounts and
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Account Payment, (iv) no Event of Default, or an event with which the
passage of time or the giving of notice, or both, shall become an
Event of Default, has occurred hereunder or under any of the other
Purchase Documents, (v) the most recent financial statements of Seller
supplied to KBK show no Material Adverse Effect, (vi) such purchase of
Accounts or Account Payment shall not be prohibited by any law or any
regulation or any order of any court or governmental agency or
authority, and (vii) all fees and expenses owing by Seller to KBK
hereunder have been paid.
SECTION 4. DISCOUNTS, FEES, EXPENSES AND TAXES
4.1 DISCOUNTS. The purchase price for the Accounts will be reduced by a
discount (the "Discount). The Discount will be computed on a daily
basis by multiplying the Batch Balance (provided that the Batch
Balance is greater than $0) by the Discount Rate in effect from day to
day. Seller hereby authorizes KBK, in KBK's sole discretion, to make
the adjustment to the purchase price of the Accounts from time to time
(but not less frequently than monthly) which is attributable to the
Discount by (i) reducing the Availability Pool, (ii) deducting the
Discount from any Account Payment, (iii) debiting the Debit Account,
or (iv) using any combination of the foregoing. KBK shall use
reasonable efforts to notify Seller of the amount of each debit and
the application thereof to the Obligations, but KBK shall not have any
liability to Seller for failure to give any such notice. Once each
fiscal year during the term of this Agreement, the portion of the
Discount Rate in excess of the Base Rate (the "fixed portion") may be
increased or decreased on the terms and conditions set forth below.
The fixed portion of the Discount Rate may be decreased upon request
by Seller made within 60 days after receipt by KBK of Seller's annual
audited financial statements if Seller satisfies the conditions for a
decrease in the fixed portion of the Discount Rate set forth in the
Tiered Pricing Schedule attached hereto as Schedule 4.1. The fixed
portion of the Discount Rate may be increased by KBK within 60 days
after receipt by KBK of Seller's annual audited financial statements
if the conditions set forth in the Tiered Pricing Schedule for an
increase in the fixed portion of the Discount Rate are found to exist.
All such changes to the fixed portion of the Discount Rate shall be
effective as of the first day of the month following the month in
which Seller's request for a decrease is received, with respect to a
decrease in the fixed portion of the Discount Rate, or the first day
of the month following the month in which Seller's annual audited
financial statements are received, with respect to an increase in the
fixed portion of the Discount Rate. Following any such increase or
decrease in the fixed portion of the Discount Rate, the fixed portion
of the Discount Rate shall not be adjusted prior to receipt of
Seller's annual audited financial statements for the succeeding fiscal
year. Notwithstanding the foregoing, the portion of the Discount Rate
consisting of the Base Rate shall vary as provided herein.
4.2 COMMITMENT FEE. Seller shall pay to KBK a commitment fee in the
amount of one percent (1%) of the Facility Amount concurrently with
the execution hereof. Seller hereby authorizes KBK, in KBK's sole
discretion, to deduct the commitment fee from the first Account
Payment. The portion of any up-front deposit delivered to KBK by the
Seller which is in excess of KBK's costs, legal fees and expenses may,
at KBK's option, be applied by KBK to the payment of the commitment
fee. Seller and KBK acknowledge and agree that the commitment fee is
reasonable compensation to KBK for making the facility available under
the terms of this Agreement and for no other purpose.
4.3 This Section has been intentionally omitted.
4.4 ATTORNEYS' FEES. Seller agrees to pay or reimburse KBK upon demand for
all reasonable attorneys' fees, court costs and other expenses
incurred by KBK (whether or not litigation is commenced or judgment
issued, and if litigation is commenced whether at trial or any
appellate level) in preparation, negotiation, and enforcement of this
Agreement and protecting or enforcing its ownership interest in the
Accounts or its security interest in the Collateral, in collecting the
Accounts, or in the representation of KBK in connection with any
bankruptcy case or insolvency proceeding involving Seller, the
Collateral or any Account Debtor. Seller hereby authorizes KBK, in
KBK's sole discretion, to collect such fees, costs and expenses (i) by
reducing the Availability Pool, (ii) by deducting such amounts from
any Account Payment(s), (iii) by debiting the Debit Account, or (iv)
by using any combination of the foregoing. This authorization shall
not affect Seller's obligation to pay such sums when due. KBK shall
use reasonable efforts to notify Seller of the amount of each debit
and the application thereof to the Obligations, but KBK shall not have
any liability to Seller for failure to give any such notice.
4.5 EXPENSES. KBK shall be entitled to reimbursement upon demand for all
out of pocket expenses incurred by KBK in the course of performing its
functions with respect to this Agreement, including without
limitation, the following: lock box charges, long-distance telephone
charges, postage, credit reports, wire transfers, check copying
charges, overnight mail delivery, UCC and tax lien searches and filing
fees. Seller hereby authorizes KBK, in KBK's sole discretion, to
collect such expenses (i) by reducing the Availability Pool, (ii) by
deducting such amounts from any Account Payment(s), (iii) by debiting
the Debit Account, or (iv) by using any combination of the foregoing.
This authorization shall not affect Seller's obligation to pay such
sums when due. KBK shall use reasonable efforts to notify Seller of
the amount of each debit and the application thereof to the
Obligations, but KBK shall not have any liability to Seller for
failure to give any such notice.
4.6 DEFAULT RATE. All past due amounts owed by Seller to KBK hereunder,
including but not limited to past due fees and expenses, shall bear
interest at the Default Rate and shall be payable on demand, and may,
in KBK's sole discretion, be collected by (i) reducing the
Availability Pool, (ii) deducting such amounts from Account
Payment(s), (iii) debiting the Debit Account, or (iv) using any
combination of the foregoing. Upon the occurrence of an Event of
Default, all Obligations shall bear interest at the Default Rate. This
authorization shall not affect Seller's obligation to pay such sums
when due. KBK shall use reasonable efforts to notify Seller of the
amount of each debit and the application thereof to the Obligations,
but KBK shall not have any liability to Seller for failure to give any
such notice.
4.7 TAXES. All taxes and governmental charges of any kind imposed with
respect to the sale of goods or rendering of services relating to the
Accounts shall remain for the account of, and be paid by, Seller.
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SECTION 5. RESERVE
5.1 ESTABLISHMENT OF RESERVE. At any time after the occurrence of an
Event of Default (as defined in Section 12 hereof), KBK may, at its
election, withhold and accumulate all or any portion of any Account
Payment to maintain a reserve ("Reserve") or reduce the Availability
Pool, in an amount that KBK, in its sole and absolute discretion,
deems necessary to collect any Obligations which may become due by
Seller to KBK. Funds may also be remitted to KBK as a Reserve
pursuant to Section 2.6 hereof.
5.2 OFFSET AGAINST RESERVE. Seller hereby authorizes KBK to offset,
without prior notice to Seller, and charge against the Reserve any and
all Obligations which Seller may owe to KBK.
5.3 DISTRIBUTION OF THE RESERVE. To the extent the conditions or
insecurity for which KBK established the Reserve or decreased the
Availability Pool, as the case may be, no longer exist, KBK will
increase the Availability Pool by the amount of the Reserve and/or by
the amount it previously decreased the Availability Pool.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants, and upon each delivery to KBK of an
Availability Certificate further represents and warrants as of the date of
delivery of the Availability Certificate, to KBK as follows:
6.1. EXISTENCE. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation
and is qualified and authorized to do business and is in good standing
in all states in which such qualification and good standing are
necessary. Seller has all requisite power and authority to execute
this Agreement and deliver the other Purchase Documents to which
Seller is a party.
6.2 NO VIOLATION OF LAW. The execution, delivery and performance by
Seller of this Agreement and the other Purchase Documents to which
Seller is a party do not and will not constitute a violation of any
applicable law or of Seller's articles or certificate of incorporation
or Bylaws or any material breach of any other document, agreement or
instrument to which Seller is a party or by which Seller is bound.
6.3 BINDING OBLIGATIONS. The execution, delivery and performance of this
Agreement and the other Purchase Documents to which Seller is a party
have been duly authorized by all necessary corporate action by Seller
and constitute legal, valid and binding obligations of Seller
enforceable against Seller in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors' rights
and except to the extent specific remedies may generally be limited by
equitable principles.
6.4 CHIEF EXECUTIVE OFFICE. The address set forth below Seller's
signature hereon is Seller's mailing address and its chief executive
office. Seller's books and records concerning the Accounts are
maintained at 511 Commerce Drive, Alice, Texas.
6.5 POSSESSION OF INVOICES AND RELATED DATA. Seller has and will retain
possession of the following in trust for the benefit of KBK
(collectively, the "Invoices and Related Data"): (a) true and correct
copies of all invoices evidencing each Account sold to KBK hereunder;
(b) evidence of delivery of all goods or completion of all services
relating to each such Account; and (c) a current listing of all open
and unpaid Accounts sold to KBK hereunder, together with the names,
addresses, contact persons and telephone numbers of each Account
Debtor until such time as KBK picks up or, at KBK's request, Seller
delivers to KBK, the Invoices and Related Data. Although the Invoices
and Related Data are in the possession of Seller, ownership thereof is
transferred to KBK contemporaneously with the purchase of the related
Accounts.
6.6 TRUE AND CORRECT INFORMATION. All information provided by Seller to
KBK during its evaluation of the transactions anticipated by and in
connection with this Agreement, including applications, reports,
financial statements, and the statements made therein were true and
correct at the time made and remain true and correct at the time that
this Agreement is executed.
6.7 TAXES. Seller has filed all federal, state and local tax reports and
returns required by any law or regulation to be filed by it and has
either duly paid all taxes, duties and charges indicated due on the
basis of such returns and reports, or made adequate provision for the
payment thereof, and the assessment of any material amount of
additional taxes in excess of those paid and reported is not
reasonably expected. There is no tax lien notice against Seller
presently on file, judgment entered against Seller or levy on or
attachment of its property outstanding or reasonably anticipated.
6.8 FULL DISCLOSURE. There is no fact which Seller has not disclosed to
KBK in writing which could materially adversely affect the properties,
business or financial condition of Seller, the Accounts sold hereunder
or any of the Collateral, or which is necessary to be disclosed in
order to keep any of the representations and warranties contained
herein or in any other Purchase Document from being misleading.
6.9 ERISA COMPLIANCE. Seller is in compliance with ERISA concerning
Seller's ERISA Plan, if any, or is not required to contribute to any
"multi-employer plan" as defined in Section 4001 of ERISA.
6.10 COMPLIANCE WITH LAWS. Seller is conducting its business in material
compliance with all applicable laws, including but not limited to
applicable Environmental Laws and the Fair Labor Standards Act and has
and is in compliance with all licenses and permits required under any
such laws. Seller does not have any known material contingent
liability under any Environmental Law. Seller will continue to comply
in all material respects with all Environmental Laws now or hereafter
applicable to Seller and shall obtain, at or prior to the time
required by applicable Environmental Laws, all environmental, health
and safety permits, licenses and other authorizations
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necessary for its operations. Seller will promptly furnish to KBK all
written notices of violation, complaints, penalty assessments, suits
or other proceedings received by Seller with respect to any alleged
violation of or non-compliance with any Environmental Laws.
6.11 ASSUMED NAMES. Except as may be listed on Schedule 6.11 attached
hereto, the Seller does business under no trade or assumed names, has
no Subsidiaries and is not a Subsidiary of any other corporation.
SECTION 7. ACCOUNTS
Seller hereby represents and warrants to KBK with respect to each Account
offered for sale by Seller to KBK hereunder as follows:
7.1 OWNER. Seller is the sole owner of such Account, which Account is
free and clear of any liens, claims, equities and encumbrances
whatsoever, and upon the purchase by KBK of such Account, KBK will own
such Account free and clear of any liens, claims, equities and
encumbrances whatsoever and the consideration received by Seller from
KBK for such Account is fair and adequate.
7.2 AUTHORITY TO SELL. Seller is the sole obligee under such Account and
has full power and is duly authorized to sell, assign and transfer
such Account to KBK hereunder, and, except as disclosed to KBK in
writing concurrently with the sale of such Account to KBK, the date of
sale of such Account is not more than 30 days after the date of the
original invoice relating to such Account.
7.3 FULL PAYMENT EXPECTED. Seller has no knowledge of any fact which
would lead it to expect that, at the date of sale of such Account to
KBK, such Account will not be paid in the full stated amount when due,
except as disclosed to KBK in writing concurrently with the sale of
such Account to KBK.
7.4 BONA FIDE ACCOUNT. Such Account is valid and enforceable and arises
out of a bona fide sale or lease of conforming goods or the bona fide
rendition of services by Seller, and all underlying goods have been
delivered to the Account Debtor, or all underlying services have been
rendered by Seller, in complete fulfillment of all of the terms and
conditions of a fully executed, delivered and unexpired contract or
purchase order with the Account Debtor, and the Account Debtor has
accepted the goods or services to which the Account relates, except as
otherwise disclosed to KBK in writing.
7.5 PAYABLE IN U.S. DOLLARS. Such Account is denominated and payable only
in United States dollars and constitutes the legal, valid and binding
payment obligation of the Account Debtor, enforceable in accordance
with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally).
7.6 ACCOUNT IS NOT PAST DUE. Such Account is current and not past due
(except as otherwise disclosed to KBK in writing), has not been paid
by or on behalf of the Account Debtor in whole or in part, and, if it
is an Eligible Account, is not and will not be subject to any dispute,
recision, setoff, recoupment, defense or claim by the Account Debtor,
whether relating to price, quality, quantity, workmanship, delay in
delivery, setoff, counterclaim or otherwise, and, if it is an Eligible
Account, the Account Debtor has not and will not claim any defense of
any kind or character (other than bankruptcy or insolvency arising
after the date of sale of such Account to KBK hereunder) against
payment of such Account.
7.7 U.S. ACCOUNT DEBTOR. As of the date of purchase by KBK of such
Account, the Account Debtor with respect to such Account is located
(within the meaning of Section 9-103 of the UCC) and has its principal
executive offices within the United States (but KBK may, in its sole
and absolute discretion, grant written consent to Seller to include
within Eligible Accounts some or all of the Accounts owed to Seller by
certain Account Debtors located outside the United States), except as
disclosed to KBK in writing concurrently with the sale of such Account
to KBK.
7.8 REMITTANCE ADDRESS. The invoice related to such Account sets forth as
its sole address for payment the Remittance Address.
SECTION 8. COLLATERAL
8.1 GRANT OF SECURITY INTEREST.
(a) In order to secure the payment of all Obligations,
Seller hereby grants to KBK a security interest in and lien upon all
of Seller's right, title and interest in and to (a) all Accounts not
purchased hereunder and all present and future contract rights,
chattel paper, deposit accounts and general intangibles now or
hereafter owned by Seller (including, without limitation, the
Reserve), and all of Seller's right, title and interest in the goods
purchased and represented thereby including all of Seller's rights in
and to returned goods and rights of stoppage in transit, replevin and
reclamation as unpaid vendor; (b) all Inventory and all accessions
thereto and products thereof and documents therefor; (c) all books and
records pertaining to the foregoing, including but not limited to
computer programs, data, certificates, records, circulation lists,
subscriber lists, advertiser lists, supplier lists, customer lists,
customer and supplier contracts, sales orders, and purchasing records;
and (d) all proceeds of the foregoing, including without limitation,
all insurance payable by reason of loss or damage (collectively, the
"Collateral").
(b) The representations and warranties of Seller set
forth in this Agreement and the other Purchase Documents will be
guaranteed by Ponder - Delaware (sometimes referred to herein as the
"Guarantor"), such guaranty to be evidenced by a Limited Guaranty in
form and substance satisfactory to KBK.
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(c) Seller will, and will cause Ponder - Delaware and any
other U.S. Subsidiary acquiring assets pursuant to Section 9.15 hereof
to, execute, acknowledge and deliver to KBK such instruments, chattel
mortgages, security agreements, security agreement-pledges,
statements, assignments and financing statements, in form and
substance acceptable to KBK as in the good faith and discretion of
counsel for KBK may be necessary to enforce, grant to KBK and perfect
the security interests, liens, assignments and mortgages on the
Collateral. Each of Seller and KBK agrees that all Collateral now or
hereafter securing any of the Obligations hereunder also shall serve
any and all other indebtedness and liabilities now or hereafter owing
by Seller to KBK.
8.2 PERFECTION. Seller agrees to comply with all applicable laws in order
to perfect KBK's security interest in and to the Collateral, to
execute any financing statement(s) or additional documents as KBK may
require and to deliver to KBK landlord and or mortgagee lien waivers
with respect to each site where Inventory is located and which is
either leased by Seller or has been mortgaged by Seller, upon request
by KBK.
8.3 REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to KBK
as follows with respect to the Collateral:
(a) Seller has not executed any other security agreement currently
affecting the Collateral or any financing statement regarding
the Collateral (other than those in favor of KBK and Permitted
Liens (as such term is defined in the Loan Agreement)), and no
financing statement executed by Seller is now on file (other
than in favor of KBK and the holders of Permitted Liens);
(b) All Collateral is and will be owned by Seller, free and clear
of all other liens, encumbrances, security interests and
claims (except in favor of KBK and Permitted Liens), and shall
be kept at Seller's address set forth below Seller's signature
hereon and at such other addresses as may be listed in
Schedule 8.3(b) attached hereto, and Seller shall not (without
the written consent of KBK) remove the Collateral therefrom
except for the purpose of selling or leasing Inventory in the
ordinary course of business.
8.4 EXISTING SECURITY INTEREST. In the event a security interest has
heretofore been granted and given to KBK by Seller in a prior
agreement(s) or document(s) to secure certain obligations, then, in
such event, and notwithstanding anything in this Agreement to the
contrary, the lien and security interest herein granted and given to
KBK hereunder is in renewal and continuation, and not in
extinguishment of, all such prior liens and security interests and
continue to be valid and subsisting liens and security interests to
secure all prior, existing and future Obligations.
8.5 CROSS-COLLATERALIZATION; LIMITATIONS. All present and future
Collateral securing the Obligations of Seller under this Agreement and
the other Purchase Documents shall also secure all obligations of
Seller, as borrower, to KBK under the Loan Documents. Any and all
collateral heretofore or at any time hereafter granted by Seller to
KBK as security for Seller's Obligations, as borrower, under the Loan
Agreement and the other Loan Documents shall also secure all
Obligations of Seller under this Agreement and the other Purchase
Documents. All Collateral shall be subject to the rules on
preferential application of proceeds of Collateral set forth in
Section 2.H of the Loan Agreement.
SECTION 9. COVENANTS
So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, Seller agrees and covenants that, unless KBK shall otherwise
consent in writing:
9.1 SALE OF ACCOUNTS. Subject to the terms of this Agreement, Seller
will sell all Accounts to KBK hereunder concurrently with the delivery
of the Availability Certificate delivered to KBK which is due
immediately after such Accounts are created or arise.
9.2 BOOKS AND RECORDS. Seller will maintain its books and records in
accordance with GAAP, applied on a consistent basis, at its chief
executive office as set forth in Section 6.4 hereof; provided,
however, that Seller's books and records concerning the Accounts will
be maintained at Seller's Alice, Texas office.
9.3 NO OTHER LIENS. Seller will not execute any security agreement or
financing statement covering any of the Accounts purchased hereunder
or the Collateral, except in favor of KBK.
9.4 NOTICE OF FALSE REPRESENTATION. Seller agrees to notify KBK
immediately of any breach by Seller of any representation, warranty or
covenant contained herein or in the event any representation or
warranty made herein becomes false at any time.
9.5 NOTICE OF DISPUTED ACCOUNT. Seller agrees to notify KBK immediately
of the assertion by any Account Debtor of any dispute or other claim
(including any defense or offset asserted by any Account Debtor) with
respect to any Account sold to KBK hereunder, or with respect to any
related goods or services ("Disputed Accounts"). Seller agrees to
settle, at its own expense and for the benefit of KBK, all Disputed
Accounts; provided, that any such settlement shall be remitted to the
Remittance Address; and provided further, that Seller shall notify KBK
prior to settling any single Account or series of Accounts with a
single Account Debtor with an original aggregate balance in excess of
$100,000.00.
9.6 RIGHT OF INSPECTION. Seller agrees to permit KBK to visit its
properties and installations and to examine, audit and make and take
away copies or reproductions of Seller's books and records, at all
reasonable times (but subject to the limitations contained in the Loan
Agreement). Seller also agrees to pay an auditing fee of up to $2,000
per audit (inclusive of, and not cumulative of, auditing fees charged
by KBK to Seller pursuant to the Loan Agreement).
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9.7 NOTICE OF MATERIAL CHANGE/LITIGATION. Seller shall promptly notify
KBK in writing of (a) any condition, event or act which comes to its
attention that would or might cause a Material Adverse Effect, and (b)
any litigation filed by Seller against an Account Debtor or any
litigation filed against Seller, in each instance in excess of
$100,000.00.
9.8 NOTICE OF NAME OR ADDRESS CHANGE. Seller will notify KBK in writing
30 days prior to any change in (a) the name of Seller or any of the
names under which it is conducting business as specified on Schedule
6.11, (b) the address of Seller's chief executive office as described
in Section 6.4 hereof, (c) the location of the office where the
records concerning Accounts are maintained, (d) the opening of any new
place of business or location where Collateral may be kept, and (e)
the closing of any of its existing places of business or locations
described on Schedule 8.3(b). Seller agrees to execute and deliver to
KBK financing statements and such other documents as KBK may request
in order to obtain and/or maintain a perfected security interest in
the Collateral.
9.9 PROPER REPORTING. Seller agrees to properly reflect the effect of
this Agreement, and all sales of Accounts related thereto, in all
financial reports and disclosures, written or otherwise, provided to
Seller's creditors and other interested parties. Seller specifically
agrees that all Accounts purchased by KBK hereunder will be excluded
from Seller's reported accounts receivable balances.
9.10 DELIVERY OF AVAILABILITY CERTIFICATE. Seller shall deliver to KBK an
updated Availability Certificate (i) with each request for an Account
Payment, and (ii) on a weekly basis throughout the term hereof,
whether or not Seller request an Account Payment, in each instance
accompanied by the related reports described in Section 2.3 hereof.
9.11 ACCOUNTS AGING. Seller agrees to deliver to KBK within 30 days after
each month, an Accounts aging report, in form and detail satisfactory
to KBK.
9.12 FINANCIAL STATEMENTS. Seller agrees to furnish to KBK :
(a) As soon as available, but in any event within 120
days after the last day of each fiscal year of Seller, a consolidated
and consolidating statement of income and a consolidated and
consolidating statement of cash flows of Seller and its Subsidiaries
for such fiscal year, and a consolidated and consolidating balance
sheet of Seller and its Subsidiaries as of the last day of such fiscal
year, together with an auditors' report thereon (with no material
qualifications) by an independent certified public accountant, and (b)
within 45 days after the last day of each month, monthly unaudited
consolidated and consolidating statements of income and statement of
cash flows of Seller and its Subsidiaries for each month and unaudited
consolidated and consolidating balance sheets of Seller and its
Subsidiaries as of the end of each month. Seller represents and
warrants that each such statement of income and statement of cash
flows will fairly present, in all material respects, the results of
operations and cash flows of Seller and its Subsidiaries for the
period set forth therein, and that each such balance sheet will fairly
present, in all material respects, the financial condition of Seller
and its Subsidiaries as of the date set forth therein, all in
accordance with GAAP consistently applied.
(b) Within 45 days after the last day of each month, a
compliance certificate (which may be combined with the Availability
Certificate) for (and executed by an authorized representative of)
Seller concurrently with and dated as of the date of delivery of each
of the financial statements as required in paragraphs (i) and (ii)
above, containing a certification that (a) the financial statements of
even date are true and correct, and (b) the Seller is not in default
under the terms of this Agreement, any other agreement with KBK or any
other agreement for borrowed money or lease agreement with any other
party, and (c) the computations and conclusions, with respect to
compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants have been
accurately calculated in compliance with the methods detailed herein.
(c) Promptly upon their becoming available, copies of:
(a) all financial statements, reports, notices and proxy statements
sent or made available by the Seller or any of its Subsidiaries to
security holders; (b) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the Seller
or any of its Subsidiaries with any securities exchange or with the
U.S. Securities and Exchange Commission or any governmental authority;
and (c) all press releases and other statements made available by the
Seller or any of its Subsidiaries to the public concerning the
financial condition of the Seller or any of its Subsidiaries.
(d) Such additional information, reports and records
respecting the business operations and financial condition of Seller
and the Subsidiaries, respectively, from time to time, as KBK may
reasonably request, including copies of its tax returns filed with the
Internal Revenue Service and evidence of payment of related taxes.
9.13 FINANCIAL COVENANTS. Seller agrees to maintain the following
financial covenants while this Agreement remains in effect determined
in accordance with GAAP, in each instance calculated for Seller and
its Subsidiaries on a consolidated basis:
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(a) DEBT SERVICE COVERAGE RATIO. A ratio of (a) earnings before
interest, depreciation and amortization at the end of each
fiscal quarter, to (b) all principal and interest due in such
quarter on all amortizing loans, all interest due in such
quarter on all non-amortizing loans, all payments due in such
quarter on capital leases, and all Discounts due KBK hereunder
in such quarter, of not less than: 1.15 to 1.0 as of the
fiscal quarter ending August 31, 1997; 1.25 to 1.0 as of the
fiscal quarter ending November 30, 1997 and as of the end of
each fiscal quarter thereafter through the fiscal quarter
ending May 31, 1998; and 1.50 to 1.0 as of the fiscal quarter
ending August 31, 1998 and as of the end of each fiscal
quarter thereafter.
(b) TANGIBLE NET WORTH. Tangible Net Worth on a proforma basis
(i.e., add back purchased Accounts and factored balance) of
not less than $13,500,000 at all times.
9.14 TAXES AND OTHER OBLIGATIONS. Seller shall pay all of its taxes,
assessments and other obligations, including, but not limited to,
taxes, costs or other expenses arising out of this transaction, as the
same becomes due and payable, except to the extent the same are being
contested in good faith by appropriate proceedings in a diligent
manner.
9.15 LIMITATIONS ON FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS. Seller
shall not, and shall not permit any of its Subsidiaries to: (a) enter
into any merger or consolidation with or into any Person, except (i)
any Subsidiary of Seller may merge, consolidate or combine with or
into Seller (provided that Seller shall be the continuing or surviving
corporation), or with any one or more Subsidiaries of Seller (provided
that, if any such transaction shall be between (A) a Subsidiary and a
wholly owned Subsidiary, the wholly owned Subsidiary shall be the
continuing or surviving corporation and (B) a Subsidiary and an U.S.
Subsidiary, the U.S. Subsidiary shall be the continuing or surviving
corporation), and (ii) Seller may merge, consolidate or combine with
or into any other Person (provided that (A) Seller shall be the
continuing or surviving corporation, (B) no Default or Event of
Default has occurred and is continuing, and (C) no Default or Event of
Default would occur as a result of such merger, consolidation or
combination); (b) form any new Subsidiary; (c) liquidate or dissolve
itself (or suffer any liquidation or dissolution); (d) convey, sell,
lease (other than leases of inventory entered into in the ordinary
course of business), charter or otherwise dispose of all or
substantially all of its property, assets or business; provided that
Seller may transfer all or substantially all of the assets of any of
Seller's divisions to an existing or hereafter acquired U.S.
Subsidiary, so long as (i) no Default or Event of Default has occurred
and is continuing, (ii) no Default or Event of Default would occur as
a result thereof, (iii) any and all such U.S. Subsidiaries shall,
prior to any such transfers, enter into a valid, binding and
enforceable (A) security agreement (granting KBK a first priority
perfected security interest in such U.S. Subsidiaries of the types
described in the Security Agreement) and take all other action
necessary to grant to KBK a first priority security interest in such
assets, and (B) guaranty agreement guarantying the payment and
performance of the Obligations, in each case in form and substance
acceptable to KBK, and (iv) in each instance each such U.S. Subsidiary
promptly delivers an opinion of counsel acceptable to KBK in form,
scope and substance acceptable to KBK with respect thereto, or (e)
except in the ordinary course of business, enter into any arrangement,
directly or indirectly, whereby Seller or its applicable Subsidiary
would sell or transfer any properties (other than real property),
either now owned or thereafter acquired, and then or thereafter lease
as lessee such properties or any part thereof or any other property
(other than real property) to be used for substantially the same
purpose.
9.16 LIENS. Seller shall not, and shall not permit any of its
Subsidiaries to, grant, suffer or permit any contractual or
noncontractual Lien on or security interest in its assets, except in
favor of KBK, or fail to promptly pay when due all lawful claims,
whether for labor, materials or otherwise except for Permitted Liens.
SECTION 10. RIGHTS OF KBK
10.1 NOTIFICATION OF ACCOUNT DEBTORS. KBK shall have the right at any
time, either before or after the occurrence of an Event of Default and
without notice to Seller, to notify any or all Account Debtors of the
sale of the Accounts to KBK and to direct such Account Debtors to make
payment of all amounts due or to become due to Seller directly to KBK
to enforce collection of any Accounts purchased hereunder or
collection of any of the Collateral and to adjust, settle or
compromise the amount or payment thereof.
10.2 COLLECTIONS. All payments and collections of Accounts received by KBK
shall belong to KBK as owner of the Accounts.
10.3 RIGHT TO COLLECT. Seller authorizes KBK to collect, sue for and give
releases for and in the name of Seller or KBK in KBK's sole
discretion, all amounts due on Accounts sold to KBK hereunder. Seller
specifically authorizes KBK to endorse, in the name of Seller, all
checks, drafts, trade acceptances or other forms of payment tendered
by Account Debtors in payment of Accounts sold to KBK hereunder and
made payable to Seller. KBK shall have no liability to Seller for any
mistake in the application of any payment received with respect to any
Account; provided KBK has not acted in bad faith or has not been
grossly negligent; IT BEING THE SPECIFIC INTENT OF THE PARTIES HERETO
THAT KBK SHALL HAVE NO LIABILITY HEREUNDER FOR ITS OWN NEGLIGENCE.
Seller hereby waives notice of nonpayment of any Account sold to KBK
hereunder as well as any and all other notices with respect to such
Accounts, demands or
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presentations for payment, and agrees that KBK may extend, renew or
modify from time to time the payment of, or vary, reduce the amount
payable under or compromise any of the terms of, any Account purchased
by KBK, in each case without notice to or the consent of Seller.
Seller further authorizes KBK (or its designee) to open and remove the
contents of any post office box of Seller or KBK (or its designee)
which KBK believes contains mail relating to Accounts, and in
connection therewith or otherwise, to receive, open and dispose of
mail addressed to Seller which KBK believes may relate to Accounts,
and in order to further assure receipt by KBK (or its designee) of
mail relating to such Accounts, to notify other parties including
customers and postal authorities to change the address for delivery of
such mail addressed to Seller to such address as KBK may designate.
KBK agrees to use reasonable measures to preserve the contents of any
such mail which does not relate to the Accounts of Seller and to
deliver same to Seller (or, at the election of KBK, to notify Seller
of the address where Seller may take possession of such contents;
provided, if Seller does not take possession of such contents within
30 days after notice from KBK to take possession thereof, KBK may
dispose of such contents without any liability to Seller).
10.4 POWER OF ATTORNEY. Seller hereby irrevocably appoints KBK (and any
employee, agent or other person designated by KBK, any of whom may act
without joinder of the others) as Seller's attorneys-in-fact in
Seller's name, place and stead, to take all actions, execute and
deliver all notices, negotiate such instruments and other documents,
as may be necessary or advisable to permit KBK (or its designee) to
take any and all of the actions described in this Agreement or to
carry out the purpose and intent thereof, as fully and for all intents
and purposes as Seller could itself do, and hereby ratifies and
confirms all that said attorneys-in-fact may do or cause to be done by
virtue hereof, including, without limitation, (i) to demand, collect,
sue for, recover, receive and give acquittance and receipts for moneys
due and to become due under the Accounts purchased hereunder or the
Collateral, and (ii) to file any claims or take any action or
institute any proceedings which KBK may deem necessary or appropriate
for the collection and/or preservation of the Accounts purchased
hereunder and the Collateral or otherwise to enforce the rights of KBK
with respect to the Accounts purchased hereunder and the Collateral.
This power of attorney is irrevocable and deemed coupled with an
interest.
10.5 UCC FILINGS. Seller hereby authorizes KBK to file, with or without
the signature of Seller, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral.
Seller further agrees that a carbon, photographic or other
reproduction of this Agreement or any financing statement describing
any Collateral is sufficient as a financing statement and may be filed
in any jurisdiction KBK may deem appropriate.
10.6 RIGHT TO PERFORM. If Seller fails to perform any agreement or
obligation provided herein or in any of the other Purchase Documents
(including without limitation, the payment and discharge of any taxes,
liens or encumbrances affecting the Collateral), KBK may itself
perform, or cause performance of, such agreement or obligation, and
the expenses of KBK incurred in connection therewith shall be a part
of the Obligations, secured by the Collateral and payable by Seller on
demand.
10.7 RIGHT OF SETOFF. KBK shall have the right of setoff against the
Obligations at any and all times and in any and all proceedings and
instances including, but not limited to, bankruptcy, reorganization,
receivership or insolvency of Seller, without prior notice to Seller.
SECTION 11. SERVICING
11.1 APPOINTMENT OF SERVICING AGENT. KBK hereby appoints Seller as
servicing agent for KBK for the purpose of expediting the collection
of past due Accounts purchased by KBK hereunder. Seller, as servicing
agent, agrees to maintain an active, on-going and regular dialog with
each delinquent Account Debtor. Seller further agrees, as servicing
agent, to utilize all powers, influences, rights and to take every
action within its control in accordance with its customary practices
and applicable law to expedite the collection of the past due Accounts
purchased by KBK hereunder and direct such payments in specie
exclusively to the Remittance Address.
11.2 PROTECTION OF KBK'S RIGHTS. Seller, as servicer, shall take no action
which, nor omit to take any action the omission of which, would
substantially impair the rights of KBK in any Accounts purchased
hereunder by KBK. Seller, as servicer, agrees to defend at its
expense KBK's ownership of the Accounts sold hereunder.
11.3 PROCEEDS OR RETURNED GOODS RECEIVED BY SELLER. All amounts and
proceeds (including instruments and writings) received by Seller at
any time in respect of any Accounts purchased hereafter shall be
received in trust for the benefit of KBK hereunder, shall be
segregated from other funds of Seller and shall be promptly paid over
to KBK in the same form as so received (with any necessary
endorsement) to be applied in the same manner as payments received
directly by KBK. If any goods relating to an Account purchased by KBK
hereunder shall be returned to or repossessed by Seller, Seller shall
give prompt notice thereof to KBK and shall hold such goods in trust
for KBK, separate and apart from Seller's own property, and such goods
shall be owned solely by KBK and be subject to KBK's direction and
control. Seller shall properly store and protect such goods and
agrees to cooperate fully with KBK in any subsequent disposition
thereof for the benefit of KBK.
11.4 DELIVERY OF INVOICES AND RELATED DATA. The Invoices and Related Data,
although owned by KBK, shall remain in Seller's possession and held in
trust by Seller for the benefit of KBK. Seller agrees to deliver the
Invoices and Related Data to KBK upon KBK's request and to allow KBK
to visit its offices to inspect, make copies or take the originals
thereof, along with any computer data related thereto, at all
reasonable times.
11.5 ADDITIONAL DOCUMENTATION; TERMINATION. Seller will furnish to KBK,
upon request, any and all papers, documents and records in its
possession or control related to Accounts purchased by KBK hereunder,
or related to Seller's business relationship with the respective
Account Debtors, and agrees to cooperate fully with KBK in all matters
related to collection of Accounts purchased by KBK hereunder. KBK
reserves the right to terminate such servicing relationship at any
time with or without cause and without notice to Seller.
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SECTION 12. EVENTS OF DEFAULT
An event of default ("Event of Default") shall be deemed to have occurred
hereunder upon the occurrence of one or more of the following:
(a) Seller shall fail to pay as and when due any Obligations owed
to KBK;
(b) Seller or the Guarantor fails to timely and properly observe,
keep or perform any obligation or other term, covenant,
agreement or condition of the Loan Agreement or the other Loan
Documents, or any other agreement, promissory note, security
agreement, assignment or other contract securing or evidencing
any other obligation or agreement between Seller or the
Guarantor and KBK or any affiliate of KBK, and such failure
continues after the applicable grace or notice period, if any,
specified in the relevant document, or the occurrence of any
other Event of Default under the Loan Agreement or the other
Loan Documents, or Seller or KBK terminates any Loan Document
for any reason;
(c) Any representation or warranty of Seller or the Guarantor made
herein or in the Loan Documents or the other Purchase
Documents, or in any report, certificate, schedule, financial
statement, profit and loss statement or other statement
furnished by Seller or the Guarantor, or by any other person
on behalf of Seller or the Guarantors, to KBK is not true and
correct in any material respect when made;
(d) Any of Seller or its Subsidiaries shall fail to timely and
properly observe, keep or perform any term, covenant,
agreement or condition made herein or in the other Purchase
Documents; provided, however, if any of Seller or its
Subsidiaries shall fail to timely and properly observe, keep
or perform any term, covenant, agreement or condition in
Sections 9.11 or 9.12 hereof, such failure with respect to
Sections 9.11 or 9.12 hereof shall be an Event of Default if
such failure with respect to Sections 9.11 or 9.12 hereof
shall continue unremedied for a period of ten (10) days after
the earlier of (A) the date upon which the Seller knew or
reasonably should have known of such failure with respect to
Sections 9.11 or 9.12 or (B) the date upon which written
notice thereof is given to the Seller by KBK;
(e) There shall be commenced by or against Seller or any of its
Subsidiaries any voluntary or involuntary case under the
United States Bankruptcy Code, or any assignment for the
benefit of creditors, or the appointment of a receiver,
trustee, conservator or custodian for a substantial portion of
its assets;
(f) Seller or any of its Subsidiaries shall become insolvent in
that its debts and obligations are greater than the fair value
or fair saleable value of its assets, or Seller or any of its
Subsidiaries is generally not paying its debts as they become
due;
(g) The occurrence of a Material Adverse Effect;
(h) Seller or any Subsidiary shall have a federal or state tax
lien filed against any of its properties;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as
amended) in excess of $25,000.00 exists with respect to any
ERISA Plan of Seller, or (ii) any Termination Event occurs
with respect to any ERISA Plan of Seller and the then current
value of such ERISA Plan's benefit liabilities exceeds the
then current value of such ERISA Plan's assets available for
the payment of such benefit liabilities by more than
$25,000.00;
(j) Seller or any Subsidiary suffers the entry against it of a
final judgment for the payment of money in excess of
$100,000.00 that continues to be unstayed and in effect for a
period of 15 days (not covered by insurance satisfactory to
KBK in its sole discretion);
(k) The failure of Seller to sell to KBK any Account by means of
and through the Availability Certificate which is due and
shall be delivered by Seller immediately after such Account
arises; or
(l) If the obligations of any guarantor under the Purchase
Documents is limited or terminated by operation of law or by
the guarantor, or any such guarantor becomes the subject of an
insolvency proceeding.
Upon the occurrence of an Event of Default described in subsections (e) or (f)
of this Section, all of the Obligations owing by Seller to KBK (including but
not limited to all fees and discounts owed hereunder) shall thereupon be
automatically and immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Seller.
Upon the occurrence of any other Event of Default, KBK, at its option, at any
time and from time to time may without notice to Seller declare any or all of
the Obligations owing by Seller to KBK (including but not limited to all fees
and discounts owed hereunder) immediately due and payable, all without demand,
presentment, notice of demand or of dishonor and nonpayment, or any notice or
declaration of any kind, all of which are hereby expressly waived by Seller.
After the occurrence any Event of Default, any obligation of KBK to purchase
any further Accounts hereunder, to pay any further Account Payments hereunder
or to make loans under any other agreement with Seller shall be terminated.
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SECTION 13. REMEDIES AND APPLICATION OF PROCEEDS
13.1 REMEDIES. In addition to, and without limitation of, the foregoing
provisions of this Agreement, if an Event of Default shall have
occurred and be continuing, KBK may from time to time in its
discretion, without limitation and without notice except as expressly
provided below, do any one or more of the following:
(a) Exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, under the other
Purchase Documents or otherwise available to it, all the
rights and remedies of a secured party on default under the
UCC (whether or not the UCC applies to the affected
Collateral).
(b) Require Seller to, and Seller hereby agrees that it will at
its expense, assemble all or part of the Collateral as
directed by KBK and make it available to KBK at a place to be
designated by KBK which is reasonably convenient to both
parties.
(c) Reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest created
hereby by any available judicial procedure.
(d) Dispose of, at its office, on the premises of Seller or
elsewhere, all or any part of the Collateral, as a unit or in
parcels, by public or private proceedings.
(e) Buy the Collateral, or any part thereof, at any public sale,
or at any private sale if the Collateral is of a type
customarily sold in a recognized market or is of a type which
is the subject of widely distributed standard price
quotations.
(f) Apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Seller
hereby consents to any such appointment.
(g) At KBK's discretion, retain the Collateral in satisfaction of
the Obligations whenever the circumstances are such that KBK
is entitled to do so under the UCC or otherwise.
Seller agrees that, to the extent notice of sale shall be required by
law, at least five (5) days notice to Seller of the time and place of
any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. KBK shall not be obligated
to make any sale of Collateral regardless of notice of sale having
been given. KBK may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
13.2 APPLICATION OF PROCEEDS. If any Event of Default shall have occurred
and be continuing, KBK may in its discretion apply any Reserves, and
any cash proceeds received by KBK in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral, to any or all of the following in such order as KBK may
elect:
(a) To the repayment of reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by KBK
in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any
Collateral, (iii) the exercise or enforcement of any of the
rights of KBK hereunder, or (iv) the failure of Seller to
perform or observe any of the provisions hereof.
(b) To the payment of the Obligations and the reimbursement of KBK
for the amount of any obligations of Seller paid or discharged
by KBK, and of any expenses of KBK payable by Seller hereunder
or under the other Purchase Documents.
(c) By holding the same as Collateral.
(d) To the payment of any other amounts required by applicable law
(including, without limitation, Part 5 of Article 9 of the UCC
or any successor or similar, applicable statutory provision).
(e) To the payment or other satisfaction of any liens and other
encumbrances upon any of the Collateral.
(f) By delivery to Seller or to whomsoever shall be lawfully
entitled to receive the same or as a court of competent
jurisdiction shall direct.
SECTION 14. MISCELLANEOUS
14.1 EQUITABLE RELIEF. Seller acknowledges that in the event that Seller
commits any act or omission which prevents or unreasonably interferes
with: (a) KBK's exercise of the rights and privileges arising under
the power of attorney granted under this Agreement; or (b) KBK's
perfection of or levy upon the security interest granted in the
Collateral, including any seizure of any Collateral, such conduct will
cause immediate, severe, incalculable and irreparable harm and injury
for which there is no adequate remedy at law, and shall constitute
sufficient grounds to entitle KBK to an injunction, writ of
possession, or other applicable relief in equity, and to make such
application for such relief in any court of competent jurisdiction,
without any prior notice to Seller.
14.2 CUMULATIVE RIGHTS. All rights, remedies and powers granted to KBK in
this Agreement, or in any other instrument or agreement given by
Seller to KBK or otherwise available to KBK in equity or at law, are
cumulative and may be exercised singularly or concurrently with such
other rights as KBK may have. These rights may be exercised from time
to time as to all or any part of the Accounts purchased hereunder or
the Collateral as KBK in its discretion may determine. KBK shall not
be deemed to have waived any of its rights and remedies unless the
waiver is in writing and signed by KBK. A waiver by KBK of a right or
remedy under this Agreement on one occasion is not a waiver of the
right or remedy on any subsequent occasion. The purchase of
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Accounts by KBK during the continuance of an Event of Default shall
not obligate KBK to make any further purchases during the continuation
of such Event of Default.
14.3 NOTICES. Any notice or communication with respect to this Agreement
shall be given in writing, sent by (i) personal delivery, (ii)
expedited delivery service with proof of delivery, or (iii) United
States mail, postage prepaid, registered or certified mail, addressed
to each party hereto at its address set forth below their signature
hereon or to such other address or to the attention of such other
person as hereafter shall be designated in writing by the applicable
party sent in accordance herewith. Any such notice or communication
shall be deemed to have been given either at the time of personal
delivery or, in the case of delivery service or mail, as of the date
of first attempted delivery at the address and in the manner provided
herein. Seller hereby agrees that KBK may publicize the transaction
contemplated by this Agreement in newspapers, trade and similar
publications including, without limitation, the publication of a
"tombstone".
14.4 TERM; TERMINATION.
(a) The term of this Agreement shall be for two (2) years from the
date hereof (the "Term").
(b) Upon the termination of this Agreement, Seller shall
repurchase from KBK all uncollected Accounts purchased by KBK
hereunder. The consideration paid or given by Seller to KBK
for the repurchase of such Accounts shall be (i) the payment
to KBK of an amount equal to the Batch Balance; provided,
however, if the Batch Balance is a negative amount at the time
of any such repurchase, KBK shall pay to Seller such amount,
(ii) the payment to KBK of any expenses and costs (including,
without limitation, attorneys' fees) incurred by KBK in
connection with the enforcement or collection of the Accounts
being repurchased, and (iii) the release of KBK by Seller of
all liabilities, claims, damages and obligations arising from,
relating to or in connection with (1) this Agreement and/or
the other Purchase Documents, and (2) the Accounts (including,
without limitation, any Accounts repurchased by Seller). Upon
receipt of such consideration, KBK shall sell such Accounts to
Seller without recourse or warranty, express or implied.
(c) KBK agrees that upon the request and at the expense of Seller,
KBK shall transfer all pending enforcement actions and
bankruptcy claims with respect to any of the Accounts being
repurchased by Seller upon termination of this Agreement.
(d) Seller shall also pay to KBK upon termination of this
Agreement all Obligations owing to KBK hereunder and under the
other Purchase Documents.
(e) Any termination of this Agreement shall not otherwise affect
KBK's ownership of Accounts purchased hereunder or its
security interest in the Collateral, and this Agreement shall
continue to be effective until all transactions entered into
and Obligations incurred hereunder have been completed and
satisfied in full.
14.5 NOTICE OF OFFER. Seller hereby agrees that in the event (a) the Seller
receives a written proposal either during or at the end of the Term
from a third party to provide financing or factoring ("Proposed
Refinancing"), (b) the terms of the Proposed Refinancing are
acceptable to Seller, and (c) Seller is considering accepting the
Proposed Refinancing from the offeror (the "Offeror"), Seller will
advise KBK in writing of the identity of the Offeror, the complete
terms and conditions of the Proposed Refinancing and a full and
complete copy of all written correspondence between Seller and Offeror
describing the Proposed Refinancing. Seller agrees not to accept the
Proposed Refinancing from the Offeror until at least ten (10) business
days after delivery of the foregoing items to KBK.
14.6 SEVERABILITY. Each and every provision, condition, covenant and
representation contained in this Agreement is, and shall be construed,
to be a separate and independent covenant and agreement. If any term
or provision of this Agreement shall to any extent be invalid or
unenforceable, the remainder of the Agreement shall not be affected
thereby.
14.7 INDEMNITY. Seller hereby indemnifies and agrees to hold the
Indemnified Persons harmless against any breach by Seller of any
representation, warranty, covenant or agreement of Seller contained in
this Agreement, and against any claims or damages arising out of the
manufacture, sale, possession or use of, or otherwise relating to,
goods, or the performance of services, associated with or relating to
Accounts or related rights purchased (or with respect to which a
security interest is granted) hereunder. Seller also hereby
indemnifies and agrees to hold harmless and defend all Indemnified
Persons from and against any and all Indemnified Claims. THE
FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED
CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE
OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED
PERSON, but shall exclude any of the foregoing resulting from such
Indemnified Person's gross negligence or willful misconduct. Upon
notification and demand, Seller agrees to provide defense of any
Indemnified Claim and to pay all costs and expenses of counsel
selected by any Indemnified Person in respect thereof. Any
Indemnified Person against whom any Indemnified Claim may be asserted
reserves the right to settle or compromise any such Indemnified Claim
as such Indemnified Person may determine in its sole discretion, and
the obligations of such Indemnified Person, if any, pursuant to any
such settlement or compromise shall be deemed included within the
Indemnified Claims. Except as specifically provided in this section,
Seller waives all notices from any Indemnified Person. The provisions
of this Section shall survive the termination of this Agreement.
14.8 BENEFITS; ASSIGNMENT. All grants, covenants and agreements contained
in this Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however,
that Seller may not delegate or assign any of its duties or
obligations under this Agreement without the prior written consent of
-14-
<PAGE> 15
KBK and any assignment without such consent shall be void. KBK
RESERVES THE RIGHT TO ASSIGN ITS RIGHTS AND OBLIGATIONS UNDER THIS
AGREEMENT IN WHOLE OR IN PART TO ANY PERSON OR ENTITY. To the extent
KBK assigns its rights and obligations hereunder to a third party, KBK
shall thereafter be released from such assigned obligations to Seller
and such assignment shall effect a novation between Seller and such
third party. Without limiting the generality of the foregoing, KBK
may from time to time grant participations in all or any part of the
Obligations to any person or entity on such terms and conditions as
may be determined by KBK in its sole and absolute discretion, provided
that the grant of such participation shall not relieve KBK of its
obligations hereunder nor create any additional obligations of the
Seller. Seller consents to KBK disclosing any financial and any other
information available to KBK concerning Seller to any prospective
participant.
14.9 CAPTIONS. The captions in this Agreement are for convenience only and
shall not define or limit the provisions hereof.
14.10 GOVERNING LAW, SUBMISSION TO PROCESS. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF
PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. SELLER
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN TEXAS, AND AGREES AND CONSENTS
THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATING TO THIS AGREEMENT, ANY OTHER PURCHASE DOCUMENTS, THE PURCHASE
OF ACCOUNTS OR ANY OTHER RELATIONSHIP BETWEEN KBK AND SELLER BY ANY
MEANS ALLOWED UNDER APPLICABLE LAW. ANY LEGAL PROCEEDING ARISING OUT
OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY OTHER PURCHASE
DOCUMENTS, THE PURCHASE OF ACCOUNTS OR ANY OTHER RELATIONSHIP BETWEEN
KBK AND SELLER SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY ONE
OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF TEXAS HAVING
JURISDICTION. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE
THEREOF IS IMPROPER.
14.11 WAIVER OF JURY TRIAL. SELLER AND KBK EACH HEREBY IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT
ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
14.12 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER PURCHASE DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT
TO THE TRANSACTIONS CONTEMPLATED HEREIN 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. THIS AGREEMENT ALSO AMENDS AND SUPERSEDES ANY OF THE TERMS
OF ANY PRIOR WRITTEN AGREEMENTS WITH RESPECT TO THE MATTERS SET FORTH
IN THIS AGREEMENT.
14.13 AMENDMENTS. No modification or amendment of or supplement to this
Agreement shall be valid or effective unless the same is in writing
and signed by the party against whom it is sought to be enforced.
14.14 EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective
only upon acceptance by KBK at its offices in Fort Worth, Texas as
evidenced by KBK's signature hereon. Subject to the foregoing, this
Agreement may be executed in multiple original counterparts, all of
which counterparts taken together shall be deemed to constitute one
and the same instrument
14.15 USURY SAVINGS. The parties hereto intend that the transactions
covered hereby are true sales hereof according to the provisions of
Article 5069-1.14, of the Texas Revised Civil Statutes (as more fully
described in Section 14.16 hereof) and that none of the Obligations
under this Agreement or the other Purchase Documents will constitute
loans or credit sales or interest on principal of a loan or credit
sale as determined under applicable laws; provided, however, if this
Agreement or any of the other Purchase Documents are deemed to require
the payment or permit the payment, taking, reserving, receiving,
collection, or charging of any sums constituting interest under
applicable laws, the following provisions of this Section will apply:
(a) It is the intention of the parties hereto to comply strictly
with applicable usury laws; accordingly, notwithstanding any
provision to the contrary in this Agreement or any of the
other Purchase Documents, in no event whatsoever shall this
Agreement or any of the other Purchase Documents require the
payment or permit the payment, taking, reserving, receiving,
collection or charging of any sums constituting interest under
applicable laws which exceed the maximum amount permitted by
such laws. If any such excess interest is called for,
contracted for, charged, taken, reserved, or received in
connection with this Agreement or any of the other Purchase
Documents, or in any communication by KBK or any other person
to Seller or any other person, or in the event all or part of
the principal or interest hereof shall be prepaid or
accelerated, so that under any of such circumstances or under
any other circumstance whatsoever the amount of interest
contracted for, charged, taken, reserved, or received on the
amount of principal actually outstanding from time to time
under this Agreement or any of the other Purchase Documents
shall exceed the maximum amount of interest permitted by
applicable usury laws, then in any such event it is agreed as
follows: (i) the provisions of this Section shall govern and
control, (ii) neither Seller nor any other person or entity
now or hereafter liable for payments under this Agreement or
any of the other Purchase Documents shall be obligated to pay
the amount of such
-15-
<PAGE> 16
interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws,
(iii) any such excess which is or has been received
notwithstanding this Section shall be credited against the
then unpaid principal balance of the Obligations under this
Agreement and the other Purchase Documents or, if this
Agreement or any of the other Purchase Documents has been or
would be paid in full by such credit, refunded to Seller, and
(iv) the provisions of this Agreement or any of the other
Purchase Documents, and any communication to Seller, shall
immediately be deemed reformed and such excess interest
reduced, without the necessity of executing any other
document, to the maximum lawful rate allowed under applicable
laws as now or hereafter construed by courts having
jurisdiction hereof or thereof. Without limiting the
foregoing, all calculations of the rate of interest contracted
for, charged, taken, reserved, or received in connection
herewith which are made for the purpose of determining whether
such rate exceeds the maximum lawful rate shall be made to the
extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of
this Agreement or any of the other Purchase Documents,
including all prior and subsequent renewals and extensions,
all interest at any time contracted for, charged, taken,
reserved, or received. The terms of this Section shall be
deemed to be incorporated into every Purchase Document.
(b) If at any time the rate at which any interest is payable on
any Obligation hereunder exceeds the Maximum Rate, the amount
outstanding hereunder shall bear interest at the Maximum Rate
only, but shall continue to bear interest at the Maximum Rate
until such time as the total amount of interest accrued
hereunder equals (but does not exceed) the total amount of
interest which would have accrued hereunder had there been no
Maximum Rate applicable hereto.
(c) Seller and KBK agree that Tex. Rev. Civ. Stat. Ann art. 5069
Ch. 15 (which regulates certain revolving loan accounts and
revolving tri-party accounts) shall not apply to any revolving
loan accounts created under this Agreement or maintained in
connection therewith.
(d) To the extent that the interest rate laws of the State of
Texas are applicable to this Agreement, the applicable
interest rate ceiling is the indicated (weekly) ceiling
determined in accordance with Article 5069-1.04(a)(1) of the
Texas Revised Civil Statutes, as amended, and, to the extent
that this Agreement is deemed an open end account as such term
is defined in Article 5069-1.01(f) of the Texas Revised Civil
Statutes, as amended, KBK retains the right to modify the
interest rate in accordance with applicable law.
(e) As used in this Section, (i) the term "applicable law" means
the laws of the State of Texas or the laws of the United
States of America, whichever laws allow the greater interest,
as such laws now exist or may be changed or amended or come
into effect in the future, and (ii) the term "Maximum Rate"
means, at the time of determination, the maximum rate of
interest which, under applicable law, may then be charged on
the Obligations hereunder.
14.16 APPLICABILITY OF ARTICLE 5069-1.14 . Seller and KBK acknowledge,
agree, and fully intend that the transactions contemplated and covered
hereby are true sales and are covered and governed by the provisions
of Article 5069- 1.14 of the Texas Revised Civil Statutes.
The undersigned have entered into this Agreement as of the date first written
above.
<TABLE>
<S> <C>
KBK FINANCIAL, INC. PONDER INDUSTRIES, INC.
By: By:
---------------------------------------- -----------------------------------------
Name: Name:
----------------------------- ---------------------------------------
Title: Title:
---------------------------- --------------------------------------
Address: 301 Commerce Street Address: 5005 Riverway, Suite 550
---------------------------------- ----------------------------------
2200 City Center II
----------------------------------
Fort Worth, Texas 76102 Houston, Texas 77056
---------------------------------- ----------------------------------
Attn: Legal Department Attn: Chief Financial Officer
---------------------------------- ----------------------------------
Telecopy No.(817) 258-6114 Telecopy No. (713) 850-7730
------------------------------- ------------------------------
</TABLE>
-16-
<PAGE> 1
EXHIBIT 11
PONDER INDUSTRIES, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28/29 February 28/29
--------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE:
Net income (loss) $ (2,052,251) $ 676,968 $ (2,933,886) $ 689,283
============ ============ ============ ==========
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING 12,352,524 7,974,260 12,298,187 7,405,578
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING UPON
ASSUMED CONVERSION OF OPTIONS (b) -- -- -- --
------------ ------------ ------------ ----------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS
USED FOR COMPUTATION
12,352,524 7,974,260 12,298,187 7,405,578
============ ============ ============ ==========
PRIMARY EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS
$ (.17) $ .08 $ (.24) $ .09
============ ============ ============ ==========
COMPUTATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE (a):
Net income (loss) $ (2,052,251) $ 676,968 $ (2,933,886) $ 689,283
============ ============ ============ ==========
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING 12,352,524 7,974,260 12,298,187 7,405,578
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING UPON
ASSUMED CONVERSION OF OPTIONS (b) -- -- -- --
------------ ------------ ------------ ----------
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING UPON
ASSUMED CONVERSION OF CONVERTIBLE DEBENTURES (b) -- -- -- --
------------ ------------ ------------ ----------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS
USED FOR COMPUTATION
12,352,524 7,974,260 12,298,187 7,405,578
============ ============ ============ ==========
EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE
EQUIVALENT ASSUMING FULL DILUTION
$ (.17) $ .08 $ (.24) $ .09
============ ============ ============ ==========
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K although it is not required by APB Opinion No. 15 because
it is antidilutive.
(b) The options and convertible debentures have an antidilutive effect in
periods with losses and are, therefore, excluded from the computation.
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PONDER
INDUSTRIES, INC.'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1997,
AND ITS CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 34,300
<SECURITIES> 0
<RECEIVABLES> 5,859,208
<ALLOWANCES> 168,619
<INVENTORY> 3,444,526
<CURRENT-ASSETS> 9,413,155
<PP&E> 31,672,153
<DEPRECIATION> 13,685,188
<TOTAL-ASSETS> 32,274,799
<CURRENT-LIABILITIES> 9,287,301
<BONDS> 16,528,429
0
0
<COMMON> 127,000
<OTHER-SE> 4,727,061
<TOTAL-LIABILITY-AND-EQUITY> 32,274,799
<SALES> 10,389,042
<TOTAL-REVENUES> 10,389,042
<CGS> 4,479,396
<TOTAL-COSTS> 12,468,860
<OTHER-EXPENSES> (65,238)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 919,306
<INCOME-PRETAX> (2,933,886)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,933,886)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,933,886)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
