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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
OUR FOOD PRODUCTS GROUP, INC.
AND
WELLS FARGO BUSINESS CREDIT, INC.
Dated as of: May 31, 2000
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TABLE OF CONTENTS
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ARTICLE I - DEFINITIONS.....................................................................1
Section 1.1 Definitions........................................................1
Section 1.2 Cross References..................................................11
ARTICLE II- AMOUNT AND TERMS OF THE CREDIT FACILITY........................................11
Section 2.1 Revolving Advances.............................................11
Section 2.2 Term Advances..................................................12
Section 2.3 Payment of Term Note...........................................12
Section 2.4 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury..........................................13
Section 2.5 Fees...........................................................15
Section 2.6 Computation of Interest and Fees; When Interest Due and
Payable........................................................15
Section 2.7 Capital Adequacy...............................................15
Section 2.8 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower.............16
Section 2.9 Termination, Line Reduction and Prepayment Fees; Waiver of
Termination, Prepayment and Line Reduction Fees...............17
Section 2.10 Mandatory Prepayment...........................................17
Section 2.11 Payment........................................................18
Section 2.12 Payment on Non-Banking Days....................................18
Section 2.13 Use of Proceeds................................................18
Section 2.14 Liability Records..............................................18
ARTICLE III - SECURITY INTEREST; OCCUPANCY; SETOFF.........................................18
Section 3.1 Grant of Security Interest.....................................18
Section 3.2 Notification of Account Debtors and Other Obligors.............19
Section 3.3 Assignment of Insurance........................................19
Section 3.4 Occupancy......................................................19
Section 3.5 License........................................................20
Section 3.6 Financing Statement............................................20
Section 3.7 Setoff.........................................................21
ARTICLE IV - CONDITIONS OF LENDING.........................................................21
Section 4.1 Conditions Precedent to the Initial Revolving and Term
Advances.......................................................21
Section 4.2 Conditions Precedent to All Advances...........................25
ARTICLE V - Representations and Warranties.................................................26
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Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification No.......26
Section 5.2 Authorization of Borrowing; No Conflict as to Law
or Agreements..................................................26
Section 5.3 Legal Agreements...............................................27
Section 5.4 Subsidiaries...................................................27
Section 5.5 Financial Condition; No Adverse Change.........................27
Section 5.6 Litigation.....................................................27
Section 5.7 Regulation U...................................................27
Section 5.8 Taxes..........................................................27
Section 5.9 Titles and Liens...............................................28
Section 5.10 Plans..........................................................28
Section 5.11 Default........................................................28
Section 5.12 Environmental Matters..........................................28
Section 5.13 Submissions to Lender..........................................30
Section 5.14 Financing Statements...........................................30
Section 5.15 Rights to Payment..............................................30
ARTICLE VI - BORROWER'S AFFIRMATIVE COVENANTS..............................................30
Section 6.1 Reporting Requirements.........................................30
Section 6.2 Books and Records; Inspection and Examination..................33
Section 6.3 Account Verification...........................................34
Section 6.4 Compliance with Laws...........................................34
Section 6.5 Payment of Taxes and Other Claims..............................34
Section 6.6 Maintenance of Properties......................................35
Section 6.7 Insurance......................................................35
Section 6.8 Preservation of Existence......................................35
Section 6.9 Delivery of Instruments, etc...................................36
Section 6.10 Lender Account.................................................36
Section 6.11 Reserved.......................................................36
Section 6.12 Performance by the Lender......................................36
Section 6.13 Reserved.......................................................37
Section 6.14 Minimum Debt Service Coverage Ratio............................37
Section 6.15 Reserved.......................................................37
Section 6.16 Reserved.......................................................37
Section 6.17 Reserved.......................................................37
Section 6.18 Reserved.......................................................37
Section 6.19 Maximum Monthly Net Loss.......................................37
Section 6.20 Minimum Quarterly Net Income...................................38
Section 6.21 Minimum Annual Net Income......................................38
Section 6.22 Reserved.......................................................38
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ARTICLE VII - NEGATIVE COVENANTS...........................................................38
Section 7.1 Liens..........................................................38
Section 7.2 Indebtedness...................................................39
Section 7.3 Guaranties.....................................................39
Section 7.4 Investments and Subsidiaries...................................40
Section 7.5 Dividends......................................................40
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations..41
Section 7.7 Consolidation and Merger; Asset Acquisitions...................41
Section 7.8 Sale and Leaseback.............................................41
Section 7.9 Restrictions on Nature of Business.............................41
Section 7.10 Capital Expenditures...........................................41
Section 7.11 Accounting.....................................................41
Section 7.12 Discounts, etc.................................................41
Section 7.13 Defined Benefit Pension Plans..................................42
Section 7.14 Other Defaults.................................................42
Section 7.15 Place of Business; Name........................................42
Section 7.16 Organizational Documents; S Corporation Status.................42
Section 7.17 Salaries.......................................................42
Section 7.18 Change in Ownership............................................42
Section 7.19 Change in Senior Management....................................43
ARTICLE VII - EVENTS OF DEFAULT, RIGHTS AND REMEDIES.......................................43
Section 8.1 Events of Default..............................................43
Section 8.2 Rights and Remedies............................................46
Section 8.3 Certain Notices................................................47
ARTICLE IX - MISCELLANEOUS.................................................................47
Section 9.1 No Waiver; Cumulative Remedies.................................47
Section 9.2 Amendments, Etc................................................47
Section 9.3 Addresses for Notices, Etc.....................................48
Section 9.4 Reserved.......................................................48
Section 9.5 Further Documents..............................................49
Section 9.6 Collateral.....................................................49
Section 9.7 Costs and Expenses.............................................49
Section 9.8 Indemnity......................................................49
Section 9.9 Participants...................................................50
Section 9.10 Execution in Counterparts......................................51
Section 9.11 Binding Effect; Assignment; Complete Agreement; Exchanging
Information...................................................51
Section 9.12 Severability of Provisions.....................................51
Section 9.13 Headings.......................................................51
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.......51
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CREDIT AND SECURITY AGREEMENT
Dated as of May 31, 2000
OUR FOOD PRODUCTS GROUP, INC., f/k/a Hamlin Food Products Group, Inc.,
a Texas corporation (the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means Morgan Kent Group, Inc. and any
other Person controlled by, controlling or under common control with the
Borrower, including (without limitation) any Subsidiary of the Borrower.
For purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Assignment of Rents" shall mean that certain Absolute Assignment of
Rents of even date herewith executed by the Borrower, as assignor, in favor
of the Lender, as assignee.
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"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis,
Minnesota or San Antonio, Texas.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 80% of Eligible Accounts, plus
(ii) the lesser of (A) 50% of Eligible Inventory or (B) $500,000.
"Capital Expenditures" for a period means any expenditure of money for
the lease, purchase or other acquisition of any capital asset, or for the
lease of any other asset whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on
deposit in any Lender Account, and any items in any Lockbox; together with
(i) all substitutions and replacements for and products of any of the
foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the case
of all tangible goods, all accessions; (iv) all accessories, attachments,
parts, equipment and repairs now or hereafter attached or affixed to or
used in connection with any tangible goods; (v) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods; and (vi) the Mortgaged Property.
"Commitment" means the Lender's commitment to make Advances to or for
the Borrower's account pursuant to Article II.
"Copyright Security Agreement" means the Copyright Security Agreement
by the Borrower in favor of the Lender of even date herewith.
"Credit Facility" means the credit facility being made available to
the Borrower by the Lender pursuant to Article II.
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"Current Maturities of Long Term Debt" as of a given date means the
amount of the Borrower's long-term debt and capitalized leases which became
due during the fiscal year- to-date period ending on the designated date.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that
Person as at the date as of which Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under GAAP.
"Debt Service Coverage Ratio" means for any period in question the
ratio of (i) the sum of (A) Funds from Operations and (B) Interest Expense,
PLUS (C) additional paid in capital, MINUS (D) any portion of the
Borrowers' Capital Expenditures for such period that were not paid through
the use of Debt to (ii) the sum of (A) Current Maturities of Long Term Debt
and (B) Interest Expense.
"Deed of Trust" means that certain deed of trust, security agreement
and financing statement of even date herewith executed by the Borrower, as
grantor, in favor of the Lender, as beneficiary, pursuant to which the
Borrower has granted a deed of trust and security agreement with respect to
the borrower's principal business facility and related land located at No.
1 Chisholm Trail, Buda, Texas, as the same may hereafter be amended and
supplemented from time to time.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and
ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances, an
annual rate equal to three percent (3%) over the Revolving Floating Rate,
which rate shall change when and as the Revolving Floating Rate changes and
with respect to the Term Advances, an annual rate equal to three percent
(3%) over the applicable Term Floating Rates, which rates shall change when
and as the applicable Term Floating Rates change.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Eligible Accounts" means all unpaid Accounts, net of any credits and
slotting fees, except the following shall not in any event be deemed
Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final delivery
of goods or rendition of services, as applicable, by the Borrower to
the customer;
(iv) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory to the Lender
that (A) the Lender has a first priority perfected security interest
(B) such Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside the United
States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's
possession and acceptable to the Lender in all respects, in its sole
discretion, (B) covered by a foreign receivables insurance policy
acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest in
the Lender's favor or which are subject to any lien, security interest
or claim in favor of any Person other than the Lender including
without limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
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(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 25% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii)or (ix)
above;
(xii) Accounts owing by Haddon House or Gourmet Award Foods to the
extent owing by either account debtor in excess of $400,000; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the lower
of cost or market value as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job
site or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document of
title; on consignment from any Person; on consignment to any Person or
subject to any bailment unless such consignee or bailee has executed
an agreement with the Lender;
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
(vi) Inventory that is live or any perishable inventory with a
shelf life of less than thirty (30) days or any finished goods
inventory that is over 120 days old;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
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(viii) Inventory that is subject to a security interest in favor
of any Person other than the Lender; and
(ix) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but
not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith
or hereafter furnished to the Lender by the Borrower.
"Equipment Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus one and one-half percent (1.5%), which annual rate shall
change when and as the Prime Rate changes.
"Equipment Term Advance" shall have the meaning as required to such
term in Section 2.2(a) hereof.
"Equipment Term Note" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit B-1 hereto and
any note or notes issued in substitution therefor, as the same may
hereafter be amended, supplemented or restated from time to time.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of (i) Net
Income, (ii) depreciation and amortization, (iii) deferred income taxes,
and (iv) other non-cash items, each as determined for such period in
accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new accounting
standard, the Borrower either (i) is required to implement such change, or
(ii) for future periods will be required to and for the current period may
in accordance with generally accepted accounting principles implement such
change, for its financial statements to be in conformity with generally
accepted accounting principles (any such change is herein referred to as a
"Required GAAP Change"), provided that (1) the Borrower shall fully
disclose in such
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financial statements any such Required GAAP Change and the effects of the
Required GAAP Change on the Borrower's income, retained earnings or other
accounts, as applicable, and (2) the Borrower's financial covenants set
forth in Sections 6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, 6.20, 6.21, and
7.10 shall be adjusted as necessary to reflect the effects of such Required
GAAP Change.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents,
patent applications, copyrights, trademarks, trade names, trade secrets,
customer or supplier lists and contracts, manuals, operating instructions,
permits, franchises, the right to use the Borrower's name, and the goodwill
of the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Expense" means, for a fiscal year-to-date period, the
Borrower's total gross interest expense during such period (excluding
interest income), and shall in any event include, without limitation, (i)
interest expense (whether or not paid) on all Debt, (ii) the amortization
of debt discounts, (iii) the amortization of all fees payable in connection
with the incurrence of Debt to the extent included in interest expense, and
(iv) the portion of any capitalized lease obligation allocable to interest
expense.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Keep Well Agreement" means that certain agreement of even date
herewith executed by and among the Borrower, Morgan Kent Group, Inc., a
Delaware corporation, and the Lender pursuant to which Morgan Kent Group,
Inc. has agreed to fund certain operating losses of the Borrower, as same
may hereafter be amended and supplemented from time to time.
"Lender Account" has the meaning given in the Lockbox and Collection
Account Agreement.
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"Loan Documents" means this Agreement, the Notes and the Security
Documents, as the same may hereafter be amended, reviewed, extended and
supplemented from time to time.
"Lockbox" has the meaning assigned to such term in the Lockbox and
Collection Account Agreement.
"Lockbox and Collection Account Agreement" means the Lockbox and
Collection Account Agreement of even date herewith by and among the
Borrower, Regulus West LLC, Wells Fargo Bank, N.A. and the Lender.
"Maturity Date" means May 31, 2003.
"Maximum Line" means $2,000,000 unless said amount is reduced pursuant
to Section 2.8, in which event it means the amount to which said amount is
reduced.
"Minimum Interest Charge" has the meaning given in Section 2.4(c).
"MKGI" shall mean Morgan Kent Group, Inc., a Delaware corporation.
"Mortgaged Property" collectively shall mean the "Mortgaged Property"
as that term is defined in the Deed of Trust and the "Property" as that
term is defined in the Assignment of Rents.
"Net Income" means for any applicable period, the after-tax net
income, DECREASED by the sum of any extraordinary, non-operating or
non-cash income recorded by the Borrower and INCREASED by any
extraordinary, non-cash or non-operating expense or loss recorded by the
Borrower, as determined in accordance with GAAP.
"Note" means the Revolving Note or either of the Term Notes, and
"Notes" means the Revolving Note and the Term Notes.
"Obligations" means the Notes and each and every other debt, liability
and obligation of every type and description which the Borrower may now or
at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a transaction
involving other creditors of the Borrower, and whether it is direct or
indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness
of the Borrower arising under this Agreement, the Notes or any other loan
or credit agreement or guaranty between the Borrower and the Lender,
whether now in effect or hereafter entered into.
"Permitted Lien" has the meaning given in Section 7.1.
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"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the
premises legally described in Exhibit D attached hereto.
"Prime Rate" means the rate of interest publicly announced from time
to time by Wells Fargo Bank, N.A., San Francisco, California as its "Prime
Rate" or, if such bank ceases to announce a rate so designated, any similar
successor rate designated by the Lender.
"Real Estate Floating Rate" means an annual rate equal to the sum of
the Prime Rate plus one percent (1.0%), which annual rate shall change when
and as the Prime Rate changes.
"Real Estate Term Advance" shall have the meaning assigned to such
term in Section 2.2(b) hereof.
"Real Estate Term Note" means the Borrower's promissory note, payable
to the order of the Lender in substantially the form of Exhibit B-2 hereto
and any note or notes issued in substitution therefor, as the same may
hereafter be amended, supplemented or restated from time to time.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out
of a loan, out of the overpayment of taxes or other liabilities, or
otherwise arises under any contract or agreement, whether such right to
payment is created, generated or earned by the Borrower or by some other
person who subsequently transfers such person's interest to the Borrower,
whether such right to payment is or is not already earned by performance,
and howsoever such right to payment may be evidenced, together with all
other rights and interests (including all liens and security interests)
which the Borrower may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment or
against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
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"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus one and one-half percent (1.5%), which annual rate shall
change when and as the Prime Rate changes.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A
hereto and any note or notes issued in substitution therefor, as the same
may hereafter be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Lockbox and Collection
Account Agreement, the Deed of Trust, the Assignment of Rents, the
Trademark Security Agreement, the Copyright Security Agreement, the Keep
Well Agreement, the Subordination Agreement and any other document
delivered to the Lender from time to time to secure the Obligations, as the
same may hereafter be amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordination Agreement" means the Subordination Agreement of even
date herewith, executed by KBK Financial, Inc., a Delaware corporation in
the Lender's favor and acknowledged by the Borrower, and any other
subordination agreement accepted by the Lender from time to time, as the
same may hereafter be amended, supplemented or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason of
the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries.
"Term Advances" has the meaning specified in Section 2.2.
"Term Floating Rate" means collectively, the Equipment Floating Rate
and the Real Estate Floating Rate.
"Term Notes" means collectively, the Equipment Term Note and the Real
Estate Term Note.
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"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
"Trademark Security Agreement" means the Trademark Security Agreement
by the Borrower in favor of the Lender of even date herewith.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.14 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.
SECTION 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
SECTION 2.1 REVOLVING ADVANCES. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral as provided in Article III. Within
the limits set forth in this Section 2.1, the Borrower may borrow, prepay
pursuant to Section 2.8 and reborrow. The Borrower agrees to comply with the
following procedures in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Minneapolis time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) the chief financial officer,
treasurer or controller of the Borrower; or (ii) any person designated as
the Borrower's agent by any officer of the Borrower in a writing delivered
to the Lender; or (iii) any person whom the Lender reasonably believes to
be an officer of the Borrower or such a designated agent.
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(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Wells Fargo Bank Texas, N.A. unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon the
Lender's request, the Borrower shall promptly confirm each telephonic
request for an Advance by executing and delivering an appropriate
confirmation certificate to the Lender. The Borrower shall repay all
Advances even if the Lender does not receive such confirmation and even if
the person requesting an Advance was not in fact authorized to do so. Any
request for an Advance, whether written or telephonic, shall be deemed to
be a representation by the Borrower that the conditions set forth in
Section 4.2 have been satisfied as of the time of the request.
SECTION 2.2 TERM ADVANCES. The Lender agrees, on the terms and subject
to the conditions herein set forth, to make the following term loan advances to
the Borrower on the Funding Date (collectively, the "Term Advances");
(a) The Lender agrees to make an equipment loan term advance
("Equipment Term Advance") to the Borrower in an amount equal to $110,000.
The Equipment Term Advance shall first be used to repay all equipment loans
currently owing by the Borrower to Bank One and secondly for working
capital purposes. The Borrower's obligation to repay the Equipment Term
Advance shall be evidenced by the Equipment Term Note and shall be secured
by the Collateral as provided in Article III.
(b) The Lender agrees to make a real estate loan term advance ("Real
Estate Term Advance") to the Borrower in an amount equal to $1,223,000. The
Real Estate Term Advance shall first be used to repay all real estate loans
currently owing by the borrower to Bank One and secondly, for working
capital purposes. The Borrower's obligation to repay the Real Estate Term
Advance shall be evidenced by the Real Estate Term Note and shall be
secured by the Collateral as provided in Article III.
SECTION 2.3 PAYMENT OF TERM NOTES. The outstanding principal balance
of the Term Notes shall be due and payable as follows:
(a) With respect to the Equipment Term Note, the outstanding principal
balance thereof shall be due and payable as follows:
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(i) Beginning on July 1, 2000, and on the 1st day of each
month thereafter, in substantially equal monthly installments equal to
the greater of $2,291.67 or an amount sufficient to fully amortize the
principal balance of the Equipment Term Note over an assumed term
ending on June 1, 2004; and
(ii) On the Termination Date, the entire unpaid principal
balance of the Equipment Term Note, and all unpaid interest accrued
thereon, shall in any event be due and payable.
(b) With respect to the Real Estate Term Note, the outstanding principal
balance thereof shall be due and payable as follows:
(i) Beginning on July 1, 2000, and on the 1st day of each
month thereafter, in substantially equal monthly installments equal to
the greater of $6,794.44 or an amount sufficient to fully amortize the
principal balance of the Real Estate Term Note over an assumed term
ending on June 1, 2015;
(ii) Commencing on December 31, 2000 and continuing on each
one year anniversary of such date, the Borrower shall make a mandatory
prepayment of principal evidenced by the Real Estate Term Note in the
amount of $30,000 and such prepayment shall be applied to principal
installments of the Real Estate Term Note in the inverse order of
maturity; and
(iii) On the Termination Date, the entire unpaid principal
balance of the Real Estate Term Note, and all unpaid interest accrued
thereon, shall in any event be due and payable.
SECTION 2.4 INTEREST; MINIMUM INTEREST CHARGE; DEFAULT INTEREST;
PARTICIPATIONS; USURY. Interest accruing on the Notes shall be due and payable
in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.4(d) and 2.4(g),
the outstanding principal balance of the Revolving Note shall bear interest
at the Revolving Floating Rate.
(b) TERM NOTES. Except as set forth in Sections 2.4(d) and 2.4(g), the
outstanding principal balance of the Term Notes shall respectively bear
interest at the Equipment Floating Rate and the Real Estate Floating Rate,
as applicable.
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(c) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to Section 2.4(a), the Borrower shall pay to the Lender interest
of not less than $12,000 per calendar month (the "Minimum Interest Charge")
during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Section 2.4(a) on the date and in the manner
provided in Section 2.6.
(d) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(e) RESERVED.
(f) RESERVED.
(g) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. Any determination
of the rate(s) of interest for determining whether the loans under the
Notes and the Obligations are usurious shall be made by amortizing,
prorating, allocating and spreading, during the term of loans if no demand
is made, all interest at any time contracted for, charged or received from
the Borrower in connection with such loans and Obligations, and any excess
shall be canceled or credited or refunded as set forth herein. If any
payments in the nature of interest, additional interest and other charges
made under any Loan Document are held to be in excess of the limits imposed
by any applicable usury laws, it is agreed that any such amount held to be
in excess shall be automatically considered payment of principal hereunder
or the applicable Loan Document (or if any such indebtedness shall have
been paid in full, refunded to the Borrower), and the indebtedness
evidenced thereby shall be reduced by such amount so that the total
liability for payments in the nature of interest, additional interest and
other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and
the Lender. This provision shall never be superseded or waived and shall
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control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
SECTION 2.5 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of $15,000, due and payable
upon the execution of this Agreement. The Lender acknowledges receipt of
$25,000 toward payment of this fee and the fees, costs and expenses
described in Sections 2.5(c) and 9.7.
(b) UNUSED LINE FEE. For the purposes of this Section 2.5(b), "Unused
Amount" means the Maximum Line reduced by outstanding Revolving Advances .
The Borrower agrees to pay to the Lender an unused line fee at the rate of
one-half of one percent (0.50%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of the month and
on the Termination Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently $700 per day per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
SECTION 2.6 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
SECTION 2.7 CAPITAL ADEQUACY. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.7:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
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having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return", for any period, means the return as determined by such
Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital
Adequacy Rules then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a calendar quarter
and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to
the extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.7, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
SECTION 2.8 VOLUNTARY PREPAYMENT; REDUCTION OF THE MAXIMUM LINE;
TERMINATION OF THE CREDIT FACILITY BY THE BORROWER. Except as otherwise provided
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may prepay the Term Advances (other than
in accordance with Section 2.3), terminate the Credit Facility or reduce the
Maximum Line at any time if it (i) gives the Lender at least 30 days' prior
written notice and (ii) pays the Lender the prepayment, termination or line
reduction fees in accordance with Section 2.9. Any prepayment of the Term
Advances (other than in accordance with Section 2.3) or reduction in the Maximum
Line must be in an amount not less than $500,000 or an integral multiple
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thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall
be immediately due and payable. Any partial prepayments of the Term Note (other
than in accordance with Section 2.3) shall be applied to principal payments due
and owing in inverse order of their maturities. Upon termination of the Credit
Facility and payment and performance of all Obligations, the Lender shall
release or terminate the Security Interest and the Security Documents to which
the Borrower is entitled by law.
SECTION 2.9 TERMINATION, LINE REDUCTION AND PREPAYMENT FEES; WAIVER
OF TERMINATION, PREPAYMENT AND LINE REDUCTION FEES.
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay to the Lender a
fee in an amount equal to a percentage of the Maximum Line (or the
reduction, as the case may be) as follows: (i) three percent (3.0%) if the
termination or reduction occurs on or before the first anniversary of the
Funding Date; (ii) two percent (2.0%) if the termination or reduction
occurs after the first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and (iii) one percent (1.0%) if the
termination or reduction occurs after the second anniversary of the Funding
Date.
(b) PREPAYMENT FEES. If either Term Note is prepaid for any reason
except in accordance with Section 2.3, the Borrower shall pay to the Lender
a fee in an amount equal to a percentage of the amount prepaid as follows:
(i) three percent (3.0%) if prepayment occurs on or before the first
anniversary of the Funding Date; (ii) two percent (2.0%) if prepayment
occurs after the first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and (iii) one percent (1.0%) if
prepayment occurs after the second anniversary of the Funding Date.
(c) WAIVER OF TERMINATION, LINE REDUCTION AND PREPAYMENT FEES. The
Borrower will not be required to pay the termination, line reduction and
prepayment fees otherwise due under this Section 2.9 if such termination,
line reduction or prepayment is made because of increased cash flow
generated from the Borrower's operations in the ordinary course of business
or refinancing by an affiliate of the Lender.
SECTION 2.10 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess. Any payment received by the
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Lender under this Section 2.10 or under Section 2.8 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine; provided that any prepayment under Section 2.8
which the Borrower designates as a partial prepayment of the Term Note shall be
applied to principal installments of the Term Note in inverse order of maturity.
SECTION 2.11 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations by the
Lender on the next Banking Day. All payments not constituting immediately
available funds shall be forwarded by the Lender to Regulus West LLC for
collection and processing in accordance with the Lockbox and Collection Account
Agreement. Notwithstanding anything in Section 2.1, the Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make a Revolving Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
SECTION 2.12 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
SECTION 2.13 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances first to repay in full all amounts owing to Bank One and secondly, for
ordinary working capital purposes.
SECTION 2.14 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
SECTION 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security
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interest (collectively referred to as the "Security Interest") in the
Collateral, as security for the payment and performance of the Obligations.
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. The
Lender may at any time (if a Default Period then exists) notify any account
debtor or other person obligated to pay the amount due that such right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrower will join in giving such notice if the
Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
SECTION 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
SECTION 3.4 OCCUPANCY.
(a) Without in any way limiting, modifying or waiving any other rights
or remedies provided to the Lender in this Agreement or under the Deed of
Trust and/or any other Loan
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Documents with respect to any Collateral, Borrower hereby agrees as
follows:
(i) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(ii) The Lender may at any time during a Default Period use
the Premises to hold, process, manufacture, sell, use, store,
liquidate, realize upon or otherwise dispose of goods that are
Collateral and for other purposes that the Lender may in good faith
deem to be related or incidental purposes.
(iii) The Lender's right to hold the Premises (excluding any
Premises constituting Collateral) shall cease and terminate upon the
earlier of (i) payment in full and discharge of all Obligations and
termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(iv) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.
SECTION 3.5 LICENSE. Without limiting the generality of the Copyright
Security Agreement or the Trademark Security Agreement, the Borrower hereby
grants to the Lender a non-exclusive, worldwide and royalty-free license to use
or otherwise exploit all trademarks, franchises, trade names, copyrights and
patents of the Borrower for the purpose of selling, leasing or otherwise
disposing of any or all Collateral during any Default Period.
SECTION 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in
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any state to perfect the security interests granted hereby. For this purpose,
the following information is set forth:
Name and address of Debtor:
Our Food Products Group, Inc.
#1 Chisholm Trail
Buda, Texas 78610
Federal Tax Identification No. 74-2877323
Name and address of Secured Party:
Wells Fargo Business Credit, Inc.
Norwest Center N9312-040
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Federal Tax Identification No. 41-1237652
SECTION 3.7 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING AND TERM
ADVANCES. The Lender's obligation to make the initial Revolving and Term
Advances hereunder shall be subject to the condition precedent that the Lender
shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, Deed of Trust and Assignment of Rents, each properly
executed by the Borrower.
(c) A true and correct copy of all leases, if any, pursuant to which
the Borrower is leasing the Premises,
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together with a landlord's disclaimer and consent with respect to each such
lease.
(d) A true and correct copy of any and all mortgages/deeds of trust
and assignment of rents pursuant to which the Borrower has encumbered the
Premises, together with, if requested, a mortgagee's disclaimer and consent
with respect to each such encumbrance.
(e) A true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than
the Borrower, together with, in the case of any goods held by such Person
for resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC
financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement against such Person and
covering property similar to the Borrower's other than the Borrower, or if
there exists any such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender sufficient to protect
the Borrower's and the Lender's interests in the Borrower's goods from any
claim by such secured party.
(f) An acknowledgment and waiver of liens from each warehouse in which
the Borrower is storing Inventory.
(g) A true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than
the Borrower, together with, (i) an acknowledgment and waiver of liens from
each subcontractor who has possession of the Borrower's goods from time to
time, (ii) UCC financing statements sufficient to protect the Borrower's
and the Lender's interests in such goods, and (iii) UCC searches showing
that no other secured party has filed a financing statement covering such
Person's property other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice
from the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such
secured party.
(h) The Lockbox and Collection Account Agreement, properly executed by
the Borrower, Regulus West, LLC and Wells Fargo Bank, N.A.
(i) The Trademark Security Agreement, properly executed by the
Borrower.
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(j) The Copyright Security Agreement, properly executed by the
Borrower.
(k) The Subordination Agreement, properly executed by KBK Financial,
Inc. and acknowledged by the Borrower.
(l) The Keep Well Agreement, properly executed by the Borrower and
MKGI
(m) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations and releases
of such assignments of patents, trademarks or copyrights satisfactory to
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(n) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf.
(o) A current certificate issued by the Secretary of State of Texas,
certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Texas.
(p) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(q) A certificate of an officer of the Borrower confirming, in his
personal capacity, the representations and warranties set forth in Article
V.
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(r) An opinion of counsel to the Borrower and MKGI, addressed to the
Lender.
(s) Certificates of the insurance required hereunder, with all hazard
insurance containing a mortgagee and lender's loss payable endorsement in
the Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(t) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.5 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
9.7, including all legal expenses incurred through the date of this
Agreement.
(u) A fully paid loan policy of title insurance issued in favor of
the Lender by a title company acceptable to the Lender in an amount not
less than one hundred and twenty-five percent (125%) of the principal
amount of the Real Estate Term Note insuring the Deed of Trust as a first
lien on a good and marketable fee simple title to the Mortgaged Property,
subject only to "Permitted Encumbrances" (as that term is defined in the
Deed of Trust) and, without limiting the generality of the foregoing,
insuring the Deed of Trust against claims for mechanic's liens, rights of
parties in possession and other matters, and containing such endorsements,
as the Lender may request.
(v) Written evidence of payment of (i) all real estate taxes relating
to the Mortgaged Property presently due and payable, and (ii) all levied
and pending assessments related to such Mortgaged Property (or, in lieu
thereof, payment in escrow of an amount determined by the Lender).
(w) A land survey of the Mortgaged Property, in form and substance
acceptable to the Lender, prepared at the Borrower's expense, currently
certified to the Lender by a licensed registered surveyor acceptable to the
Lender, and prepared in accordance with "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys" jointly established and
adopted by the ALTA/ACSM in 1997, meeting the accuracy requirements of an
Urban Survey, as defined therein and containing such items from Table A
thereof as may be requested by the Lender, including, but not limited to
(a) incorporating the legal description of the Mortgaged Property, (b)
showing the location of all improvements thereon, (c) showing the location
of all easements and encroachments onto or from the Mortgaged Property and
(d) showing all service roads, highways and parking areas on or serving the
Mortgaged Property.
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(x) A uniform land use confirmation form from the applicable
governing authorities with respect to the Mortgaged Property reflecting a
current zoning status for the Mortgaged Property and containing such other
matters and confirmations as may be requested by the Lender, together with
a Certificate of Occupancy duly issued with respect to the Mortgaged
Property.
(y) Evidence satisfactory to the Lender that the Mortgaged Property
and the current and contemplated uses thereof are permitted by and comply
in all material respects with all applicable restrictions and requirements
and prior conveyances, zoning ordinances, subdivision and platting
requirements and other laws and regulations and have been duly approved by
the municipal or other governmental authorities having jurisdiction and
that the required building, zoning, environmental and other permits,
approvals and licenses have been duly obtained as required by law.
(z) Evidence acceptable to the Lender that no hazardous waste or
substances are contained on, under or in the Mortgaged Property, including,
without limitation, the delivery of an acceptable Phase I Environmental
Assessment with respect to the Mortgaged Property.
(aa) An appraisal prepared by an MAI designated appraiser acceptable
to the Lender setting forth the estimated fair market value of the
Mortgaged Property, together with such documentation as may be necessary to
permit the Lender to rely thereon, all in form and content acceptable to
the Lender.
(ab) Such other documents as the Lender in its sole discretion may
require.
SECTION 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
SECTION 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Texas and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
SECTION 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any
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nature (other than the Security Interest) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
SECTION 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon
due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
SECTION 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4 hereto,
the Borrower has no Subsidiaries.
SECTION 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender its preliminary audited financial statements
for its fiscal year ended December 31, 1999 and its unaudited financial
statements for the fiscal year-to-date period ended April 30, 2000 and those
statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the Borrower's business, properties or
condition (financial or otherwise).
SECTION 5.6 LITIGATION. Except as otherwise disclosed in SCHEDULE 5.6
hereof, there are no actions, suits or proceedings pending or, to the Borrower's
knowledge, threatened against or affecting the Borrower or any of its Affiliates
or the properties of the Borrower or any of its Affiliates before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of
its Affiliates, would have a material adverse effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
SECTION 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
SECTION 5.8 TAXES. The Borrower and its Affiliates have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers
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of the Borrower or any Affiliate, as the case may be, are required to be filed,
and the Borrower and its Affiliates have paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
SECTION 5.9 TITLES AND LIENS. The Borrower has good and absolute
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens.
SECTION 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
SECTION 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
SECTION 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or
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ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(d) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and there is no threat that any
such permit will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses
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and other documents describing or relating in any way to the Premises or
Borrower's businesses.
SECTION 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
SECTION 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
SECTION 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
SECTION 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and (i) in any event within thirty (30) days
after the Funding Date, the Borrower's
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audited financial statements for calendar year 1999 (which shall, among
other things, reflect no material adverse change to the financial condition
of the Borrower as set forth in the preliminary audited financial
statements for calendar year 1999 described in Section 5.5 hereof), and
(ii) in any event within 120 days after the end of each fiscal year of the
Borrower, the Borrower's audited financial statements for such fiscal year,
each of such audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, and which shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year
then ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) copies of all
management letters prepared by such accountants; (ii) a report signed by
such accountants stating that in making the investigations necessary for
said opinion they obtained no knowledge, except as specifically stated, of
any Default or Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the requirements set forth in Sections
6.13, 6.14, 6.15, 6.16, 6.17, 6.18, 6.19, 6.20, 6.21, and 7.10; and (iii) a
certificate of the Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with GAAP and whether
or not such officer has knowledge of the occurrence of any Default or Event
of Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
(b) as soon as available and in any event within 30 days after the end
of each month, an unaudited/internal balance sheet and statements of income
and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so
requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with GAAP, subject to year-end audit adjustments;
and accompanied by a certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit C hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail
the
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facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the Borrower
is in compliance with the requirements set forth in Sections 6.13, 6.14,
6.15, 6.16, 6.17, 6.18, 6.19, 6.20, 6.21, and 7.10;
(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report, and a calculation
of the Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period;
(d) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month
of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer
as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(e) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $10,000;
(f) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action
which the Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(h) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution
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required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the action
which the Borrower proposes to take with respect thereto, together with a
copy of any notice of such failure required to be provided to the Pension
Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding $10,000 individually; (ii)
credit memos; (iii) any goods returned to or recovered by the Borrower; and
(iv) any change in the persons constituting the Borrower's officers and
directors;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral
or such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent
to its stockholders;
(1) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
SECTION 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from
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or copy any and all corporate and financial books and records of the Borrower at
all times during ordinary business hours, to send and discuss with account
debtors and other obligors requests for verification of amounts owed to the
Borrower, and to discuss the Borrower's affairs with any of its directors,
officers, employees or agents. The Borrower will permit the Lender, or its
employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
SECTION 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
SECTION 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
SECTION 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been made.
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SECTION 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.6 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens
and encumbrances except Permitted Liens.
SECTION 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsements for the Lender's benefit acceptable to the Lender, and may
not be canceled or modified by the applicable insurance company without thirty
(30) days prior written notice to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
SECTION 6.8 PRESERVATION OF EXISTENCE. The Borrower will preserve and
maintain its existence and all of its rights,
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privileges and franchises necessary or desirable in the normal conduct of its
business and shall conduct its business in an orderly, efficient and regular
manner.
SECTION 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
SECTION 6.10 LENDER ACCOUNT.
(a) If, notwithstanding the instructions to debtors to make payments
to any Lockbox for the benefit of the Lender, the Borrower receives any
payments on Receivables, the Borrower shall deposit such payments into the
Lender Account. Until so deposited, the Borrower shall hold all such
payments in trust for and as the property of the Lender and shall not
commingle such payments with any of its other funds or property.
(b) Amounts deposited in the Lender Account shall not bear interest
and shall not be subject to withdrawal by the Borrower, except after full
payment and discharge of all Obligations.
(c) All deposits in the Lender Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations. The Lender
from time to time at its discretion may, after allowing two (2) Banking
Days, transfer such funds to the Lender's general account and after
allowing one (1) additional Banking Day, apply such deposited funds in the
Lender Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender.
(d) All items deposited in the Lender Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Lender Account,
the bank maintaining such account, the amount of that item, or such bank at
its discretion may charge any uncollected item to the Borrower's commercial
account or other account. The Borrower shall be liable as an endorser on
all items deposited in the Lender Account, whether or not in fact endorsed
by the Borrower.
SECTION 6.11 RESERVED.
SECTION 6.12 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if
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such failure shall continue for a period of ten calendar days after the Lender
gives the Borrower written notice thereof (or in the case of the agreements
contained in Sections 6.5, 6.7 and 6.10, immediately upon the occurrence of such
failure, without notice or lapse of time), the Lender may, but need not, perform
or observe such covenant on behalf and in the name, place and stead of the
Borrower (or, at the Lender's option, in the Lender's name) and may, but need
not, take any and all other actions which the Lender may reasonably deem
necessary to cure or correct such failure (including, without limitation, the
payment of taxes, the satisfaction of security interests, liens or encumbrances,
the performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
the Borrower shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by the Lender in connection with or as a result of
the performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred at
the Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
SECTION 6.13 RESERVED.
SECTION 6.14 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower will
maintain at all times on a year-to-date basis its Debt Service Coverage Ratio,
determined as at the end of each fiscal quarter and year end, at not less than
1.10 to 1.00
SECTION 6.15 RESERVED.
SECTION 6.16 RESERVED.
SECTION 6.17 RESERVED.
SECTION 6.18 RESERVED.
SECTION 6.19 MAXIMUM MONTHLY NET LOSS. The Borrower will not incur
during any calendar month a net loss, i.e. negative
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Net Income, in excess of ($50,000) determined as of each calendar month end,
except during the calendar month of January during each fiscal year for which
such loss shall not exceed ($100,000).
SECTION 6.20 MINIMUM QUARTERLY NET INCOME. The Borrower will achieve
as of the end of each fiscal quarter, a minimum Net Income of not less than $0
for such quarter; provided however that for the first fiscal quarter ending
March 31st of each fiscal year, the Borrower shall be permitted to incur a net
loss, i.e. negative Net Income, up to but not in excess of ($150,000).
SECTION 6.21 MINIMUM ANNUAL NET INCOME. The Borrower will achieve as
of each fiscal year end described below, Net Income of not less than the amount
set forth opposite such year end:
FYE MINIMUM NET INCOME
--- ------------------
12/31/00 $50,000
12/31/01 $150,000
12/31/02 $200,000
SECTION 6.22 RESERVED.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
SECTION 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in SCHEDULE 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2; provided, however, that with respect to the indebtedness of the
Borrower owing to
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KBK Financial, Inc., such indebtedness and all deeds of trust, mortgages and
other liens granted by the Borrower and securing such indebtedness, together
with the indebtedness secured thereby, shall at all times remain subject and
subordinate to the Obligations and the Security Interest, the Deed of Trust and
all other liens and security interests created by the Security Documents, each
pursuant to the terms and conditions set forth in the Subordination Agreement;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof, not exceeding $25,000 for any one purchase or
$100,000 in the aggregate during any fiscal year and so long as no Default
Period is then in existence and none would exist immediately after such
acquisition.
SECTION 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in SCHEDULE 7.2 hereto; provided, however, that with respect to the
indebtedness of the Borrower owing to KBK Financial, Inc., such
indebtedness and all deeds of trust, mortgages and other liens granted by
the Borrower and securing such indebtedness, together with the indebtedness
secured thereby, shall at all times remain subject and subordinate to the
Obligations and the Security Interest, the Deed of Trust and all other
liens and security interests created by the Security Documents, each
pursuant to the terms and conditions set forth in the Subordination
Agreement; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
SECTION 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
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(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in SCHEDULE 7.2 hereto.
SECTION 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $10,000; and
(iii) advances in the form of progress payments, prepaid rent not
exceeding three (3) months or security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary,
other than the Subsidiar(y)(ies) in existence on the date hereof and listed
in Schedule 5.4.
SECTION 7.5 DIVIDENDS. Except as set forth below, the Borrower will
not declare or pay any dividends (other than dividends payable solely in stock
of the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
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SECTION 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
SECTION 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
SECTION 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
SECTION 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
SECTION 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures (inclusive of Capital Expenditures
financed with other lenders under Sections 7.1 and 7.2 hereof) during any fiscal
year, of more than $100,000 (or $125,000 for fiscal year 2000) in the aggregate
or more than $25,000 in any one transaction.
SECTION 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
SECTION 7.12 DISCOUNTS, ETC. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
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SECTION 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
SECTION 7.14 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
SECTION 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
SECTION 7.16 ORGANIZATIONAL DOCUMENTS; S CORPORATION STATUS. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended.
SECTION 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment.
SECTION 7.18 CHANGE IN OWNERSHIP. The Borrower will not issue or sell
any stock, or any options, warrants or convertible indebtedness for the issuance
of any stock, of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the Borrower
will not permit or suffer to occur the sale, transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding shares of stock,
or any options, warrants or convertible indebtedness for the issuance of any
stock, of the Borrower; provided, however, (a) "MKGI" may purchase the capital
stock of any other shareholder of the Borrower, (b) the Borrower may issue to
KBK Financial, Inc. the capital stock contemplated by that certain Stock Warrant
dated May 15, 1998 between the borrower and KBK Financial, Inc. for the issuance
of certain shares of preferred
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stock and that certain stock warrant dated May 15, 1998 between the Borrower and
KBK Financial, Inc. for the issuance of certain shares of common stock, each in
accordance with the terms and conditions set forth therein without any further
modification except with the prior written consent of the Lender, (c) the
issuance of common stock pursuant to the Borrower's stock option plan provided
that at no time shall the percentage of voting and non-voting capital stock
owned by any such employees exceed more than ten percent (10%) of the issued and
outstanding voting and non-voting stock of the Borrower, and (d) the issuance of
common stock to MKGI or in connection with the conversion of the Borrower's
Class A Convertible Preferred Stock, Class B Convertible Preferred Stock or
Class C Convertible Preferred Stock provided further that at all times after
consummation of such conversions, MKGI shall own with the power to vote at least
fifty-one percent (51%) of the issued and outstanding voting capital stock of
the Borrower.
SECTION 7.19 CHANGE IN SENIOR MANAGEMENT. The Borrower represents and
warrants to Lender that the current chief executive officer, chief financial
officer and chief operating officer for the Borrower are Fredrick Schulman,
Julie P. Tedesco and Harry J. Trube, respectively, and the Borrower agrees that
it will not make any change in such senior management positions or terminate any
such senior manager without the prior written consent of the Lender.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
SECTION 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower, MKGI or any Guarantor shall be or become insolvent,
or admit in writing its or his inability to pay its or his debts as they
mature, or make an assignment for the benefit of creditors; or the
Borrower, MKGI or any Guarantor shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or him or
for all or any substantial part of its or his property; or such receiver,
trustee or similar officer shall be appointed without the application or
consent of the Borrower or such
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Guarantor, as the case may be; or the Borrower, MKGI or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under
the laws of any jurisdiction; or any such proceeding shall be instituted
(by petition, application or otherwise) against the Borrower, MKGI or any
such Guarantor; or any judgment, writ, warrant of attachment or execution
or similar process shall be issued or levied against a substantial part of
the property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower, MKGI or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor;
(f) KBK Financial, Inc. shall breach or be in violation of any of the
terms and provisions set forth in the Subordination Agreement; or MKGI
shall be in breach of or violate any of the terms or provisions set forth
in the Keep Well Agreement.
(g) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by
the Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(h) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $25,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(j) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any
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Plan or for the appointment by the appropriate United States District Court
of a trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to the
Borrower by the Lender; or a trustee shall have been appointed by an
appropriate United States District Court to administer any Plan; or the
Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Plan or to appoint a trustee to administer any Plan; or the
Borrower shall have filed for a distress termination of any Plan under
Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the
Internal Revenue Code of 1986, as amended, which the Lender determines in
good faith may by itself, or in combination with any such failures that the
Lender may determine are likely to occur in the future, result in the
imposition of a lien on the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under or the Borrower shall be in
breach of any term or provision under any Security Document or under any
other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any obligations of the Borrower hereunder
or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for
which it shall have set aside on its books adequate reserves therefor) or
notice of any state or federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or fail to
perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, any individual Guarantor shall die or any other
Guarantor shall cease to exist;
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(p) The Borrower shall take or participate in any action which would
be prohibited under the provisions of any Subordination Agreement or make
any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive under
the provisions of the Subordination Agreement;
(q) Any event or circumstance with respect to the Borrower shall
occur such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur;
(r) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender; or
(s) Any breach by the Borrower of the terms under Section 7.19 hereof
or the chief executive officer, chief financial officer or chief operating
officer of the Borrower shall resign and the Borrower shall fail within 90
calendar days thereafter to engage and appoint a qualified successor
acceptable to the Lender in its sole and absolute discretion.
SECTION 8.2 RIGHTS AND REMEDIES. During any Default Period, the
Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral,
or any evidence thereof, proceeding without judicial process or by judicial
process
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(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and, in connection therewith, the Borrower will
on demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
SECTION 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
SECTION 9.2 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
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SECTION 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Our Food Products Group, Inc.
#1 Chisholm Trail
Buda, Texas 78610
Telecopier: 512-295-3020
Attention: Julie P. Tedesco, CFO
If to the Lender:
Wells Fargo Business Credit, Inc.
Norwest Center N9312-040
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Telecopier: 612/341-2472
Attention: Michelle Salisbury
and to:
Wells Fargo Business Credit, Inc.
6100 Bandera Road
Suite SL100
San Antonio, Texas 78238
Telecopier: 210/856-8989
Attention: Michelle Salisbury
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
SECTION 9.4 RESERVED.
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SECTION 9.5 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
SECTION 9.6 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
SECTION 9.7 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
SECTION 9.8 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.7, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
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(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of
the execution and delivery of the Loan Documents or the making of the
Advances;
(ii) any claims, loss or damage to which any Indemnitee may
be subjected if any representation or warranty contained in Section
5.12 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or
nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether
or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in
any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.8 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
SECTION 9.9 PARTICIPANTS. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
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SECTION 9.10 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
SECTION 9.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
SECTION 9.12 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
SECTION 9.13 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 9.14 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (iv) agrees
that a
51
<PAGE>
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Notwithstanding the forgoing, nothing herein shall
affect the right of the Lender to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction. THE
PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS AGREEMENT.
[The remainder of this page has been intentionally left blank.]
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit and
Security Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
WELLS FARGO BUSINESS CREDIT, INC. OUR FOOD PRODUCTS GROUP, INC.
By /s/ Michelle Salisbury By /s/ Julie Tedesco
------------------------------- ------------------------------
Michelle Salisbury Julie Tedesco
Its Vice President Its Chief Financial Officer
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Compliance Certificate
Exhibit D Premises
------------------
[SCHEDULE 2.13 SOURCES AND USES OF FUNDS]
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.4 Subsidiaries
Schedule 5.6 Litigation
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
54
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$2,000,000.00 Minneapolis, Minnesota
May 31, 2000
For value received, the undersigned, OUR FOOD PRODUCTS GROUP, INC.,
f/k/a Hamlin Food Products Group, Inc., a Texas corporation (the "Borrower"),
hereby promises to pay on the Termination Date under the Credit Agreement
(defined below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Two Million and 00/100 Dollars ($2,000,000.00) or, if less, the aggregate
unpaid principal amount of all Revolving Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
OUR FOOD PRODUCTS GROUP, INC.
By
----------------------------
----------------------------
Its President
55
<PAGE>
Exhibit B-1 to Credit and Security Agreement
EQUIPMENT TERM NOTE
$110,000.00 Minneapolis, Minnesota
May 31, 2000
For value received, the undersigned, OUR FOOD PRODUCTS GROUP, INC.,
f/k/a Hamlin Food Products Group, Inc., a Texas corporation (the "Borrower"),
hereby promises to pay on the Termination Date under the Credit Agreement
(defined below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of One Hundred Ten Thousand and 00/100 Dollars ($110,000.00) or, if less,
the aggregate unpaid principal amount of all Term Advances made by the Lender to
the Borrower under the Credit Agreement (defined below) together with interest
on the principal amount hereunder remaining unpaid from time to time, computed
on the basis of the actual number of days elapsed and a 360-day year, from the
date hereof until this Note is fully paid at the rate from time to time in
effect under the Credit and Security Agreement of even date herewith (as the
same may hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Equipment Term Note referred to in the Credit Agreement. This Note is secured,
among other things, pursuant to the Credit Agreement and the Security Documents
as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
OUR FOOD PRODUCTS GROUP, INC.
By
-----------------------------
-----------------------------
Its President
56
<PAGE>
Exhibit B-2 to Credit and Security Agreement
REAL ESTATE TERM NOTE
$1,223,000.00 Minneapolis, Minnesota
May 31, 2000
For value received, the undersigned, OUR FOOD PRODUCTS GROUP, INC.,
f/k/a Hamlin Food Products Group, Inc., a Texas corporation (the "Borrower"),
hereby promises to pay on the Termination Date under the Credit Agreement
(defined below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of One Million Two Hundred Twenty-three Thousand and 00/100 Dollars
($1,223,000.00) or, if less, the aggregate unpaid principal amount of all Term
Advances made by the Lender to the Borrower under the Credit Agreement (defined
below) together with interest on the principal amount hereunder remaining unpaid
from time to time, computed on the basis of the actual number of days elapsed
and a 360-day year, from the date hereof until this Note is fully paid at the
rate from time to time in effect under the Credit and Security Agreement of even
date herewith (as the same may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
OUR FOOD PRODUCTS GROUP, INC.
By
------------------------------
------------------------------
Its President
57
<PAGE>
Exhibit C to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Michelle Salisbury
Wells Fargo Business Credit, Inc.
Date: __________________, 200___
Subject: Our Food Products Group, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of May
31, 2000 (the "Credit Agreement"), attached are the financial statements of Our
Food Products Group, Inc. (the "Borrower") as of and for ________________, 200_
(the "Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
EVENTS OF DEFAULT. (Check one):
-----------------
o The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
o The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
I hereby certify to the Lender as follows:
o The Reporting Date does not mark the end of one of the
Borrower's fiscal quarters, hence I am completing only
paragraphs __ and __ below.
o The Reporting Date marks the end of one of the Borrower's
fiscal quarters, hence I am completing all paragraphs below
except paragraphs __ and __.
o The Reporting Date marks the end of the Borrower's fiscal
year, hence I am completing all paragraphs below.
FINANCIAL COVENANTS. I further hereby certify as follows:
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<PAGE>
1. MINIMUM DEBT SERVICE COVERAGE RATIO. Pursuant to Section 6.14 of
the Credit Agreement, as of the Reporting Date, the Borrower's Debt Service
Coverage Ratio was _____ to 1.00 which o satisfies o does not satisfy the
requirement that such ratio be no less than 1.10 to 1.00 on the Reporting Date.
2. MAXIMUM MONTHLY NET LOSS. Pursuant to Section 6.19 of the Credit
Agreement, as of the Reporting Date, the Borrower's monthly Net Income (or net
loss reflected as a negative number) was $________ which o satisfies o does not
satisfy the requirement that such amount be greater than the maximum net loss of
($50,000) (or ($100,000) for the month of January) on the Reporting Date .
3. MINIMUM QUARTERLY NET INCOME. Pursuant to Section 6.20 of the
Credit Agreement, the Borrower's quarterly net income for the fiscal quarter
ending on the Reporting Date, was $________, which o satisfies o does not
satisfy the requirement that such amount be not less than $0 for such fiscal
quarter (or up to a maximum net loss of ($150,000) for the first fiscal quarter
ending March 31st).
4. MINIMUM ANNUAL NET INCOME. Pursuant to Section 6.21 of the Credit
Agreement, the Borrower's Net Income for the fiscal year ending on the Reporting
Date, was $____________, which o satisfies o does not satisfy the requirement
that such amount be not less than $_____________ for such fiscal year end as set
forth in table below:
FYE MINIMUM NET INCOME
--- ------------------
12/31/00 $50,000
12/31/01 $150,000
12/31/02 $200,000
5. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________ year
ended ______________, 200___, for Capital Expenditures, $__________________ in
the aggregate and at most $______________ in any one transaction, which o
satisfies o does not satisfy the requirement that such expenditures not exceed
$100,000 in the aggregate (or $125,000 for fiscal year 2000) and $20,000 for any
one transaction during such year.
6. SALARIES. As of the Reporting Date, the Borrower o is o is not in
compliance with Section 7.17 of the Credit Agreement concerning salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
OUR FOOD PRODUCTS GROUP, INC.
By
------------------------------
Julie Tedesco
Its Chief Financial Officer
59
<PAGE>
Exhibit D to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
[To be completed by Borrower]
60
<PAGE>
Schedule 2.13 to Credit and Security Agreement
Sources and Uses of Funds
Wells Fargo loan proceeds will be used to pay off Our Food Products
Group, Inc's revolver, equipment, and real estate loans with Bank One.
61
<PAGE>
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place
of Business, and Locations of Collateral
TRADE NAMES
[To be completed by Borrower]
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Our Food Products Group, Inc.
#1 Chisholm Trail
Buda, Texas 78610
OTHER INVENTORY AND EQUIPMENT LOCATIONS
Glass and lid inventory located at:
Berlin Packaging
4030 Binz Engleman, Suite 306
San Antonio, Texas 78219
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<PAGE>
Schedule 5.4 to Credit and Security Agreement
SUBSIDIARIES
None
63
<PAGE>
Schedule 5.6 to Credit and Security Agreement
LITIGATION
--------------------------
64
<PAGE>
Schedule 7.1 to Credit and Security Agreement
PERMITTED LIENS
CREDITOR COLLATERAL JURISDICTION FILING DATE FILING NO.
-------- ---------- ------------ ----------- ----------
[to be completed by Borrower]
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<PAGE>
Schedule 7.2 to Credit and Security Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
INDEBTEDNESS
CREDITOR PRINCIPAL AMOUNT MATURITY DATE MONTHLY PAYMENT COLLATERAL
[to be completed by Borrower]
GUARANTIES
AMOUNT AND DESCRIPTION OF
PRIMARY OBLIGOR OBLIGATION GUARANTEED BENEFICIARY OF GUARANTY
--------------- ------------------------- -----------------------
[To be completed by Borrower]
66
