UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15(d)
of The Securities Exchange Act of 1934
For The Quarter Ended June 30, 1997 Commission file number 1-19773
OTR EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0993128
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
804 N. Meadowbrook Drive
PO Box 2819, Olathe, Kansas 66063-0819
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913) 829-1616
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No __
1,840,515
(Number of shares of common stock outstanding as of July 31, 1997)
<PAGE>
PART 1 FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
OTR EXPRESS, INC.
BALANCE SHEETS
<CAPTION>
June 30 December 31
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 119,190 $ 43,107
Accounts receivable, freight 7,489,479 6,139,335
Accounts receivable, other 352,257 297,585
Inventory 586,910 590,165
Prepaid expenses and other 858,655 610,868
TOTAL CURRENT ASSETS 9,406,491 7,681,060
PROPERTY AND EQUIPMENT 46,972,030 42,894,525
TOTAL ASSETS $ 56,378,521 $ 50,575,585
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ - $ 1,389,000
Accounts payable, trade 1,449,571 1,396,760
Accrued payroll and taxes 1,633,902 823,811
Other accrued expenses 1,321,393 1,180,900
Current portion of long-term debt 14,511,767 14,361,651
TOTAL CURRENT LIABILITIES 18,916,633 19,152,122
NOTE PAYABLE, BANK 2,876,136 -
LONG-TERM DEBT 24,275,194 21,019,354
DEFERRED INCOME TAXES 1,553,368 1,599,014
STOCKHOLDERS' EQUITY 8,757,190 8,805,095
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 56,378,521 $ 50,575,585
</TABLE>
<PAGE>
<TABLE>
OTR EXPRESS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Second Quarter Ended Six Months Ended
June 30 June 30
(Unaudited) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUE
Freight revenue $14,772,396 $12,599,874 $27,644,872 $24,915,486
Brokerage revenue 890,529 806,513 1,849,044 1,523,250
Total operating
revenue 15,662,925 13,406,387 29,493,916 26,438,736
OPERATING EXPENSES
Salaries, wages and
benefits 6,216,571 5,255,914 11,740,174 10,659,446
Purchased
transportation 846,968 733,775 1,787,379 1,380,574
Fuel 1,876,073 1,696,242 3,700,475 3,335,531
Maintenance 932,475 792,804 1,788,299 1,597,510
Depreciation 1,810,702 1,755,076 3,527,092 3,454,036
Insurance and claims 534,870 361,195 851,388 752,720
Taxes and licenses 1,512,610 1,441,736 2,967,285 2,964,487
Supplies and other 894,550 662,676 1,701,284 1,285,678
Total operating
expenses 14,624,819 12,699,418 28,063,376 25,429,982
Operating income 1,038,106 706,969 1,430,540 1,008,754
Interest expense 799,826 646,297 1,520,468 1,337,083
Income (loss)
before income taxes 238,280 60,672 (89,928) (328,329)
Income tax
expense (benefit) 90,546 24,980 (34,173) (142,765)
Net income (loss) $ 147,734 $ 35,692 $ (55,755) $ (185,564)
Average shares
outstanding 1,840,515 1,835,518 1,840,685 1,835,783
Net income (loss)
per share $ 0.08 $ 0.02 $ (0.03) $ (0.10)
</TABLE>
<PAGE>
<TABLE>
OTR EXPRESS, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30
(Unaudited) 1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 2,797,238 $ 2,778,545
INVESTING ACTIVITIES
Acquisition of property
and equipment (10,884,554) (4,549,487)
Proceeds from disposition
of property and equipment 3,279,957 975,000
NET CASH USED IN
INVESTING ACTIVITIES (7,604,597) (3,574,487)
FINANCING ACTIVITIES
Proceeds from issuance
of long-term debt 14,168,142 11,910,687
Repayments of long-term debt (10,762,186) (8,462,340)
Net increase (decrease) in
bank note payable 1,487,136 (2,522,555)
Other (9,650) (6,999)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,883,442 918,793
NET INCREASE IN CASH 76,083 122,851
CASH, BEGINNING OF PERIOD 43,107 36,101
CASH, END OF PERIOD $ 119,190 $ 158,952
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest $ 1,520,905 $ 1,356,024
Cash received for income taxes (3,526) (81,460)
</TABLE>
<PAGE>
OTR EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The financial statements included herein have been prepared by management,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures are adequate to enable a reasonable understanding of the
information presented. In the opinion of management, all adjustments
considered necessary for a fair presentation of the financial statements
have been included. For further information, refer to the Company's
financial statements and footnotes thereto included in the Annual Report
and Form 10-K for the year ended December 31, 1996.
NOTE 2 - LONG-TERM DEBT AND COMMITMENTS
During the six months ended June 30, 1997, the Company financed the
purchase of revenue equipment through the issuance of long-term debt
totaling $10,918,000. This debt bears interest at effective rates between
8.00% and 8.73%. The Company refinanced encumbered revenue equipment
through the issuance of long-term debt totaling $3,300,000. This debt
bears interest at an effective rate of 8.66%.
At June 30, 1997, the Company had purchase and finance commitments
outstanding for additional revenue equipment totaling $5,030,174. The
Company anticipates receiving proceeds from the sale or trade-in of 48
tractors and 190 trailers in association with these commitments.
NOTE 3 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the
computation of earnings per share. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and requires
restatement for all prior period earnings per share data presented. The
Company will be required to adopt FAS No. 128 in the fourth quarter of
1997, but does not expect that adoption will have a material effect on
earnings per share.
NOTE 4 - RECLASSIFICATIONS
Certain reclassifications have been made to the balance sheet for the prior
period to conform to the current period presentation.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
2nd Quarter 1997 v. 1996
Operating Revenue. Operating revenue improved by 16.8% to $15.7
million in the second quarter ended June 30, 1997 from $13.4 million in
1996. Freight revenue increased by 17.2% and brokerage revenue increased
by 10.4%.
Freight revenue improved primarily due to an increase in the rate per
mile to $1.032 in the second quarter of 1997 compared to $0.991 in 1996.
The higher rate is primarily a result of a higher level of direct shipper
miles in 1997 compared to 1996. The average number of tractors in service
were 525 in the second quarter of 1997 compared to 508 in 1996. Average
miles per truck per week increased to 2,106 from 1,928 due to increased
freight demand. The Company's empty mile percent increased to 7.3% from
6.5% in 1996.
Brokerage revenue decreased to 5.7% of revenue from 6.0% in 1996.
Operating Expenses. The operating ratio (total operating expenses
as a percent of operating revenue) improved to 93.4% in the second quarter
of 1997 compared to 94.7% in 1996.
Salaries, wages and benefits increased to 39.7% of revenue in 1997 from
39.2% in 1996 due to the hiring of additional customer service and dispatch
personnel.
Purchased transportation represents payments to other trucklines for
hauling loads contracted through the Company's freight brokerage division.
Purchased transportation decreased to 5.4% of revenue in 1997 from 5.5% in
1996.
Fuel was 12.0% of revenue in 1997 compared to 12.7% in 1996. The
Company's blended average cost per gallon was $1.124 in 1997 compared to
$1.142 in 1996, as a result of lower diesel fuel prices nationwide in the
second quarter of 1997.
Depreciation as a percent of revenue decreased to 11.6% in 1997 from
13.1% in 1996 as a result of higher revenue per mile.
Taxes and licenses as a percent of revenue decreased from 10.8% in 1996
to 9.7% in 1997 as a result of the increased revenue per mile.
Supplies and other expenses were 5.7% of revenue in 1997 compared to
4.9% in 1996 as a result of an increase in advertising for drivers and the
cost of on-board satellite communications, which were installed in all of
the Company's tractors in August 1996.
Interest Expense. Interest expense increased to 5.1% of revenue in
1997 from 4.8% in 1996 as a result of higher debt levels per unit.
<PAGE>
Net Income (Loss). The Company reported net income of $148,000, or
$0.08 per share, for the second quarter of 1997 compared to net income of
$36,000, or $0.02 per share, in 1996. The effective income tax rate was
38.0% in 1997 compared to 41.2% in 1996.
Six Months Comparison 1997 v. 1996
Operating Revenue. Operating revenue for the six months ended June
30, 1997 increased by 11.6% to $29.5 million from $26.4 million in 1996.
Freight income increased by 11.6% during the period while brokerage income
increased by 21.4%. Average revenue per mile increased from $0.983 in 1996
to $1.022 in 1997. Average miles per week per truck increased to 2,039 in
1997 from 1,923 in 1996. The average number of tractors increased for the
first six months of 1997 to 516 units in service from 510 in 1996. In
addition, empty miles were 7.3% of total miles in the first six months of
1996 compared to 6.7% in 1995.
Operating Expenses. The operating ratio for the first six months of
1997 improved to 95.1% compared to 96.2% in 1996.
Salaries, wages and benefits decreased to 39.8% of revenue for the first
six months of 1997 compared to 40.3% in 1996 as a result of the higher
revenue per mile.
Fuel decreased slightly to 12.5% of revenue in 1997 from 12.6% in 1996
as a result of higher revenue per mile. The Company's blended average cost
per gallon was $1.166 in 1997 compared to $1.122 in 1996.
Depreciation as a percent of revenue decreased to 12.0% in 1997 from
13.1% as a result of the higher revenue per mile.
Taxes and licenses as a percent of revenue declined from 11.2% in 1996
to 10.1% as a result of higher revenue per mile.
Supplies and other expenses were 5.8% of revenue in 1997 compared to
4.9% in 1996 as a result of an increase in advertising for drivers and
service costs of on-board communications.
Interest Expense. Interest expense increased to 5.2% of revenue in
1997 from 4.1% in 1996 as a result of increased borrowings per unit in1997.
Net Income (Loss). For the first six months of 1997, the Company
reported a net loss of $56,000, or $0.03 per share, compared to net loss of
$186,000, or $0.10 per share, in 1996. The effective income tax rate for
the first six months of 1997 was 38.0% compared to 43.5% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The growth of the Company's business has required significant
investments in new revenue equipment, which has been acquired primarily
through secured borrowings. Capital expenditures for
<PAGE>
revenue equipment purchases totaled $10,885,000 for the six months ended
June 30, 1997. The Company received $3,280,000 in proceeds from the
disposition of revenue equipment. The Company has outstanding purchase
commitments for 41 replacement tractors at a cost of $3.3 million and 75
replacement trailers at a cost of $1.5 million. The Company has finance
commitments for 100% of the equipment purchases at rates that will be fixed
at time of origination. The Company's other capital expenditures will be
financed through internally generated funds and secured borrowings.
Historically, the Company has obtained loans for revenue equipment which
are of shorter duration (three years for trailers, four years for tractors)
than the economic useful lives of the equipment. While such loans have
current maturities that tend to create working capital deficits that could
adversely affect cash flows, management believes that these factors are
mitigated by the more attractive interest rates and terms available on
these shorter maturities. This financing practice has been a significant
cause of the working capital deficit which has existed since the Company's
inception. However, in 1997 the Company began financing tractors over
fifty-four months to reflect a longer holding period for the tractors.
Trailers will be financed over sixty months. This method of financing can
be expected to continue to produce working capital deficits in the future.
The Company's working capital deficit at June 30, 1997 was $9.5 million.
Primarily due to the Company's equity position and the potential for
refinancing of both unencumbered and encumbered assets, working capital
deficits historically have not been a barrier to the Company's ability to
borrow funds for operations and expansion.
In June 1997, the Company entered into a new revolving line of credit
agreement with a financial institution. The maximum borrowing on the line
is $7 million through December 31, 1997. Should the Company's tangible net
worth exceed $9 million based on the December 31, 1997 audited financial
statements, the maximum borrowing on the line increases to $8 million. The
line bears interest at a variable rate, based upon the prime rate or LIBOR,
at the Company's election, expires June 9, 2000 and is secured by accounts
receivable of the Company. The agreement allows for maximum advances of
85% of eligible accounts receivable less than 60 days past invoice date.
The agreement contains certain covenants relating to tangible net worth,
leverage ratios, debt service coverage and other factors. The Company was
in compliance with all required covenants at June 30, 1997. The Company
had borrowings of $2.9 million under this line at June 30, 1997. A total
of $1.5 million of the available credit line was committed for letters of
credit issued by the financial institution.
In management's opinion, the Company has adequate liquidity for the
foreseeable future based upon funds expected to be generated from
operations, the availability of equity in the Company's assets and the
Company's ability to obtain secured equipment financing.
Certain of the preceding paragraphs contain forward-looking statements
that are based on current expectations and are subject to risks and
uncertainties. Actual results could differ materially from current
expectations due to a number of factors, including general economic
conditions, competitive factors, pricing pressures and other factors.
<PAGE>
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings...............................*
ITEM 2 - Changes in Securities............................*
ITEM 3 - Defaults Upon Senior Securities...................*
ITEM 4 - Submission of Matters to a Vote of Security Holders........*
ITEM 5 - Other Information.................................*
* No information submitted under this caption.
ITEM 6 - Exhibits and Reports on Form 8-K
Exhibit 10(l) - Loan and Security Agreement Dated June 11, 1997
The Company did not file any reports on Form 8-K during the six months
ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OTR EXPRESS, INC.
(Registrant)
Date: August 13, 1997
/s/ William P. Ward
By: William P. Ward
Chairman of the Board,
President and Principal
Executive Officer
Date: August 13, 1997
/s/ Steven W. Ruben
By: Steven W. Ruben
Principal Financial
Officer and Principal
Accounting Officer
Exhibit 10(l)
TABLE OF CONTENTS
1. Promissory Note ($8,000,000.00)
2. Loan and Security Agreement
3. Schedule
<PAGE>
PROMISSORY NOTE
$8,000,000.00 June 11, 1997
Kansas City, Missouri
FOR VALUE RECEIVED, the undersigned, OTR EXPRESS, INC., a Kansas
corporation (hereinafter referred to as the "Debtor"), promises to pay to
the order of HSBC BUSINESS LOANS, INC. (herein, together with its
successors and assigns who become holders of this Note, called the "Secured
Party"), at such address and in such manner as Secured Party may from time
to time designate, the principal sum of EIGHT MILLION AND NO/100 DOLLARS
($8,000,000.00), or such lesser amount which shall from time to time be
owing hereunder on account of Advances made by Secured Party to or for the
benefit or account of Debtor in accordance with the terms of the Loan and
Security Agreement (as amended from time to time, the "Loan Agreement") of
even date herewith, together with interest payable at the times specified
in the Loan Agreement through and including the Maturity Date (as defined
below), on the unpaid principal balances outstanding during the prior month
at the rate or rates from time to time applicable under the Loan Agreement.
The entire unpaid principal balance of this Note, together with accrued and
unpaid interest, shall be paid on June 9, 2000 (the "Maturity Date");
provided, however, the parties may extend the Maturity Date for successive
one (1) year periods beyond June 9, 2000 in accordance with the terms
provided in the Loan Agreement.
If any Event of Default shall have occurred and be continuing, Debtor
promises to pay the default rate of interest, as specified in Section
7.2(a) of the Loan Agreement, on the outstanding unpaid principal and
interest balance hereof at the times and in the amount and manner provided
for more particularly in the Loan Agreement. Principal, interest and
charges owing hereunder are payable in lawful money of the United States of
America such that Secured Party has received immediately available funds
for the credit of Debtor on or prior to the date that such payment or
payments is or are due.
This Note is secured by the Collateral listed in the Loan Agreement
and other security instruments described in Section 3.2 of the Loan
Agreement. The cancellation or surrender of this Note, upon payment or
otherwise, shall not affect any right Secured Party has to retain the
Collateral or any other collateral for any other Indebtedness of Debtor to
Secured Party.
Upon the occurrence of any of the following events:
1. Failure to pay when due any principal or interest on this
Note or any costs, fees, reimbursable expenses or other amounts payable
by Debtor under the Loan Agreement or under any of the other Transaction
Documents; or
<PAGE>
2. The occurrence of any other Event of Default under the Loan
Agreement, or under any of the other Transaction Documents, which is not
cured within any applicable cure period contained in the Loan Agreement;
then Secured Party may, at Secured Party's option: (i) have all principal,
interest and charges outstanding or owing hereunder bear interest at the
default rate of interest specified in Section 7.2(a) of the Loan Agreement for
so long as said Event of Default shall continue; and (ii) declare all sums
outstanding or owing hereunder, including principal, interest, fees, charges,
expenses and other costs to be immediately due and payable without
presentment, demand or notice of any kind, all of which, to the extent
permitted by applicable law, are hereby expressly waived by Debtor; provided,
however, that the principal, interest, fees, expenses, charges and other costs
owing on this Note shall be and become automatically due and payable if the
Loan Agreement, or any of the other Transaction Documents, provide for the
automatic acceleration of the payment of the principal, interest or charges
owing on this Note upon the occurrence of an Event of Default.
If an attorney is engaged by Secured Party because of any Event of
Default under this Note, the Loan Agreement, or any of the other Transaction
Documents, or to enforce or defend any provision of any such document or
instrument, then Debtor shall pay upon demand, to the extent permitted or not
prohibited by applicable law, reasonable attorneys' fees and all costs so
incurred by Secured Party, together with interest thereon (from the time such
fees and costs may be funded by Secured Party) until paid at the applicable
rate of interest from time to time charged on the principal owing hereunder,
as if such unpaid attorneys' fees and costs had been added to the principal
owing hereunder.
No waiver of any breach, Event of Default, default or failure of
condition under the terms of this Note, the Loan Agreement, or the other
Transaction Documents shall be implied from any failure of Secured Party to
take, or any delay by Secured Party in taking, action with respect to any such
breach of or Event of Default, default or failure of condition or from any
previous waiver of any similar or unrelated breach of or Event of Default,
default or failure of condition. A waiver of any term of this Note, the Loan
Agreement or the other Transaction Documents must be made in writing and shall
be limited to the express written terms of such waiver.
All obligations of Debtor and all rights, powers and remedies of Secured
Party expressed herein shall be in addition to and not in limitation of those
provided by law or in any written agreement or instrument (other than this
Note) relating to any of the Indebtedness of Debtor to Secured Party or the
security therefor.
<PAGE>
To the extent permitted by applicable law, Debtor waives presentment;
demand; notice of dishonor; notice of protest and nonpayment; notice of
default interest and late charges; notice of intent to accelerate; notice of
acceleration; and diligence in taking any action to collect any sums owing
under this Note or in proceeding against any of the rights and interests in
and to properties securing payment of this Note.
Time is of the essence with respect to every provision hereof.
This Note is issued pursuant to the Loan Agreement and is subject to the
terms and conditions specified therein, all of which are hereby incorporated
herein by reference as if fully set forth herein. Capitalized terms not
otherwise defined in this Note shall have the meanings assigned to them under
the Loan Agreement.
This Note shall be construed and enforced in accordance with the laws of
the State of Missouri, without regard to principles of conflicts of law,
except to the extent that Federal laws preempt the laws of the State of
Missouri.
OTR EXPRESS, INC.
By: /s/ Gary J. Klusman
Gary J. Klusman
Executive Vice President
By: /s/ Steven W. Ruben
Steven W. Ruben
Vice President and Chief
Financial Officer
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS 1
1.1 CERTAIN SPECIFIC TERMS 1
1.2 SINGULARS AND PLURALS 8
1.3 U.C.C. DEFINITIONS 8
2. ADVANCES 8
2.1 REQUESTS FOR AN ADVANCE 8
2.2 PROCEEDS OF AN ADVANCE 8
2.3 ESTABLISHMENT OF RESERVES 8
2.4 LETTERS OF CREDIT 9
2.5 NOTICE AND MANNER OF BORROWING 9
2.6 CONVERSIONS AND RENEWALS 9
2.7 ILLEGALITY CLAUSE 9
2.8 DISASTER CLAUSE 10
2.9 INCREASED COSTS 10
3. COLLATERAL AND INDEBTEDNESS SECURED 11
3.1 SECURITY INTEREST 11
3.2 OTHER COLLATERAL 11
3.3 INDEBTEDNESS SECURED 12
4. REPRESENTATIONS AND WARRANTIES 12
4.1 CORPORATE EXISTENCE 12
4.2 CORPORATE CAPACITY 12
4.3 VALIDITY OF RECEIVABLES 12
4.4 INTENTIONALLY OMITTED 13
4.5 TITLE TO COLLATERAL 13
4.6 NOTES RECEIVABLE 13
4.7 INTENTIONALLY OMITTED 13
4.8 PLACE OF BUSINESS 13
4.9 FINANCIAL CONDITION 13
4.10 TAXES 13
4.11 LITIGATION 14
4.12 ERISA MATTERS 14
4.13 ENVIRONMENTAL MATTERS 14
4.14 VALIDITY OF TRANSACTION DOCUMENTS 15
4.15 NO CONSENT OR FILING 15
4.16 NO VIOLATIONS 15
4.17 INTENTIONALLY OMITTED 16
4.18 CONTINGENT LIABILITIES 16
4.19 COMPLIANCE WITH LAWS 16
4.20 LICENSES, PERMITS, ETC. 16
4.21 LABOR CONTRACTS 16
4.22 CONSOLIDATED SUBSIDIARIES 16
4.23 AUTHORIZED SHARES 16
<PAGE>
5. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY 16
5.1 DOCUMENTS 16
5.2 INVOICES 16
5.3 CHATTEL PAPER 17
6. COLLECTIONS 17
7. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS
AND EXPENSES 17
7.1 PROMISE TO PAY PRINCIPAL 17
7.2 PROMISE TO PAY INTEREST 17
7.3 PROMISE TO PAY FEES 18
7.4 PROMISE TO PAY COSTS AND EXPENSES 18
7.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST,
FEES, AND COSTS AND EXPENSES 19
7.6 COMPUTATION OF DAILY OUTSTANDING BALANCE 19
7.7 ACCOUNT STATED 19
7.8 PAYMENTS 20
8. PROCEDURES AFTER SCHEDULING RECEIVABLES 20
8.1 INTENTIONALLY OMITTED 20
8.2 CREDITS AND EXTENSIONS 20
8.3 RETURNED INSTRUMENTS 20
8.4 DEBIT MEMORANDA 21
8.5 NOTES RECEIVABLE 21
9. AFFIRMATIVE COVENANTS 21
9.1 FINANCIAL STATEMENTS 21
9.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES 22
9.3 TERMS OF SALE 22
9.4 BOOKS AND RECORDS 22
9.5 INTENTIONALLY OMITTED 23
9.6 EXAMINATIONS 23
9.7 VERIFICATION OF COLLATERAL 23
9.8 RESPONSIBLE PARTIES 23
9.9 TAXES 23
9.10 LITIGATION 23
9.11 INSURANCE 24
9.12 GOOD STANDING; BUSINESS 24
9.13 PENSION REPORTS 24
9.14 NOTICE OF NON-COMPLIANCE 24
9.15 COMPLIANCE WITH ENVIRONMENTAL LAWS 25
9.16 DEFEND COLLATERAL 25
9.17 USE OF PROCEEDS 25
9.18 COMPLIANCE WITH LAWS 25
9.19 MAINTENANCE OF PROPERTY 26
9.20 LICENSES, PERMITS, ETC 26
9.21 INTENTIONALLY OMITTED 26
9.22 ERISA 26
<PAGE>
9.23 MAINTENANCE OF OWNERSHIP 26
9.24 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES 26
10. NEGATIVE COVENANTS 26
10.1 LOCATION OF BUSINESS RECORDS 26
10.2 BORROWED MONEY 26
10.3 SECURITY INTEREST AND OTHER ENCUMBRANCES 26
10.4 INTENTIONALLY OMITTED 26
10.5 MERGERS, CONSOLIDATIONS, OR SALES 26
10.6 CAPITAL STOCK 27
10.7 DIVIDENDS OR DISTRIBUTIONS 27
10.8 INVESTMENTS AND ADVANCES 27
10.9 GUARANTIES 27
10.10 INTENTIONALLY OMITTED 27
10.11 INTENTIONALLY OMITTED 27
10.12 INTENTIONALLY OMITTED 27
10.13 NAME CHANGE 27
10.14 DISPOSITION OF COLLATERAL 27
10.15 FINANCIAL COVENANTS 28
11. EVENTS OF DEFAULT 28
11.1 EVENTS OF DEFAULT 28
11.2 EFFECTS OF AN EVENT OF DEFAULT 30
12. SECURED PARTY'S RIGHTS AND REMEDIES 31
12.1 GENERALLY 31
12.2 NOTIFICATION OF ACCOUNT DEBTORS 31
12.3 INTENTIONALLY OMITTED 31
12.4 COLLECTION OF RECEIVABLES 31
12.5 ENDORSEMENT OF CHECKS; DEBTOR'S MAIL 31
12.6 INTENTIONALLY OMITTED 31
13. MISCELLANEOUS 31
13.1 PERFECTING THE SECURITY INTEREST;
PROTECTING THE COLLATERAL 31
13.2 PERFORMANCE OF DEBTOR'S DUTIES 32
13.3 NOTICE OF SALE 32
13.4 WAIVER BY SECURED PARTY 32
13.5 WAIVER BY DEBTOR 32
13.6 SETOFF 32
13.7 ASSIGNMENT 32
13.8 SUCCESSORS AND ASSIGNS 33
13.9 MODIFICATION 33
13.10 COUNTERPARTS 33
13.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 33
13.12 INDEMNIFICATION 33
13.13 TERMINATION; PREPAYMENT PREMIUM 34
13.14 FURTHER ASSURANCES 35
<PAGE>
13.15 HEADINGS 35
13.16 CUMULATIVE SECURITY INTEREST, ETC. 35
13.17 SECURED PARTY'S DUTIES 35
13.18 NOTICES GENERALLY 35
13.19 SEVERABILITY 36
13.20 INCONSISTENT PROVISIONS 36
13.21 ENTIRE AGREEMENT 36
13.22 APPLICABLE LAW 36
13.23 CONSENT TO JURISDICTION 36
13.24 JURY TRIAL WAIVER 36
13.25 ORAL AGREEMENTS NOT ENFORCEABLE 37
EXHIBITS
A Financial Statement Certification
B Compliance Certificate
<PAGE>
LOAN AND SECURITY AGREEMENT
between
OTR EXPRESS, INC. (the "Debtor")
804 North Meadowbrook Drive
Olathe, Kansas 66063
Chief Executive Office: 804 North Meadowbrook Drive
(if more than one place of business) Olathe, Kansas 66063
Fax: 913-829-0622
and
HSBC BUSINESS LOANS, INC. (the "Secured Party")
2405 Grand Avenue, Suite 800
Kansas City, Missouri 64108
Fax: 816-474-6554
June 11, 1997
<PAGE>
Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1 CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) ACCOUNT DEBTOR means the person, firm, or entity
obligated to pay a Receivable.
(b) ADVANCE means a loan made to Debtor by Secured Party
pursuant to this Agreement.
(b-1) APPLICABLE MARGIN means 275 basis points.
(c) BORROWING CAPACITY means, at the time of computation,
the amount specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday
or other day on which commercial banks in New York are authorized
or required to close under the laws of the State of New York and,
if the applicable day relates to a LIBOR Loan, LIBOR Interest
Period, or notice with respect to any LIBOR Loan, a day on which
dealings in Dollar deposits are also carried on the London
interbank market and banks are open for business in London;
provided, that for purposes of Item 20 of the Schedule and of
calculations made with referenced thereto, a Business Day shall be
deemed to be equivalent to 1.4 calendar days.
(d-1) CLOSING DATE means the date on which all Transaction
Documents have been fully executed, all conditions precedent to
the initial Advance under the Revolving Credit have been
satisfied, and the initial Advance under the Revolving Credit has
been made.
(e) COLLATERAL means collectively all of the property of
Debtor subject to the Security Interest and described in Sections
3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any corporation of which
at least 50% of the voting stock is owned by Debtor directly, or
indirectly, through one or more Consolidated Subsidiaries. If
Debtor has no Consolidated Subsidiaries, the provisions of this
Agreement relating to Consolidated Subsidiaries shall be
inapplicable without affecting the applicability of such
provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate,
or adjustment granted by Debtor with respect to a Receivable,
other than a cash discount described in Item 3 of the Schedule.
(h) DEBTOR means the person or entity defined on the cover
page of this Agreement.
<PAGE>
(i) DISPOSAL means the intentional or unintentional
abandonment, discharge, deposit, injection, dumping, spilling,
leaking, storing, burning, thermal destruction, or placing of any
Hazardous Substance so that it or any of its constituents may
enter the environment.
(j) DOLLARS and $ mean lawful money of the United States
of America.
(k) ENVIRONMENT means any water including, but not limited
to, surface water and ground water or water vapor; any land
including land surface or subsurface; stream sediments; air; fish,
wildlife and plants; and all other natural resources or
environmental media.
(l) ENVIRONMENTAL LAWS means all federal, state, and local
environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances, regulations, codes, and
rules relating to the protection of the Environment and/or
governing the use, storage, treatment, generation, transportation,
processing, handling, production, or disposal of Hazardous
Substances and the policies, guidelines, procedures,
interpretations, decisions, orders, and directives of federal,
state, and local governmental agencies and authorities with
respect thereto.
(m) ENVIRONMENTAL PERMITS means all licenses, permits,
approvals, authorizations, consents, or registrations required by
any applicable Environmental Laws and all applicable judicial and
administrative orders in connection with the ownership, lease,
purchase, transfer, closure, use, and/or operation of any property
owned, leased, or operated by Debtor or any Consolidated
Subsidiary and/or as may be required for the storage, treatment,
generation, transportation, processing, handling, production, or
disposal of Hazardous Substances.
(n) ENVIRONMENTAL QUESTIONNAIRE means a questionnaire and
all attachments thereto concerning (i) activities and conditions
affecting the Environment at any property of Debtor or any
Consolidated Subsidiary, or (ii) the enforcement or possible
enforcement of any Environmental Law against Debtor or any
Consolidated Subsidiary.
(o) ERISA means the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(p) EUROCURRENCY RESERVE REQUIREMENT means, for any LIBOR
Loan for any Interest Period therefor, the daily average of the
stated maximum rate (expressed as a decimal) at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is
defined in Regulation D), but without benefit or credit of
prorations, exemptions or offsets that might otherwise be
available from time to time under Regulation D. Without limiting
the effect of the foregoing, the Eurocurrency Reserve Requirement
shall reflect any other reserves required to be maintained against
(1) any category of liabilities that includes deposits by
reference to which the LIBOR Interest Rate or LIBOR Loans is to be
determined; or (2) any category of extension of credit or other
assets that includes LIBOR Loans.
<PAGE>
For purposes of this Agreement,
any LIBOR Loan hereunder shall be deemed to be an "Eurocurrency
liability" as defined in Regulation D and, as such, shall be
deemed to be subject to such reserve requirements.
(q) EVENT OF DEFAULT means an Event of Default or Events
of Default as defined in Section 11.1.
(r) EXTENSION means the granting to an Account Debtor of
additional time within which such Account Debtor is required to
pay a Receivable.
(s) FEDERAL BANKRUPTCY CODE means Title 11 of the United
States Code, entitled "Bankruptcy," as amended, or any successor
federal bankruptcy law.
(t) HAZARDOUS SUBSTANCES means, without limitation, any
explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, petroleum
and petroleum products, methane, hazardous materials, hazardous
wastes, hazardous or toxic substances, and any other material
defined as a hazardous substance in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601(14).
(t-1) HSBC PAYMENT ACCOUNT means the special bank account
owned by Secured Party to which Proceeds of Collateral, including,
without limitation, payments on Receivables, are credited. There
is a HSBC Payment Account if so indicated in Item 8 of the
Schedule.
(u) INDEBTEDNESS means the indebtedness secured by the
Security Interest and described in Section 3.3.
(v) INELIGIBLE RECEIVABLES means the following described
Receivables and any other Receivables which are not reasonably
satisfactory to Secured Party for credit or any other reason:
(i) Any Receivable which has remained unpaid for
more than the number of days specified in Item 4 of the
Schedule.
(ii) Any Receivable with respect to which a
representation or warranty contained in Sections 4.3, 4.5,
or 4.6 is not, or does not continue to be, true and
accurate, including, without limitation, any Receivable
subject to a setoff.
(iii) Any Receivable with respect to which Debtor
has extended the time for payment without the consent of
Secured Party, except as provided in Section 8.2(a).
(iv) Any Receivable as to which any one or more of
the following events occurs: a Responsible Party shall die
or be judicially declared incompetent; a request or petition
for liquidation, reorganization, arrangement, adjustment of
debts, adjudication as a bankrupt, or other relief under the
<PAGE>
bankruptcy, insolvency, or similar laws of the United
States, any state or territory thereof, or any foreign
jurisdiction, now or hereafter in effect, shall be filed by
or against a Responsible Party; a Responsible Party shall
make any general assignment for the benefit of creditors; a
receiver or trustee, including, without limitation, a
"custodian," as defined in the Federal Bankruptcy Code,
shall be appointed for a Responsible Party or for any of the
assets of a Responsible Party; any other type of insolvency
proceeding with respect to a Responsible Party (under the
bankruptcy laws of the United States or otherwise) or any
formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up
of affairs of, a Responsible Party shall be instituted; all
or any material part of the assets of a Responsible Party
shall be sold, assigned, or transferred; a Responsible Party
shall fail to pay its debts as they become due; or a
Responsible Party shall cease doing business as a going
concern.
(v) All Receivables owed by an Account Debtor owing
Receivables classified as ineligible under any criterion set
forth in any of Sections 1.1(v)(i) through 1.1(v)(iv), if
the outstanding dollar amount of such Receivables
constitutes a percentage of the aggregate outstanding dollar
amount of all Receivables owed by such Account Debtor equal
to or greater than the percentage specified in Item 5 of the
Schedule.
(vi) All Receivables owed by an Account Debtor which
does not maintain its chief executive office in the United
States or which is not organized under the laws of the
United States or any state, unless otherwise specified in
Item 6 of the Schedule.
(vii) All Receivables owed to Debtor by an Account
Debtor who is an Affiliate of Debtor.
(viii) Any Receivable constituting a partial billing
under terms providing for payment only after full
performance; any Receivable arising from any prebilling
where the services have not been performed for the Account
Debtor if Secured Party has not entered into a satisfactory
written agreement with such Account Debtor relating to such
Receivables; and any Receivable as to which the Account
Debtor contends the balance reported by Debtor is incorrect
or not owing.
(ix) Any Receivable which is unenforceable against
the Account Debtor for any reason.
(x) Any Receivable which is an Instrument, Document,
or Chattel Paper or which is evidenced by a note, draft,
trade acceptance, or other instrument for the payment of
money where such Instrument, Document, Chattel Paper, note,
draft, trade acceptance, or other instrument has not been
endorsed and delivered by Debtor to Secured Party.
<PAGE>
(xi) Any Receivable or Receivables owed by an
Account Debtor which exceeds any credit limit established by
Secured Party for such Account Debtor; provided, that such
Receivable or Receivables shall be ineligible only to the
extent of such excess.
(xii) Any Receivable that is unbilled; provided,
however, that Receivables of up to $1,800,000.00 in the
aggregate outstanding at any one time representing amounts
owed by an Account Debtor on cargo that has been picked up
from the shipper by Debtor but not yet delivered shall not
be ineligible based solely on the fact that the Receivable
has not been billed so long as the goods are delivered and
the Invoice is issued by Debtor within twenty-one (21) days
after the Receivable is first booked by Debtor.
(w) INTEREST PERIOD means, with respect to any LIBOR Loan,
the period commencing on the date such loan is made and ending, as
Debtor may select, pursuant to Sections 2.5 or 2.6, on the
numerically corresponding day in the first, second or third
calendar month thereafter, except that each such Interest Period
that commences on the last Business Day of a calendar month (or
any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month;
provided, however, that the foregoing provision relating to
Interest Periods is subject to the following:
(a) No Interest Period may extend beyond the then
effective maturity date of the Revolving Credit Note; and
(b) If an Interest Period would end on a day that is
not a Business Day, such Interest Period shall be extended
to the next Business Day unless, in the case of a LIBOR
Loan, such Business Day would fall in the next calendar
month, in which event such Interest Period shall end on the
immediately preceding Business Day.
(x) INTERNAL REVENUE CODE means the Internal Revenue Code
of 1986, as amended from time to time.
(y) INVOICE means any document or documents used, or to be
used, to evidence a Receivable.
(z) INTENTIONALLY OMITTED.
(aa) LETTER OF CREDIT means any documentary or standby
letter of credit issued by the Hongkong Shanghai Banking
Corporation and guaranteed by Secured Party pursuant to Section
2.4 of this Agreement.
(aa-1) LIBOR INTEREST RATE means, for each LIBOR Loan, the
rate per annum (rounded upward, if necessary, to the nearest
1/16th of 1%) determined by Secured Party to be equal to the
quotient of (1) the London Interbank Offered Rate for such LIBOR
Loan for such Interest Period divided by (2) 1 minus the
Eurocurrency
<PAGE>
Reserve Requirement for such Interest Period, and
adding to that amount the Applicable Margin.
(aa-2) LIBOR LOAN means any portion of the Revolving
Credit when and to the extent the interest rate therefor is
determined by reference to the LIBOR Interest Rate pursuant to
this Agreement.
(aa-3) LONDON INTERBANK OFFERED RATE means, for any
Interest Period for a LIBOR Loan, the rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) quoted at
approximately 11:00 a.m., London time, by major banks in the
London interbank eurodollar market two (2) Business Days prior to
the first day of such Interest Period for the offering to leading
banks in the London interbank market of Dollar deposits for a
period, and in an amount, comparable to the Interest Period and
principal amount of the LIBOR Loan which shall be made by Secured
Party and outstanding during such Interest Period.
(bb-1) MAXIMUM AMOUNT means $7,000,000.00; provided,
however, that upon receipt by Secured party of Debtor's audited
financial statements for the calendar year ending December 31,
1997, if such financial statements show Debtor's Tangible Net
Worth (as defined in the Schedule) equals or exceeds
$9,000,000.00, and no Event of Default then exists and is
continuing, the Maximum Amount shall increase to $8,000,000.00.
(cc) PENSION EVENT means, with respect to any Pension
Plan, the occurrence of (i) any prohibited transaction described
in Section 406 of ERISA or in Section 4975 of the Internal Revenue
Code; (ii) any Reportable Event; (iii) any complete or partial
withdrawal, or proposed complete or partial withdrawal, of Debtor
or any Consolidated Subsidiary from such Pension Plan; (iv) any
complete or partial termination, or proposed complete or partial
termination, of such Pension Plan; or (v) any accumulated funding
deficiency (whether or not waived), as defined in Section 302 of
ERISA or in Section 412 of the Internal Revenue Code.
(dd) PENSION PLAN means any pension plan, as defined in
Section 3(2) of ERISA, which is a multi-employer plan or a single
employer plan, as defined in Section 4001 of ERISA, and subject to
Title IV of ERISA and which is (i) a plan maintained by Debtor or
any Consolidated Subsidiary for employees or former employees of
Debtor or of any Consolidated Subsidiary; (ii) a plan to which
Debtor or any Consolidated Subsidiary contributes or is required
to contribute; (iii) a plan to which Debtor or any Consolidated
Subsidiary was required to make contributions at any time during
the five (5) calendar years preceding the date of this Agreement;
or (iv) any other plan with respect to which Debtor or any
Consolidated Subsidiary has incurred or may incur liability,
including, without limitation, contingent liability, under Title
IV of ERISA either to such plan or to the Pension Benefit Guaranty
Corporation. For purposes of this definition, and for purposes of
Sections 1.1(cc), 4.12, and 11.1(i), Debtor shall include any
trade or business (whether or not incorporated) which, together
with Debtor or any Consolidated Subsidiary, is deemed to be a
"single employer" within the meaning of Section 4001(b)(1) of
ERISA.
<PAGE>
(ee) PRIME RATE means the rate of interest publicly
announced by Marine Midland Bank from time to time as its prime
rate and is a base rate for calculating interest on certain loans.
The rate announced by Marine Midland Bank as its prime rate may or
may not be the most favorable rate charged by Marine Midland Bank
to its customers.
(ee-1) PRIME RATE LOAN means any portion of the Revolving
Credit when and to the extent the interest rate therefor is
determined by reference to the Prime Rate pursuant to this
Agreement.
(ff) RECEIVABLE means the right to payment for Goods sold
or leased or services rendered by Debtor, whether or not earned by
performance, and may, without limitation, in whole or in part be
in the form of an Account, Chattel Paper, Document, or Instrument.
(gg) RECEIVABLES BORROWING BASE means, at the time of its
computation, the aggregate amount of the outstanding Receivables
in which Secured Party has a first priority perfected security
interest (adjusted with respect to Credits as provided in Article
8 hereof) less the amount of Ineligible Receivables and any
reserves established by Secured Party in accordance with Section
2.3.
(gg-1) REGULATION D means Regulation D of the Board of
Governors of the Federal Reserve System as amended or supplemented
from time to time.
(hh) RELEASE means "release," as defined in Section
101(22) of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601(22), and the
regulations promulgated thereunder.
(ii) REPORTABLE EVENT means any event described in Section
4043(b) of ERISA or in regulations issued thereunder with regard
to a Pension Plan.
(jj) RESPONSIBLE PARTY means an Account Debtor, a general
partner of an Account Debtor, or any party otherwise in any way
directly or indirectly liable for the payment of a Receivable.
(jj-1) REVOLVING CREDIT means the Revolving Credit
facility described in Section 2.1 of this Agreement.
(kk) SCHEDULE means the schedule executed in connection
with, and which is a part of, this Agreement.
(ll) SECURED PARTY means the person or entity defined on
the cover page of this Agreement and any successors or assigns of
Secured Party.
(mm) SECURITY INTEREST means the security interest granted
to Secured Party by Debtor as described in Section 3.1.
<PAGE>
(nn) STATE means the State of the United States specified
in Item 31 of the Schedule.
(oo) THIRD PARTY means any person or entity who has
executed and delivered, or who in the future may execute and
deliver, to Secured Party any agreement, instrument, or document,
pursuant to which such person or entity has guarantied to Secured
Party the payment of the Indebtedness or has granted Secured Party
a security interest in or lien on some or all of such person's or
entity's real or personal property to secure the payment of the
Indebtedness.
(pp) TRANSACTION DOCUMENTS means this Agreement and all
documents, including, without limitation, collateral documents,
letter of credit agreements, notes, security agreements, pledges,
guaranties, assignments, and subordination agreements required to
be executed by Debtor, any Third Party, or any Responsible Party
pursuant hereto or in connection herewith.
1.2 SINGULARS AND PLURALS. Unless the context otherwise
requires, words in the singular number include the plural, and in the
plural include the singular.
1.3 U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1
or elsewhere in this Agreement, capitalized words shall have the
meanings set forth in the Uniform Commercial Code as in effect in the
State as of the date of this Agreement.
2. ADVANCES.
2.1 REQUESTS FOR AN ADVANCE. From time to time, and subject to
the terms and conditions of this Agreement, Debtor may make a written
request for an Advance, so long as the sum of the aggregate principal
balance of outstanding Advances and the requested Advance does not
exceed the Borrowing Capacity as then computed; and Secured Party shall
make such requested Advance, provided that (i) the Borrowing Capacity
would not be so exceeded; (ii) there has not occurred an Event of
Default or an event which, with notice or lapse of time or both, would
constitute an Event of Default; and (iii) all representations and
warranties contained in this Agreement and in the other Transaction
Documents are true and correct on the date such requested Advance is
made as though made on and as of such date. Notwithstanding any other
provision of this Agreement, Secured Party may from time to time reduce
the advance rate specified in Item 1 of the Schedule if Secured Party
determines, in its reasonable judgment, that there has been a material
change in circumstances related to any or all Receivables from those
circumstances in existence on or prior to the date of this Agreement or
in the financial or other condition of Debtor. The making of an Advance
to Debtor as hereinafter provided shall conclusively establish Debtor's
obligation to repay the Advance.
2.2 PROCEEDS OF AN ADVANCE. Advances shall be made in the
manner agreed by Debtor and Secured Party in writing or, absent any such
agreement, as determined by Secured Party.
2.3 ESTABLISHMENT OF RESERVES. Secured Party may, at any time
and from time to time, in its reasonable judgment, establish reserves
against the Receivables of Debtor. The amount of such reserves shall be
subtracted from the Receivables Borrowing Base when calculating the
amount of the Borrowing Capacity.
<PAGE>
2.4 LETTERS OF CREDIT. At the request of Debtor, and upon
execution of Letter of Credit documentation satisfactory to the Hongkong
Shanghai Banking Corporation, Secured Party, within the limits of the
Borrowing Capacity as then computed, shall guaranty Letters of Credit
issued from time to time by the Hongkong Shanghai Banking Corporation
for the account of Debtor in an amount not exceeding in the aggregate at
any one time outstanding the amount set forth in Item 9 of the Schedule.
The Letters of Credit shall be on terms mutually acceptable to Secured
Party and Debtor and no Letters of Credit shall have an expiration date
later than the termination date of this Agreement. An Advance in an
amount equal to any amount paid by Secured Party on such guaranty shall
be deemed made to Debtor, without request therefor, immediately upon any
payment by Secured Party on such guaranty. In connection with the
issuance of any guaranty of Letters of Credit, Debtor shall pay to
Secured Party the fees set forth in Item 19 of the Schedule and to the
issuer of the Letters of Credit all fees charged by the issuer relating
to the issuance or amendment of the Letter of Credit or the payment of
draw requests submitted thereunder.
2.5 NOTICE AND MANNER OF BORROWING. Subject to the terms and
conditions of this Agreement, any portion of the Revolving Credit may be
outstanding as a Prime Rate Loan or a LIBOR Loan. With respect to LIBOR
Loans, Debtor shall give Secured Party at least two (2) Business Days'
prior written notice before each LIBOR Loan, specifying (1) the date of
such Advance; (2) the amount of such Advance; and (3) the duration of
the Interest Period applicable thereto. Unless otherwise specified by
Debtor pursuant to this Agreement, each Advance will be made as a Prime
Rate Loan. All notices given under this Section 2.5 shall be
irrevocable and shall be given not later than 11:00 a.m. (Buffalo, New
York time) on the day which is not less than the number of Business Days
specified above for such notice period. Each Advance which will be
outstanding as a LIBOR Loan shall be in the amount of not less than
$1,000,000.00.
2.6 CONVERSIONS AND RENEWALS. Debtor may elect from time to
time to convert all or a part of a Prime Rate Loan into a LIBOR Loan or
to renew all or part of a LIBOR Loan by giving Secured Party notice at
least two (2) Business Days before the conversion into or renewal of a
LIBOR Loan, specifying: (1) the renewal or conversion date; (2) the
amount of the outstanding principal balance of Advances to be converted
or renewed; and (3 the duration of the Interest Period applicable
thereto; provided that the minimum principal amount of LIBOR Loans
outstanding for a given Interest Period after giving effect to such
renewal or conversion shall be $1,000,000.00. All notices under this
Section 2.6 shall be irrevocable and shall be given not later than 11:00
a.m. (Buffalo, New York time) on the day which is not less than the
number of Business Days specified above for such notice. If Debtor
fails to give Secured Party notice as specified above for the renewal of
a LIBOR Loan prior to the end of the Interest Period with respect
thereto, such LIBOR Loan shall automatically be converted to a Prime
Rate Loan on the last day of the applicable Interest Period.
2.7 ILLEGALITY CLAUSE. Notwithstanding any other provision of
this Agreement, if Secured Party determines that any applicable law,
rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Secured Party with any request
or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for Secured Party to (1) maintain its commitment to make
LIBOR Loans, then upon
<PAGE>
notice to Debtor by Secured Party, the commitment
of Secured Party to make LIBOR Loans shall terminate; or (2) maintain or
fund its LIBOR Loans, then upon notice to Debtor by Secured Party, the
outstanding principal amount of LIBOR Loans, together with interest
accrued thereon, and any other amounts payable to Secured Party under
this Agreement shall be repaid (a) immediately upon demand by Secured
Party if such change or compliance with such request, in the judgment of
Secured Party, requires immediate repayment; or (b) at the expiration of
the last Interest Period to expire before the effective date that such
change or request.
2.8 DISASTER CLAUSE. Notwithstanding anything to the contrary
herein, if Secured Party determines (which determination shall be
conclusive) that: (1) quotations of interest rates for the relevant
deposits referred to in the definition of LIBOR Interest Rate are not
being provided in the relevant amounts or for the relevant maturities
for purposes of determining the rate of interest on a LIBOR Loan as
provided in this Agreement; or (2) the relevant rates of interest
referred to in the definition of LIBOR Interest Rate upon the basis of
which the rate of interest for any LIBOR Loan is to be determined do not
accurately cover the costs to Secured Party of making or maintaining
such type of loan, then Secured Party shall forthwith give notice to
Debtor, whereupon: (a) the obligations of Secured Party to make LIBOR
Loans shall be suspended until Secured Party notifies Debtor that the
circumstances giving rise to such suspension no longer exist; and (b)
Debtor shall repay in full the then outstanding principal amount of each
LIBOR Loan, together with accrued interest thereon, on the last day of
the then current Interest Period applicable to such loan.
2.9 INCREASED COSTS.
(a) Taxation, Reserves and Other Contingencies. Debtor
shall pay to Secured Party, from time to time, such amounts as
Secured Party may determine to be necessary to compensate Secured
Party for any costs incurred by Secured Party which Secured Party
determines are attributable to its making any LIBOR Loans
hereunder or its obligation to make LIBOR Loans hereunder, or any
reduction in any amount receivable by Secured Party under this
Agreement in respect of LIBOR Loans or such obligation (such
increase in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any change after
the date of this Agreement in United States federal, state,
municipal or foreign laws or regulations (including Regulation D),
or the adoption or making after such date of any interpretations,
directives or requirements applying to a class of banks, including
Secured Party and its Affiliates, under any United States federal,
state, municipal or any foreign laws or regulations (whether or
not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or
administration thereof ("Regulatory Change"), which: (1) changes
the basis of taxation of any amounts payable to Secured Party
under this Agreement in respect of any LIBOR Loan (other than
taxes imposed on the overall net income of Secured Party for any
LIBOR Loan by the jurisdiction where Secured Party is located); or
(2) imposes or modifies any reserve, special deposit, compulsory
loan or similar requirements relating to any extensions of credit
or other assets of, or any deposits with or liabilities of, the
Secured Party (including any LIBOR Loans or any deposits referred
to in the definition of LIBOR Interest Rate); or (3) imposes any
other condition affecting this Agreement (or any such extensions
of credit or liabilities). Secured Party will notify Debtor of
any event occurring after the date of this Agreement
<PAGE>
that will
entitle Secured Party to compensation pursuant to this Section 2.9
as promptly as practicable after it obtains knowledge thereof and
determines to request compensation.
Determinations by Secured Party for purposes of this Section
2.9 of the effect of any Regulatory Change on its costs of making
or maintaining LIBOR Loans or any amounts receivable by it in
respect of LIBOR Loans, and of the additional amounts required to
compensate Secured Party in respect of any Additional Costs, shall
be conclusive, provided that such determinations are made on a
reasonable basis.
2.10 FUNDING LOSS INDEMNIFICATION. Debtor shall pay to Secured
Party, upon request by Secured Party, such amount or amounts as shall be
sufficient (in the reasonable opinion of Secured Party) to compensate
Secured Party for any loss, cost or expense incurred as a result of:
(a) Any payment of a LIBOR Loan on a date other than the
last day of the Interest Period for such LIBOR Loan, including,
but not limited to, any payment resulting from acceleration of the
Indebtedness by Secured Party pursuant to Section 11.2; or
(b) Any failure by Debtor to borrow or convert, as the
case may be, a LIBOR Loan on the date for borrowing or conversion,
as the case may be, specified in the relevant notice under
Sections 2.5 or 2.6.
3. COLLATERAL AND INDEBTEDNESS SECURED.
3.1 SECURITY INTEREST. Debtor hereby grants to Secured Party a
security interest in, and a lien on, the following property of Debtor
wherever located and whether now owned or hereafter acquired:
(a) All Accounts, and all General Intangibles, Chattel
Paper, Documents and Instruments evidencing an Account, whether or
not specifically assigned to Secured Party, including, without
limitation, all Receivables.
(b) Inasmuch as they relate to or secure the payment of
Receivables, all guaranties, collateral and liens on, or security
interests in, real or personal property, leases and letters of
credit.
(c) All books, records, ledger cards, data processing
records, computer data, and other property evidencing or relating
to the foregoing.
(d) All monies, securities, and other property now or
hereafter held, or received by, or in transit to, Secured Party
from or for Debtor, and all of Debtor's deposit accounts, credits,
and balances with Secured Party existing at any time.
(e) All Proceeds of all of the foregoing in any form.
3.2 OTHER COLLATERAL. Nothing contained in this Agreement shall
limit the rights of Secured Party in and to any other collateral
securing the Indebtedness which may have
<PAGE>
been, or may hereafter be,
granted to Secured Party by Debtor or any Third Party pursuant to any
other agreement.
3.3 INDEBTEDNESS SECURED. The Security Interest secures payment
of any and all indebtedness, and performance of all obligations and
agreements, of Debtor to Secured Party, whether now existing or
hereafter incurred or arising, of every kind and character, primary or
secondary, direct or indirect, absolute or contingent, sole, joint or
several, and whether such indebtedness is from time to time reduced and
thereafter increased, or entirely extinguished and thereafter
reincurred, including, without limitation: (a) all Advances; (b) all
interest which accrues on any such indebtedness until payment of such
indebtedness in full, including, without limitation, all interest
provided for under this Agreement; (c) all other monies payable by
Debtor, and all obligations and agreements of Debtor to Secured Party,
pursuant to the Transaction Documents; (d) all debts owed, or to be
owed, by Debtor to others which Secured Party has obtained, or may
obtain, by assignment or otherwise; (e) all monies payable by any Third
Party, and all obligations and agreements of any Third Party to Secured
Party, pursuant to any of the Transaction Documents; and (f) all monies
due, and to become due, pursuant to Section 7.3.
4. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement, and make Advances to Debtor from time to time as herein
provided, Debtor represents and warrants and, so long as any Indebtedness
remains unpaid or this Agreement remains in effect, shall be deemed
continuously to represent and warrant as follows:
4.1 CORPORATE EXISTENCE. Debtor and each Consolidated
Subsidiary is duly organized and existing and in good standing under the
laws of the state specified in Item 10 of the Schedule and is duly
licensed or qualified to do business and in good standing in every state
in which the nature of its business or ownership of its property
requires such licensing or qualification.
4.2 CORPORATE CAPACITY. The execution, delivery, and
performance of the Transaction Documents are within Debtor's corporate
powers, have been duly authorized by all necessary and appropriate
corporate and shareholder action, and are not in contravention of any
law or the terms of Debtor's articles or certificate of incorporation or
bylaws or any amendment thereto, or of any indenture, agreement,
undertaking, or other document to which Debtor is a party or by which
Debtor or any of Debtor's property is bound or affected.
4.3 VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed
and bona fide indebtedness owing to Debtor by the Account Debtor
obligated thereon; (b) there are no defenses, setoffs, or counterclaims
against any Receivable; (c) no payment has been received on any
Receivable, and no Receivable is subject to any Credit or Extension or
agreements therefor unless written notice specifying such payment,
Credit, Extension, or agreement has been delivered to Secured Party; (d)
each copy of each Invoice is a true and genuine copy of the original
Invoice sent to the Account Debtor named therein and accurately
evidences the transaction from which the underlying Receivable arose,
and the date payment is due as stated on each such Invoice or computed
based on the information set forth on each such Invoice is correct; (e)
all Chattel Paper, and all promissory notes, drafts, trade acceptances,
and other instruments for the payment of money relating to or evidencing
each Receivable, and each endorsement thereon, are true and genuine and
in all respects what they purport to be, and are the valid and binding
obligation of
<PAGE>
all parties thereto, and the date or dates stated on all
such items as the date on which payment in whole or in part is due is
correct; (f) all services to be performed by Debtor in connection with
each Receivable have been performed by Debtor; and (g) all evidence of
the performance of such services by Debtor is true and genuine.
4.4 INTENTIONALLY OMITTED.
4.5 TITLE TO COLLATERAL. (a) Debtor is the owner of the
Collateral free of all security interests, liens, and other encumbrances
except the Security Interest and except as described in Item 12 of the
Schedule; (b) Debtor has the unconditional authority to grant the
Security Interest to Secured Party; and (c) assuming that all necessary
Uniform Commercial Code filings have been made and, if applicable,
assuming compliance with the Federal Assignment of Claims Act of 1940,
as amended, Secured Party has an enforceable first lien on all
Collateral, subordinate only to those security interests, liens, or
encumbrances described as having priority over the Security Interest in
Item 12 of the Schedule.
4.6 NOTES RECEIVABLE. No Receivable is an Instrument, Document,
or Chattel Paper or is evidenced by any note, draft, trade acceptance,
or other instrument for the payment of money, except such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other
instrument as has been endorsed and delivered by Debtor to Secured Party
and has not been presented for payment and returned uncollected for any
reason.
4.7 INTENTIONALLY OMITTED.
4.8 PLACE OF BUSINESS. (a) Unless otherwise disclosed to
Secured Party in Item 13 of the Schedule, Debtor is engaged in business
operations which are in whole, or in part, carried on at the address or
addresses specified at the beginning of this Agreement and at no other
address or addresses; (b) if Debtor has more than one place of business,
its chief executive office is at the address specified as such at the
beginning of this Agreement; and (c) Debtor's records concerning the
Collateral are kept at the address or addresses specified at the
beginning of this Agreement or in Item 13 of the Schedule.
4.9 FINANCIAL CONDITION. Debtor has furnished to Secured Party
Debtor's most current financial statements, which statements represent
correctly and fairly the results of the operations and transactions of
Debtor and the Consolidated Subsidiaries as of the dates, and for the
period referred to, and have been prepared in accordance with generally
accepted accounting principles consistently applied during each interval
involved and from interval to interval. Since the date of such
financial statements, there have not been any materially adverse changes
in the financial condition reflected in such financial statements,
except as disclosed in writing by Debtor to Secured Party.
4.10 TAXES. Except as disclosed in writing by Debtor to Secured
Party: (a) all federal and other tax returns required to be filed by
Debtor and each Consolidated Subsidiary have been filed, and all taxes
required by such returns have been paid; and (b) neither Debtor nor any
Consolidated Subsidiary has received any notice from the Internal
Revenue Service or any other taxing authority proposing additional
taxes.
<PAGE>
4.11 LITIGATION. Except as disclosed in writing by Debtor to
Secured Party, there are no actions, suits, proceedings, or
investigations pending or, to the knowledge of Debtor, threatened
against Debtor or any Consolidated Subsidiary or any basis therefor
which, if adversely determined, would, in any case or in the aggregate,
materially adversely affect the property, assets, financial condition,
or business of Debtor or any Consolidated Subsidiary or materially
impair the right or ability of Debtor or any Consolidated Subsidiary to
carry on its operations substantially as conducted on the date of this
Agreement.
4.12 ERISA MATTERS. (a) No Pension Plan has been terminated, or
partially terminated, or is insolvent, or in reorganization, nor have
any proceedings been instituted to terminate or reorganize any Pension
Plan; (b) neither Debtor nor any Consolidated Subsidiary has withdrawn
from any Pension Plan in a complete or partial withdrawal, nor has a
condition occurred which, if continued, would result in a complete or
partial withdrawal; (c) neither Debtor nor any Consolidated Subsidiary
has incurred any withdrawal liability, including, without limitation,
contingent withdrawal liability, to any Pension Plan, pursuant to Title
IV of ERISA; (d) neither Debtor nor any Consolidated Subsidiary has
incurred any liability to the Pension Benefit Guaranty Corporation other
than for required insurance premiums which have been paid when due; (e)
no Reportable Event has occurred; (f) no Pension Plan or other "employee
pension benefit plan," as defined in Section 3(2) of ERISA, to which
Debtor or any Consolidated Subsidiary is a party has an "accumulated
funding deficiency" (whether or not waived), as defined in Section 302
of ERISA or in Section 412 of the Internal Revenue Code; (g) the present
value of all benefits vested under any Pension Plan does not exceed the
value of the assets of such Pension Plan allocable to such vested
benefits; (h) each Pension Plan and each other "employee benefit plan,"
as defined in Section 3(3) of ERISA, to which Debtor or any Consolidated
Subsidiary is a party is in substantial compliance with ERISA, and no
such plan or any administrator, trustee, or fiduciary thereof has
engaged in a prohibited transaction described in Section 406 of ERISA or
in Section 4975 of the Internal Revenue Code; (i) each Pension Plan and
each other "employee benefit plan," as defined in Section 3(2) of ERISA,
to which Debtor or any Consolidated Subsidiary is a party has received a
favorable determination by the Internal Revenue Service with respect to
qualification under Section 401(a) of the Internal Revenue Code; and (j)
neither Debtor nor any Consolidated Subsidiary has incurred any
liability to a trustee appointed pursuant to Section 4042(b) or (c) of
ERISA.
4.13 ENVIRONMENTAL MATTERS.
(a) Any Environmental Questionnaire previously provided by
Debtor to Secured Party was and is accurate and complete and does
not omit any material fact the omission of which would make the
information contained therein materially misleading.
(b) Except as disclosed in the Environmental Questionnaire
provided by Debtor to Secured Party on the Closing Date, no above
ground or underground storage tanks containing Hazardous
Substances are, or have been, located on any property owned,
leased, or operated by Debtor or any Consolidated Subsidiary. The
above ground and underground storage tanks disclosed in the
Environmental Questionnaire are in compliance with all applicable
Environmental Laws.
(c) Except as disclosed in the Environmental Questionnaire
provided by Debtor to Secured Party on the Closing Date, no
property owned, leased, or operated by
<PAGE>
Debtor or any Consolidated
Subsidiary is, or has been, used for the Disposal of any Hazardous
Substance or for the treatment, storage, or Disposal of Hazardous
Substances, and any spills disclosed in the Environmental
Questionnaire were de minimis fuel spills in quantities that were
not reportable under applicable Environmental Laws.
(d) Except as disclosed in the Environmental Questionnaire
provided by Debtor to Secured Party on the Closing Date, no
Release of a Hazardous Substance has occurred, or is threatened
on, at, from, or near any property owned, leased, or operated by
Debtor or any Consolidated Subsidiary, other than de minimis
spills of fuel in quantities that are not reportable under
applicable Environmental Laws.
(e) Neither Debtor nor any Consolidated Subsidiary is
subject to any existing, pending, or threatened suit, claim,
notice of violation, or request for information under any
Environmental Law nor has Debtor or any Consolidated Subsidiary
provided any notice or information under any Environmental Law.
(f) Debtor and each Consolidated Subsidiary are in
compliance with, and have obtained all Environmental Permits
required by, all Environmental Laws.
4.14 VALIDITY OF TRANSACTION DOCUMENTS. The Transaction
Documents constitute the legal, valid, and binding obligations of Debtor
and each Consolidated Subsidiary and any Third Parties thereto,
enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy and insolvency
laws and laws affecting creditors' rights generally.
4.15 NO CONSENT OR FILING. No consent, license, approval, or
authorization of, or registration, declaration, or filing with, any
court, governmental body or authority, or other person or entity is
required in connection with the valid execution, delivery, or
performance of the Transaction Documents or for the conduct of Debtor's
business as now conducted, other than filings and recordings to perfect
security interests in or liens on the Collateral in connection with the
Transaction Documents.
4.16 NO VIOLATIONS. Neither Debtor nor any Consolidated
Subsidiary is in violation of any term of its articles, or certificate
of incorporation, or by-laws, or of any mortgage, borrowing agreement,
or other instrument or agreement pertaining to indebtedness for borrowed
money. Neither Debtor nor any Consolidated Subsidiary is in violation
of any term of any other indenture, instrument, or agreement to which it
is a party or by which it or its property may be bound, resulting, or
which might reasonably be expected to result, in a material and adverse
effect upon its business or assets. Neither Debtor nor any Consolidated
Subsidiary is in violation of any order, writ, judgment, injunction, or
decree of any court of competent jurisdiction or of any statute, rule,
or regulation of any governmental authority. The execution and delivery
of the Transaction Documents and the performance of all of the same is,
and will be, in compliance with the foregoing and will not result in any
violation thereof, or result in the creation of any mortgage, lien,
security interest, charge, or encumbrance upon, any properties or assets
except in favor of Secured Party. There exists no fact or circumstance
(whether or not disclosed in the Transaction Documents) which materially
adversely affects, or in the future (so far as Debtor can now foresee)
may materially adversely affect, the condition, business, or operations
of Debtor or any Consolidated Subsidiary.
<PAGE>
4.17 INTENTIONALLY OMITTED.
4.18 CONTINGENT LIABILITIES. There are no suretyship
agreements, guaranties, or other contingent liabilities of Debtor or any
Consolidated Subsidiary which are not disclosed by the financial
statements described in Section 4.9 or Item 25 of the Schedule.
4.19 COMPLIANCE WITH LAWS. Debtor is in compliance with all
applicable laws, rules, regulations, and other legal requirements with
respect to its business and the use, maintenance, and operations of the
real and personal property owned or leased by it in the conduct of its
business.
4.20 LICENSES, PERMITS, ETC. Each franchise, grant, approval,
authorization, license, permit, easement, consent, certificate, and
order of and registration, declaration, and filing with, any court,
governmental body or authority, or other person or entity required for
or in connection with the conduct of Debtor's and each Consolidated
Subsidiary's business as now conducted is in full force and effect.
4.21 LABOR CONTRACTS. Neither Debtor nor any Consolidated
Subsidiary is a party to any collective bargaining agreement or to any
existing or threatened labor dispute or controversies except as set
forth in Item 15 of the Schedule.
4.22 CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated
Subsidiaries other than those listed in Item 33 of the Schedule, and the
percentage ownership of Debtor in each such Consolidated Subsidiary is
specified in such Item 33.
4.23 AUTHORIZED SHARES. Debtor's total authorized common
shares, the par value of such shares, and the number of such shares
issued and outstanding, are set forth in Item 16 of the Schedule. All
of such shares are of one class and have been validly issued in full
compliance with all applicable federal and state laws, and are fully
paid and non-assessable. No other shares of the Debtor of any class or
type are authorized or outstanding.
5. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
5.1 DOCUMENTS. Debtor shall deliver to Secured Party all
documents specified in Item 17 of the Schedule, as frequently as
indicated therein or at such other times as Secured Party may request,
and all other documents and information reasonably requested by Secured
Party, all in form, content and detail satisfactory to Secured Party.
The documents and schedules to be provided under this Section 5.1 are
solely for the convenience of Secured Party in administering this
Agreement and maintaining records of the Collateral. Debtor's failure
to provide Secured Party with any such schedule shall not affect the
Security Interest.
5.2 INVOICES. Except as provided below, Debtor shall cause all
of its Invoices to be printed and to bear consecutive numbers and shall
prepare and issue its Invoices in such consecutive numerical order. If
requested by Secured Party, all copies of Invoices not previously
delivered to Secured Party shall be delivered to Secured Party with each
schedule of Receivables. Copies of all Invoices which are voided or
cancelled or which, for any other reason, do not evidence a Receivable
shall be included in such delivery. If any Invoice or copy thereof is
lost, destroyed, or otherwise unavailable, Debtor shall account in
writing, in form satisfactory
<PAGE>
to Secured Party, for such missing
Invoice. Secured Party acknowledges that Debtor invoices certain
customers using electronic data interchange ("EDI"), and that with
respect to such customers, printed Invoices are not prepared and issued
in the ordinary course of business. With respect to Invoices issued
using only EDI, if requested by Secured Party, Debtor shall provide to
Secured Party either printed copies of all such Invoices with each
schedule of Receivables or direct access to Debtor's computer system to
monitor and examine such Invoices.
5.3 CHATTEL PAPER. The original of each item of Chattel Paper
evidencing a Receivable shall be delivered to Secured Party with the
schedule listing the Receivable which it evidences, together with an
assignment in form and content satisfactory to Secured Party of such
Chattel Paper by Debtor to the Secured Party.
6. COLLECTIONS. So long as Secured Party elects to keep the HSBC Payment
Account in existence, Debtor shall deposit all Proceeds of Collateral into the
HSBC Payment Account and shall, on the day of each such deposit, forward to
Secured Party a copy of the deposit receipt of the depository bank indicating
that such deposit has been made. Any Proceeds of Collateral received by
Debtor, including, without limitation, payments on Receivables, shall be held
by Debtor in trust for Secured Party in the same medium in which received,
shall not be commingled with any assets of Debtor, and shall be delivered
immediately to Secured Party as provided above. Upon receipt of Proceeds of
Collateral, Secured Party shall apply such Proceeds directly to the
Indebtedness in the manner provided in Section 7.5. Checks drawn on the HSBC
Payment Account, and all or any part of the balance of the HSBC Payment
Account, shall be applied from time to time to the Indebtedness in the manner
provided in Section 7.5.
7. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
7.1 PROMISE TO PAY PRINCIPAL. Debtor promises to pay to Secured
Party the outstanding principal of Advances in full upon termination of
this Agreement pursuant to Section 13.13, or acceleration of the time
for payment of the Indebtedness pursuant to Section 11.2. Whenever the
outstanding principal balance of Advances exceeds the Borrowing
Capacity, Debtor shall immediately pay to Secured Party the excess of
the outstanding principal balance of Advances over the Borrowing
Capacity. Principal payments shall be applied first to Prime Rate Loans
until such Prime Rate Loans have been paid in full, and thereafter to
LIBOR Loans.
7.2 PROMISE TO PAY INTEREST.
(a) Debtor promises to pay to Secured Party interest on
the principal of Advances from time to time unpaid at the
applicable per annum rates specified in Item 18 of the Schedule.
From the date of the occurrence of, and during the continuance of,
an Event of Default, Debtor, as additional compensation to Secured
Party for its increased credit risk promises to pay interest on
(i) the principal of Advances, whether or not past due; and (ii)
past due interest and any other amount past due under the
Transaction Documents, at a per annum rate of 3% greater than the
rate of interest specified in Item 18 of the Schedule.
(b) Interest on Prime Rate Loans shall be paid (i) on the
first day of each month in arrears, (ii) on termination of this
Agreement pursuant to Section 13.13, (iii)
<PAGE>
on acceleration of the
time for payment of the Indebtedness pursuant to Section 11.2, and
(iv) on the date the Indebtedness is paid in full. Interest on
LIBOR Loans shall be paid (i) on the last day of the Interest
Period with respect thereto, (ii) on termination of this Agreement
pursuant to Section 13.13, (iii) on acceleration of the time for
payment of the Indebtedness pursuant to Section 11.2, and (iv) on
the date the Indebtedness is paid in full.
(c) Any change in the interest rate resulting from a
change in the Prime Rate shall take effect simultaneously with
such change in the Prime Rate. Interest shall be computed on the
daily unpaid principal balance of Advances. Interest shall be
calculated for each calendar day at 1/360th of the applicable per
annum rate which will result in effective per annum rates higher
than those specified in Item 18 of the Schedule. In no event
shall the rate of interest exceed the maximum rate permitted by
applicable law. If Debtor pays to Secured Party interest in
excess of the amount permitted by applicable law, such excess
shall be applied in reduction of the principal of Advances made
pursuant to this Agreement, and any remaining excess interest,
after application thereof to the principal of Advances, shall be
refunded to Debtor.
7.3 PROMISE TO PAY FEES. Debtor promises to pay to Secured
Party any fees specified in Item 19 of the Schedule on the applicable
due dates also specified in Item 19 of the Schedule.
7.4 PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party, on demand, all
costs and expenses as provided in this Agreement, and all costs
and expenses incurred by Secured Party from time to time in
connection with this Agreement, including, without limitation,
those incurred in: (i) preparing, negotiating, amending, waiving,
or granting consent with respect to the terms of any or all of the
Transaction Documents; (ii) enforcing the Transaction Documents;
(iii) performing, pursuant to Section 13.2, Debtor's duties under
the Transaction Documents upon Debtor's failure to perform them;
(iv) filing financing statements, assignments, or other documents
relating to the Collateral (e.g., filing fees, recording taxes,
and documentary stamp taxes); (v) maintaining the HSBC Payment
Account; (vi) administering the Transaction Documents, but not
ordinary general and administrative expenses; (vii) compromising,
pursuing, or defending any controversy, action, or proceeding
resulting, directly or indirectly, from Secured Party's
relationship with Debtor, regardless of whether Debtor is a party
to such controversy, action, or proceeding and of whether the
controversy, action, or proceeding occurs before or after the
Indebtedness has been paid in full; (viii) realizing upon or
protecting any Collateral; (ix) enforcing or collecting any
Indebtedness or guaranty thereof; (x) employing collection
agencies or other agents to collect any or all of the Receivables;
and (xi) examining Debtor's books and records or inspecting the
Collateral including, without limitation, the reasonable costs of
examinations and inspections conducted by third parties, provided
that nothing herein shall limit Secured Party's right to audit,
examination, inspection, or other fees otherwise payable under
Section 7.3.
(b) Without limiting Section 7.4(a), Debtor also agrees to
pay to Secured Party, on demand, the actual fees and disbursements
incurred by Secured Party for
<PAGE>
attorneys retained by Secured Party
for advice, suit, appeal, or insolvency or other proceedings under
the Federal Bankruptcy Code or otherwise, or in connection with
any purpose specified in Section 7.4(a).
7.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS
AND EXPENSES. Without limiting Debtor's obligation, pursuant to
Sections 7.1, 7.2., 7.3, and 7.4 to pay the principal of Advances,
interest, fees, and costs and expenses, the following provisions shall
apply to the payment thereof:
(a) Payment of Principal. Debtor authorizes Secured Party
to apply any Proceeds of Collateral, including, without
limitation, payments on Receivables, and any funds in the HSBC
Payment Account, to the unpaid principal of Advances. Such
Proceeds shall be applied first to Prime Rate Loans until such
Prime Rate Loans are paid in full, and thereafter to LIBOR Loans.
(b) Payment of Interest, Fees, and Costs and Expenses.
Without limiting Debtor's obligation to pay accrued interest,
fees, and costs and expenses, Debtor authorizes Secured Party to
(provided, however, Secured Party shall incur no liability for
failure to): (i) make an Advance to pay for such items; or (ii)
apply Proceeds of Collateral, including, without limitation,
payments on Receivables, and any funds in the HSBC Payment
Account, to the payment of such items.
(c) Except as otherwise specifically provided in this
Agreement, Secured Party, in its sole discretion, shall determine
the manner and amount of application of payments and credits and
Proceeds of Collateral, if any, to be made on all or any part of
any component or components of the Indebtedness, whether
principal, interest, fees, costs and expenses, or otherwise.
7.6 COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose
of calculating the aggregate principal balance of outstanding Advances
under Section 2.1, Advances shall be deemed to be paid on the date that
checks drawn on, or other funds received from, the HSBC Payment Account
are applied by Secured Party to Advances, and on the date any other
payments on Receivables have been processed for collection by Secured
Party; provided, however, for the purpose of calculating interest
payable by Debtor, funds from the HSBC Payment Account, payments on
Receivables, and any other payments, shall be deemed to be applied to
Advances the number of days specified in Item 20 of the Schedule after
the receipt of collected funds from the HSBC Payment Account or receipt
of such payments by Secured Party, and the amount of interest payable
will be adjusted by Secured Party from time to time accordingly.
Notwithstanding any other provision of this Agreement, if any item
presented for collection by Secured Party is not honored, Secured Party
may reverse any provisional credit which has been given for the item and
make appropriate adjustments to the amount of interest and principal
due.
7.7 ACCOUNT STATED. Debtor agrees that each monthly or other
statement of account mailed or delivered by Secured Party to Debtor
pertaining to the outstanding balance of Advances, the amount of
interest due thereon, fees, and costs and expenses shall constitute
rebuttably presumptive evidence of the information contained therein,
and shall constitute an "account stated" with respect to the matters
contained therein unless, within thirty (30) calendar
<PAGE>
days from when
such statement is mailed or, if not mailed, delivered to Debtor, Debtor
shall deliver to Secured Party written notice of any objections which it
may have as to such statement of account, and in such event, only the
items to which objection is expressly made in such notice shall be
considered to be disputed by Debtor.
7.8 PAYMENTS. All payments by Debtor to Secured Party under
this Agreement and the other Transaction Documents must be received by
Secured Party prior to 1:30 p.m. (Buffalo, New York time) on the date
when due. If not received by such time, such payment shall be treated
as having been received on the next Business Day.
8. PROCEDURES AFTER SCHEDULING RECEIVABLES.
8.1 INTENTIONALLY OMITTED.
8.2 CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant
such Credits and such Extensions as are ordinary in the usual
course of Debtor's business without the prior consent of Secured
Party; provided, however, that any such Extension shall not extend
the time for payment beyond thirty (30) days after the original
due date as shown on the Invoice evidencing the related
Receivable, or as computed based on the information set forth on
such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall
make a full accounting of each grant of a Credit or an Extension,
including a brief description of the reasons therefor and a copy
of all credit memoranda. Such accountings shall be in form
satisfactory to Secured Party and shall be delivered to Secured
Party daily or at such other intervals as may be specified in Item
17 of the Schedule. All credit memoranda issued by Debtor shall
be numbered consecutively and copies of the same, when delivered
to Secured Party, shall be in numerical order and accounted for in
the same manner as provided in Section 5.2 with respect to
Invoices.
(c) Adjustment to Receivables Borrowing Base. The
Receivables Borrowing Base will be reduced by the amount of all
Credits reflected in an accounting required by Section 8.2(b) and
by the full amount of any Receivables for which Extensions were
granted.
8.3 RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned
uncollected for any reason, Secured Party shall again forward the same
for collection or return the same to Debtor. Upon receipt of a returned
check or instrument by Debtor, Debtor shall immediately make the
necessary entries on its books and records to reinstate the Receivable
as outstanding and unpaid and immediately notify Secured Party of such
entries. All Receivables of an Account Debtor with respect to which
such check or instrument was received shall thereupon become Ineligible
Receivables.
<PAGE>
8.4 DEBIT MEMORANDA.
(a) Unless Secured Party otherwise notifies Debtor in
writing, Debtor shall deliver at least monthly to Secured Party,
together with the schedule of Receivables provided for in Item 17
of the Schedule, copies of all debit memoranda issued by Debtor.
(b) All debit memoranda issued by Debtor shall be reported
on the date issued on the daily billing adjustment report, and if
requested by Secured Party, copies of all debit memoranda shall be
delivered to Secured Party with each schedule of Receivables
provided for in Item 17 of the Schedule.
8.5 NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment
of money) with respect to any Receivable without the prior written
consent of Secured Party. If Secured Party, in its reasonable judgment,
consents to the acceptance of any such note or instrument, the same
shall be considered as evidence of the Receivable giving rise to such
note or instrument, shall be subject to the Security Interest, and shall
not constitute payment of such Receivable, and Debtor shall forthwith
endorse such note or instrument to the order of Secured Party and
deliver the same to Secured Party, together with the Schedule listing
the Receivables which it evidences. Upon collection, the proceeds of
such note or instrument may be applied directly to unpaid Advances,
interest, and costs and expenses as provided in Section 7.5.
9. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid, or this Agreement remains in effect, Debtor shall comply with the
covenants contained in Item 21 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
9.1 FINANCIAL STATEMENTS. Debtor shall furnish to Secured
Party:
(a) Within ninety (90) days after the end of each fiscal
year, audited consolidated and consolidating financial statements
of Debtor and each Consolidated Subsidiary as of the end of such
year, fairly presenting Debtor's and each Consolidated
Subsidiary's financial position, which statements shall consist of
a balance sheet and related statements of income, retained
earnings, and cash flow covering the period of Debtor's
immediately preceding fiscal year, and which shall be prepared by
independent certified public accountants satisfactory to Secured
Party.
(b) Within thirty (30) days after the end of each month,
consolidated and consolidating financial statements of Debtor and
each Consolidated Subsidiary as of the end of such month, fairly
presenting Debtor's and such Consolidated Subsidiary's financial
position, which statements shall consist of a balance sheet and
related statements of income covering the period from the end of
the immediately preceding fiscal year to the end of such month,
all in such detail as Secured Party may request and signed and
certified to be correct by the president or chief financial
officer of Debtor or other financial officer satisfactory to
Secured Party in the form of Exhibit A attached hereto and made a
part hereof.
(c) Within thirty (30) days after the end of each fiscal
quarter, consolidated and consolidating financial statements of
Debtor and each Consolidated Subsidiary as of
<PAGE>
the end of such
fiscal quarter, fairly representing Debtor's and such Consolidated
Subsidiary's retained earnings and cash flow, which statements
shall consist of statements of retained earnings and cash flow
covering the period from the end of the immediately preceding
fiscal year to the end of such fiscal quarter, all in such detail
as Secured Party may request and signed and certified to be
correct by the president or chief financial officer of Debtor or
other financial officer satisfactory to Secured Party in the form
of Exhibit A attached hereto and made a part hereof.
(d) Within thirty (30) days after the end of each fiscal
quarter, a compliance certificate executed by the president or
chief financial officer of Debtor or other financial officer
satisfactory to Secured Party in the form of Exhibit B attached
hereto and made a part hereof.
e) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which Debtor
sends to its shareholders, and copies of any and all periodic and
special reports and registration statements which Debtor files
with the Securities and Exchange Commission.
(f) Such additional information as Secured Party may from
time to time reasonably request regarding the financial and
business affairs of Debtor or any Consolidated Subsidiary.
(g) To the extent that any information delivered to
Secured Party pursuant to the provisions of this Section is
designated as confidential or non-public, Secured Party agrees to
keep such information confidential, except to the extent that: (i)
disclosure of such information is made to Secured Party's
accountants, attorneys and regulators in the ordinary course of
business, or (ii) disclosure of such information is required under
applicable law or pursuant to administrative or court order.
9.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall
promptly notify Secured Party in writing of the existence of any
Receivable as to which the perfection, enforceability, or validity of
Secured Party's Security Interest in such Receivable, or Secured Party's
right or ability to obtain direct payment to Secured Party of the
Proceeds of such Receivable, is governed by any federal or state
statutory requirements other than those of the Uniform Commercial Code,
including, without limitation, any Receivable subject to the Federal
Assignment of Claims Act of 1940, as amended.
9.3 TERMS OF SALE. The terms on which sales giving rise to
Receivables are made shall be as specified in Items 3 and 22 of the
Schedule.
9.4 BOOKS AND RECORDS. Debtor shall maintain, at its own cost
and expense, accurate and complete books and records with respect to the
Collateral, in form satisfactory to Secured Party, and including,
without limitation, records of all payments received and all Credits and
Extensions granted with respect to the Receivables, and of all other
dealings affecting the Collateral. Debtor shall deliver, or provide
reasonable access during normal business hours to, such books and
records to Secured Party or its representative on request. At Secured
Party's request, Debtor shall mark all or any records to indicate the
Security Interest. The HSBC
<PAGE>
Payment Account is not an asset of Debtor
and shall not be shown as an asset of Debtor in such books and records
or in such financial statements.
9.5 INTENTIONALLY OMITTED.
9.6 EXAMINATIONS. Debtor shall at all reasonable times during
normal business hours and from time to time permit Secured Party or its
agents to inspect the Collateral and to examine and make extracts from,
or copies of, any of Debtor's books, ledgers, reports, correspondence,
and other records relating to the Collateral.
9.7 VERIFICATION OF COLLATERAL. Secured Party shall have the
right to verify all or any Collateral in any manner and through any
medium Secured Party may consider appropriate and Debtor agrees to
furnish all reasonable assistance and information and perform any
reasonable acts which Secured Party may require in connection therewith.
9.8 RESPONSIBLE PARTIES. Debtor shall notify Secured Party of
the occurrence of any event specified in Section 1.1(v)(iv) with respect
to any Responsible Party promptly after receiving notice thereof.
9.9 TAXES. Debtor shall promptly pay and discharge all of its
taxes, assessments, and other governmental charges prior to the date on
which penalties are attached thereto, establish adequate reserves for
the payment of such taxes, assessments, and other governmental charges,
make all required withholding and other tax deposits, and, upon request,
provide Secured Party with receipts or other proof that such taxes,
assessments, and other governmental charges have been paid in a timely
fashion; provided, however, that nothing contained herein shall require
the payment of any tax, assessment, or other governmental charge so long
as its validity is being contested in good faith, and by appropriate
proceedings diligently conducted, and adequate reserves for the payment
thereof have been established.
9.10 LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing
of any litigation, proceeding, or counterclaim against, or of any
investigation of, Debtor or any Consolidated Subsidiary if: (i)
the outcome of such litigation, proceeding, counterclaim, or
investigation would likely materially and adversely affect the
finances or operations of Debtor or any Consolidated Subsidiary or
title to, or the value of, any Collateral; or (ii) such
litigation, proceeding, counterclaim, or investigation questions
the validity of any Transaction Document or any action taken, or
to be taken, pursuant to any Transaction Document.
(b) Debtor shall furnish to Secured Party such information
(except attorney-client privilege information) regarding any such
litigation, proceeding, counterclaim, or investigation as Secured
Party shall reasonably request. Secured Party shall keep all such
information confidential, except to the extent that (i) disclosure
of such information is made to Secured Party's accountants,
attorneys and regulators in the ordinary course of business, or
(ii) disclosure of such information is required under applicable
law or administrative or court order.
<PAGE>
9.11 INSURANCE.
(a) Debtor shall at all times carry and maintain in full
force and effect such insurance as Secured Party may from time to
time require, in coverage, form, and amount, and issued by
insurers, satisfactory to Debtor and Secured Party, including,
without limitation: workers' compensation or similar insurance;
public liability insurance; business interruption insurance; and
insurance against such other risks as are usually insured against
by business entities of established reputation engaged in the same
or similar businesses as Debtor and similarly situated.
(b) Debtor shall deliver to Secured Party the policies of
insurance required by Secured Party, with appropriate endorsements
designating Secured Party as an additional insured and loss payee
as requested by Secured Party. Each policy of insurance shall
provide that if such policy is cancelled for any reason
whatsoever, if any substantial change is made in the coverage
which affects Secured Party, or if such policy is allowed to lapse
for nonpayment of premium, such cancellation, change, or lapse
shall not be effective as to Secured Party until thirty (30) days
after receipt by Secured Party of written notice thereof from the
insurer issuing such policy.
(c) Debtor hereby appoints Secured Party as its
attorney-in-fact, with full authority in the place and stead of
Debtor and in the name of Debtor, Secured Party, or otherwise,
from time to time in Secured Party's discretion, to take any
actions and to execute any instruments which Secured Party may
deem necessary or desirable to obtain and otherwise deal with
insurance required pursuant hereto; provided, however, that the
foregoing powers will be exercised by Secured Party only upon the
occurrence and during the continuation of an Event of Default
under this Agreement.
9.12 GOOD STANDING; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its
corporate existence and its right to conduct business in all
states in which the nature of its business or ownership of its
property requires such qualification.
(b) Debtor shall engage only in the business conducted by
it on the date of this Agreement.
9.13 PENSION REPORTS. Upon the occurrence of any Pension Event,
Debtor shall furnish to Secured Party, as soon as possible and, in any
event, within thirty (30) days after Debtor knows, or has reason to
know, of such occurrence, the statement of the president or chief
financial officer of Debtor setting forth the details of such Pension
Event and the action which Debtor proposes to take with respect thereto.
9.14 NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured
Party in writing of any failure by Debtor or any Third Party to comply
with any provision of any Transaction Document immediately upon learning
of such non-compliance, or if any representation or warranty contained
in any Transaction Document is no longer true.
<PAGE>
9.15 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall substantially comply with all applicable
Environmental Laws such that any noncompliance is temporary and
does not have a material adverse effect on the finances, business
or operations of Debtor.
(b) Debtor shall not suffer, cause, or permit the Disposal
of Hazardous Substances at any property owned, leased, or operated
by it or any Consolidated Subsidiary, other than de minimis spills
of fuel in quantities that are not reportable under applicable
Environmental Laws.
(c) Debtor shall promptly notify Secured Party in the
event of the Disposal of any Hazardous Substance at any property
owned, leased, or operated by Debtor or any Consolidated
Subsidiary, or in the event of any Release, or threatened Release,
of a Hazardous Substance, from any such property, other than de
minimis spills of fuel in quantities that are not reportable under
applicable Environmental Laws.
(d) Debtor shall, at Secured Party's request, provide, at
Debtor's expense, updated Environmental Questionnaires concerning
any property owned, leased, or operated by Debtor or any
Consolidated Subsidiary.
(e) Debtor shall deliver promptly to Secured Party (i)
copies of any documents received from the United States
Environmental Protection Agency or any state, county, or municipal
environmental or health agency concerning Debtor's or any
Consolidated Subsidiary's operations; and (ii) copies of any
documents submitted by Debtor or any Consolidated Subsidiary to
the United States Environmental Protection Agency or any state,
county, or municipal environmental or health agency concerning its
operations.
9.16 DEFEND COLLATERAL. Debtor shall defend the Collateral
against the claims and demands of all other parties (other than Secured
Party), including, without limitation, defenses, setoffs, and
counterclaims asserted by any Account Debtor against Debtor or Secured
Party (except as may be compromised or settled by Debtor in the ordinary
course of business consistent with past practices).
9.17 USE OF PROCEEDS. Debtor shall use the proceeds of Advances
solely for Debtor's working capital and for such other legal and proper
corporate purposes as are consistent with all applicable laws, Debtor's
articles or certificate of incorporation and bylaws, resolutions of
Debtor's Board of Directors, and the terms of this Agreement.
9.18 COMPLIANCE WITH LAWS. Debtor shall substantially comply
with all applicable laws, rules, regulations, and other legal
requirements with respect to its business and the use, maintenance, and
operation of the real and personal property owned or leased by it in the
conduct of its business such that any noncompliance is temporary and
does not have a material adverse effect on the finances, business or
operations of Debtor.
<PAGE>
9.19 MAINTENANCE OF PROPERTY. Debtor shall maintain its
property and assets in good condition and repair, except that Debtor may
retire obsolete, unrepairable or exhausted property or assets in the
ordinary course of business consistent with past practices.
9.20 LICENSES, PERMITS, ETC. Debtor shall maintain all of its
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, and orders, if any, in full force and effect
until their respective expiration dates.
9.21 INTENTIONALLY OMITTED.
9.22 ERISA. Debtor shall substantially comply with the
provisions of ERISA and the Internal Revenue Code with respect to each
Pension Plan such that any noncompliance is temporary and does not have
a material adverse effect on the finances, business or operations of
Debtor.
9.23 MAINTENANCE OF OWNERSHIP. Debtor shall notify Secured
Party in writing prior to the incorporation and funding of any new
Consolidated Subsidiary.
9.24 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the
provisions of this Section 9.24 are expressly waived by Secured Party in
writing, Debtor shall cause each Consolidated Subsidiary to comply with
Sections 9.1(b), 9.9, 9.11(a), 9.12, 9.15, and 9.18 through 9.22,
inclusive, and any of the provisions contained in Item 21 of the
Schedule, and shall cause each Consolidated Subsidiary to refrain from
doing any of the acts proscribed by Sections 10.2, 10.3, and 10.5
through 10.14, inclusive, or proscribed by any of the provisions
contained in Item 21 of the Schedule.
10. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor, without the written
consent of Secured Party, shall not violate any covenant contained in Item 21
of the Schedule and shall not:
10.1 LOCATION OF BUSINESS RECORDS. Move the records concerning
the Collateral from the location where they are kept as specified in
Item 13 of the Schedule.
10.2 BORROWED MONEY. Create, incur, assume, or suffer to exist
any liability for borrowed money, except to Secured Party and except as
may be specified in Item 23 of the Schedule.
10.3 SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur,
assume, or suffer to exist any mortgage, security interest, lien, or
other encumbrance upon any of the Collateral, whether now owned or
hereafter acquired, except security interests, liens, and encumbrances
(a) in favor of Secured Party and (b) as may be specified in Item 12 of
the Schedule.
10.4 INTENTIONALLY OMITTED.
10.5 MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or
consolidate with or into any corporation; (b) enter into any joint
venture or partnership with any person, firm, or corporation; (c)
convey, lease, or sell all or any material portion of its property or
assets or
<PAGE>
business to any other person, firm, or corporation; or (d)
convey, lease, or sell any of its assets to any person, firm, or
corporation for less than the fair market value thereof.
10.6 CAPITAL STOCK. Purchase or retire any of its capital stock
(except for fractional shares) or otherwise change the capital structure
of Debtor or change the relative rights, preferences, or limitations
relating to any of its capital stock; provided, however, that so long as
no Event of Default, or event which with notice or lapse of time or both
would constitute an Event of Default, exists and is continuing or would
result from any such redemption, Debtor may redeem shares of stock from
former employees pursuant to Debtor's employee stock ownership plan as
in effect on the date of this Agreement so long as the aggregate
purchase price for such shares during any period of twelve (12)
consecutive months does not exceed $200,000.00.
10.7 DIVIDENDS OR DISTRIBUTIONS. Pay or declare any cash or
other dividends or distributions on any of its corporate stock, except
that stock dividends may be paid, and except that a Consolidated
Subsidiary may pay dividends of any kind to Debtor.
10.8 INVESTMENTS AND ADVANCES. Make any investment in, or
advances to, any other person, firm, or corporation, except (a) advance
payments or deposits against purchases made in the ordinary course of
Debtor's regular business; (b) interest or dividend bearing deposit
accounts or overnight repurchase agreements or direct obligations of the
United States of America; (c) any existing investments in, or existing
advances to, the Consolidated Subsidiaries; (d) fuel or oil hedge
investments of up to $250,000 in the aggregate at any one time; or (e)
any investments or advances that may be specified in Item 24 of the
Schedule.
10.9 GUARANTIES. Become a guarantor, a surety, or otherwise
liable for the debts or other obligations of any other person, firm, or
corporation, whether by guaranty or suretyship agreement, agreement to
purchase indebtedness, agreement for furnishing funds through the
purchase of goods, supplies, or services (or by way of stock purchase,
capital contribution, advance, or loan) for the purpose of paying or
discharging indebtedness, or otherwise, except as an endorser of
instruments for the payment of money deposited to its bank account for
collection in the ordinary course of business and except as may be
specified in Item 25 of the Schedule.
10.10 INTENTIONALLY OMITTED.
10.11 INTENTIONALLY OMITTED.
10.12 INTENTIONALLY OMITTED.
10.13 NAME CHANGE. Change its name without giving at least
thirty (30) days' prior written notice of its proposed new name to
Secured Party, together with delivery to Secured Party of UCC-1
Financing Statements reflecting Debtor's new name, all in form and
substance satisfactory to Secured Party.
10.14 DISPOSITION OF COLLATERAL. Sell, assign, or otherwise
transfer or dispose of any Collateral except to Secured Party, or
encumber the Collateral or any interest therein, or grant a security
interest therein, or license thereof, except to Secured Party.
<PAGE>
10.15 FINANCIAL COVENANTS. Fail to comply with the financial
covenants set forth in Item 30 of the Schedule.
11. EVENTS OF DEFAULT.
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an event of default (individually,
an Event of Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal,
interest, premium, fee, cost, or expense due under the Transaction
Documents.
(b) Negative Covenants. Default in the observance of any
of the covenants or agreements of Debtor contained in Article 10.
(c) Article 6. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 6.
(d) Other Covenants. Default in the observance of any of
the covenants or agreements of Debtor contained in the Transaction
Documents, other than in Article 10, Article 6 or Sections 7.1,
7.2, 7.3, or 7.4, or in any other agreement with Secured Party
which is not remedied within the earlier of ten (10) days after
(i) notice thereof by Secured Party to Debtor, or (ii) the date
Debtor was required to give notice to Secured Party under Section
9.14.
(e) Cessation of Business or Voluntary Insolvency
Proceedings. The (i) cessation of operations of Debtor's business
as conducted on the date of this Agreement; (ii) filing by Debtor
of a petition or request for liquidation, reorganization,
arrangement, adjudication as a bankrupt, relief as a debtor, or
other relief under the bankruptcy, insolvency, or similar laws of
the United States of America or any state or territory thereof or
any foreign jurisdiction now or hereafter in effect; (iii) making
by Debtor of a general assignment for the benefit of creditors;
(iv) consent by the Debtor to the appointment of a receiver or
trustee, including, without limitation, a "custodian," as defined
in the Federal Bankruptcy Code, for Debtor or any of Debtor's
assets; (v) making of any, or sending of any, notice of any
intended bulk sale by Debtor; or (vi) execution by Debtor of a
consent to any other type of insolvency proceeding (under the
Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, or settlement
of, claims against or winding up of affairs of, Debtor.
(f) Involuntary Insolvency Proceedings. (i) The
appointment of a receiver, trustee, custodian, or officer
performing similar functions, including, without limitation, a
"custodian," as defined in the Federal Bankruptcy Code, for Debtor
or any of Debtor's assets; or the filing against Debtor of a
request or petition for liquidation, reorganization, arrangement,
adjudication as a bankrupt, or other relief under the bankruptcy,
insolvency, or similar laws of the United States of America, any
state or territory thereof, or any foreign jurisdiction now or
hereafter in effect; or of any other type of insolvency proceeding
(under the Federal Bankruptcy Code or otherwise) or any formal or
informal
<PAGE>
proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of Debtor
shall be instituted against Debtor; and (ii) such appointment
shall not be vacated, or such petition or proceeding shall not be
dismissed, within sixty (60) days after such appointment, filing,
or institution.
(g) Other Indebtedness and Agreements. Failure by Debtor
to pay, when due, (or, if permitted by the terms of any applicable
documentation, within any applicable grace period) any
indebtedness owing by Debtor to Secured Party or any other person
or entity (other than the Indebtedness incurred pursuant to this
Agreement and including, without limitation, indebtedness
evidencing a deferred purchase price), whether such indebtedness
shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand, or otherwise, or failure by the Debtor to
perform any term, covenant, or agreement on its part to be
performed under any agreement or instrument (other than a
Transaction Document) evidencing or securing or relating to any
indebtedness owing by Debtor when required to be performed if the
effect of such failure is to permit the holder to accelerate the
maturity of such indebtedness.
(h) Judgments. Any judgment or judgments against Debtor
(other than any judgment for which Debtor is fully insured or
which is less than $100,000) shall remain unpaid, unstayed on
appeal, undischarged, unbonded, or undismissed for a period of
thirty (30) days.
(i) Pension Default. Any Reportable Event which Secured
Party shall determine in good faith constitutes grounds for the
termination of any Pension Plan by the Pension Benefit Guaranty
Corporation, or for the appointment by an appropriate United
States district court of a trustee to administer any Pension Plan,
shall occur and shall continue thirty (30) days after written
notice thereof to Debtor by Secured Party; or the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension
Plan; or a trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan; or any
Pension Plan shall be terminated; or Debtor or any Consolidated
Subsidiary shall withdraw from a Pension Plan in a complete
withdrawal or a partial withdrawal; or there shall arise vested
unfunded liabilities under any Pension Plan that, in the good
faith opinion of Secured Party, have or will or might have a
material adverse effect on the finances or operations of Debtor;
or Debtor or any Consolidated Subsidiary shall fail to pay to any
Pension Plan any contribution which it is obligated to pay under
the terms of such plan or any agreement or which is required to
meet statutory minimum funding standards.
(j) Collateral; Impairment. There shall occur with
respect to the Collateral any (i) misappropriation, conversion,
diversion, or fraud; (ii) levy, seizure, or attachment in excess
of $25,000 in any one instance or occurrence; or (iii) loss,
theft, or damage in excess of $25,000 in any one instance or
occurrence.
(k) Intentionally omitted.
(l) Third Party Default. There shall occur with respect
to any Third Party or any Consolidated Subsidiary, including,
without limitation, any guarantor or
<PAGE>
Consolidated Subsidiary (i)
any event described in Section 11.1(e), 11.1(f), 11.1(g), or
11.1(h); (ii) any pension default event such as described in
Section 11.1(i) with respect to any pension plan maintained by
such Third Party or such Consolidated Subsidiary; or (iii) any
failure by Third Party or such Consolidated Subsidiary to perform
in accordance with the terms of any agreement between such Third
Party and Secured Party.
(m) Representations. Any certificate, statement,
representation, warranty, or financial statement furnished by, or
on behalf of, Debtor or any Third Party, pursuant to, or in
connection with, this Agreement (including, without limitation,
representations and warranties contained herein) or as an
inducement to Secured Party to enter into this Agreement or any
other lending agreement with Debtor shall prove to have been false
in any material respect at the time as of which the facts therein
set forth were certified or to have omitted any substantial
contingent or unliquidated liability or claim against Debtor or
any such Third Party, or if on the date of the execution of this
Agreement there shall have been any materially adverse change in
any of the facts disclosed by any such statement or certificate
which shall not have been disclosed in writing to Secured Party
at, or prior to, the time of such execution.
(n) Challenge to Validity. Debtor or any Third Party
commences any action or proceeding to contest the validity or
enforceability of any Transaction Document or any lien or security
interest granted or obligations evidenced by any Transaction
Document.
(o) Death or Incapacity; Termination. Any Third Party
dies or becomes incapacitated, or terminates or attempts to
terminate, in accordance with its terms or otherwise, any guaranty
benefitting Secured Party or other Transaction Document executed
by such Third Party.
11.2 EFFECTS OF AN EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default
(except an Event of Default under either Section 11.1(e) or
11.1(f)), Secured Party may declare any obligations it may have
hereunder to be cancelled, and the principal of the Indebtedness
then outstanding to be immediately due and payable, together with
all interest thereon and costs and expenses accruing under the
Transaction Documents. Upon such declaration, any obligations
Secured Party may have hereunder shall be immediately cancelled,
and the Indebtedness then outstanding shall become immediately due
and payable without presentation, demand, or further notice of any
kind to Debtor.
(b) Upon the happening of one or more Events of Default
under Section 11.1(e) or 11.1(f), Secured Party's obligations
hereunder shall be cancelled immediately, automatically, and
without notice, and the Indebtedness then outstanding shall become
immediately due and payable without presentation, demand, or
notice of any kind to the Debtor.
<PAGE>
12. SECURED PARTY'S RIGHTS AND REMEDIES.
12.1 GENERALLY. Secured Party's rights and remedies with
respect to the Collateral, in addition to those rights granted herein
and in any other agreement between Debtor and Secured Party now or
hereafter in effect, shall be those of a secured party under the Uniform
Commercial Code as in effect in the State and under any other applicable
law.
12.2 NOTIFICATION OF ACCOUNT DEBTORS. Upon the occurrence of an
Event of Default or an event which with notice or lapse of time, or
both, would constitute an Event of Default, Secured Party may, at any
time and from time to time, notify any or all Account Debtors of the
Security Interest and may direct such Account Debtors to make all
payments on Receivables directly to Secured Party.
12.3 INTENTIONALLY OMITTED.
12.4 COLLECTION OF RECEIVABLES. Upon the occurrence of an Event
of Default or an event which with notice or lapse of time, or both,
would constitute an Event of Default, Secured Party may, in a
commercially reasonable manner, demand, collect, and sue for all monies
and Proceeds due, or to become due, on the Receivables (in either
Debtor's or Secured Party's name at the latter's option) with the right
to enforce, compromise, settle, or discharge any or all Receivables. If
Secured Party takes any action contemplated by this Section with respect
to any Receivable, Debtor shall not exercise any right that Debtor would
otherwise have had to take such action with respect to such Receivable.
12.5 ENDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby
irrevocably appoints Secured Party the Debtor's agent with full power,
in the same manner, to the same extent, and with the same effect as if
Debtor were to do the same: upon the occurrence of an Event of Default
or an event which with notice or lapse of time, or both, would
constitute an Event of Default, to endorse Debtor's name on any
Instruments or Documents pertaining to any Collateral, to receive and
collect all mail addressed to Debtor, to direct the place of delivery of
such mail to any location designated by Secured Party, to open such
mail, to remove all contents therefrom, and to retain all contents
thereof constituting or relating to the Collateral. This agency is
unconditional and shall not terminate until all of the Indebtedness is
paid in full and this Agreement has been terminated. Secured Party
agrees to give Debtor notice in the event it exercises this agency,
except with respect to the endorsement of Debtor's name on any
instruments or documents pertaining to any Collateral.
12.6 INTENTIONALLY OMITTED.
13. MISCELLANEOUS.
13.1 PERFECTING THE SECURITY INTEREST; PROTECTING THE
COLLATERAL. Debtor hereby authorizes Secured Party to file such
financing statements relating to the Collateral without Debtor's
signature thereon as Secured Party may deem appropriate, and appoints
Secured Party as Debtor's attorney-in-fact (without requiring Secured
Party) to execute any such financing statement or statements in Debtor's
name and to perform all other acts which Secured Party deems appropriate
to perfect and continue the Security Interest and to protect, preserve,
and realize upon the Collateral.
<PAGE>
13.2 PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to
perform any of its duties under the Transaction Documents, including,
without limitation, the duty to obtain insurance as specified in Section
9.11, Secured Party may, but shall not be obligated to, perform any or
all such duties.
13.3 NOTICE OF SALE. Without in any way requiring notice to be
given in the following manner, Debtor agrees that any notice by Secured
Party of sale, disposition, or other intended action hereunder, or in
connection herewith, whether required by the Uniform Commercial Code as
in effect in the State or otherwise, shall constitute reasonable notice
to Debtor if such notice is mailed by regular or certified mail, postage
prepaid, at least ten (10) days prior to such action, to Debtor's
address or addresses specified above or to any other address which
Debtor has specified in writing to Secured Party as the address to which
notices hereunder shall be given to Debtor; provided, however, that no
such notice shall be required prior to Secured Party's direct collection
of Receivables.
13.4 WAIVER BY SECURED PARTY. No course of dealing between
Debtor and Secured Party and no delay or omission by Secured Party in
exercising any right or remedy under the Transaction Documents or with
respect to any Indebtedness shall operate as a waiver thereof or of any
other right or remedy, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any
other right or remedy. All rights and remedies of Secured Party are
cumulative.
13.5 WAIVER BY DEBTOR. Secured Party shall have no obligation
to take, and Debtor shall have the sole responsibility for taking, any
and all steps to preserve rights against any and all Account Debtors and
against any and all prior parties to any note, Chattel Paper, draft,
trade acceptance, or other instrument for the payment of money covered
by the Security Interest whether or not in Secured Party's possession.
Secured Party shall not be responsible to Debtor for loss or damage
resulting from Secured Party's failure to enforce any Receivables or to
collect any moneys due, or to become due, thereunder or other Proceeds
constituting Collateral hereunder. Debtor waives protest of any note,
check, draft, trade acceptance, or other instrument for the payment of
money constituting Collateral at any time held by Secured Party on which
Debtor is in any way liable and waives notice of any other action taken
by Secured Party, including, without limitation, notice of Secured
Party's intent to accelerate the Indebtedness or any part thereof.
13.6 SETOFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured
Party, at its sole election, may setoff against the Indebtedness any and
all monies then or thereafter owed to Debtor by Secured Party in any
capacity, whether or not the Indebtedness or the obligation to pay such
monies owed by Secured Party is then due, and Secured Party shall be
deemed to have exercised such right of setoff immediately at the time of
such election even though any charge therefor is made or entered on
Secured Party's records subsequent thereto.
<PAGE>
13.7 ASSIGNMENT. The rights and benefits of Secured Party
hereunder shall, if Secured Party so agrees, inure to any party
acquiring any interest in the Indebtedness or any part thereof in
accordance with Section 13.8 below.
13.8 SUCCESSORS AND ASSIGNS. Secured Party and Debtor, as used
herein, shall include the successors or assigns of those parties, except
that (1) Debtor shall not have the right to assign its rights hereunder
or any interest herein, and (2) Secured Party may not assign its rights
hereunder (other than to an entity that controls, is controlled by or is
under common control with the Hongkong Shanghai Banking Corporation)
without the prior written consent of Debtor.
13.9 MODIFICATION. No modification, rescission, waiver,
release, or amendment of any provision of this Agreement shall be made,
except as may be provided in Item 35 of the Schedule or by a written
agreement signed by Debtor and a duly authorized officer of Secured
Party.
13.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and by Secured Party and Debtor on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which shall together constitute one and the same
Agreement.
13.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Any financial
calculation to be made, all financial statements and other financial
information to be provided, and all books and records to be kept in
connection with the provisions of this Agreement, shall be in accordance
with generally accepted accounting principles consistently applied
during each interval and from interval to interval; provided, however,
that in the event changes in generally accepted accounting principles
shall be mandated by the Financial Accounting Standards Board or any
similar accounting body of comparable standing, or should be recommended
by Debtor's certified public accountants, to the extent such changes
would affect any financial calculations to be made in connection
herewith, such changes shall be implemented in making such calculations
only from and after such date as Debtor and Secured Party shall have
amended this Agreement to the extent necessary to reflect such changes
in the financial and other covenants to which such calculations relate.
13.12 INDEMNIFICATION.
(a) If after receipt of any payment of all, or any part
of, the Indebtedness, Secured Party is, for any reason, compelled
to surrender such payment to any person or entity because such
payment is determined to be void or voidable as a preference, an
impermissible setoff, or a diversion of trust funds, or for any
other reason, the Transaction Documents shall continue in full
force and Debtor shall be liable, and shall indemnify and hold
Secured Party harmless for, the amount of such payment
surrendered. The provisions of this Section shall be and remain
effective notwithstanding any contrary action which may have been
taken by Secured Party in reliance upon such payment, and any such
contrary action so taken shall be without prejudice to Secured
Party's rights under the Transaction Documents and shall be deemed
to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section 13.12(a) shall
survive the termination of this Agreement and the Transaction
Documents.
(b) Debtor agrees to indemnify, defend, and hold harmless
Secured Party from, and against, any and all liabilities, claims,
damages, penalties, expenditures, losses,
<PAGE>
or charges, including,
but not limited to, all costs of investigation, monitoring, legal
representations, remedial response, removal, restoration, or
permit acquisition, which may now, or in the future, be
undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by Secured Party or any other person or entity as a
result of the presence of, Release of, or threatened Release of
Hazardous Substances on, in, under, or near the property owned,
leased, or operated by Debtor or any Consolidated Subsidiary. The
liability of Debtor under the covenants of this Section 13.12(b)
is not limited by any exculpatory provisions in this Agreement or
any other documents securing the Indebtedness and shall survive
repayment of the Indebtedness or any transfer or termination of
this Agreement regardless of the means of such transfer or
termination. Debtor further agrees that Secured Party has no duty
to warn Debtor or any other person or entity about any actual or
potential environmental contamination or other problem that may
have become apparent, or will become apparent, to Secured Party.
(c) Debtor agrees to pay, indemnify, and hold Secured
Party harmless from, and against, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses, or disbursements of any kind or nature
whatsoever (including, without limitation, counsel and special
counsel fees and disbursements in connection with any litigation,
investigation, hearing, or other proceeding) with respect, or in
any way related, to the existence, execution, delivery,
enforcement, performance, and administration of this Agreement and
any other Transaction Document (all of the foregoing,
collectively, the "Indemnified Liabilities"). The agreements in
this Section 13.12(c) shall survive repayment of the Indebtedness.
13.13 TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is, and is intended to
be, a continuing Agreement and shall remain in full force and
effect for an initial term equal to the term set forth in Item 32
of the Schedule and for any renewal term also specified in Item 32
of the Schedule; provided, however, that either party may
terminate this Agreement as of the end of the initial term or any
subsequent renewal term by giving the other party notice to
terminate in writing at least sixty (60) days prior to the end of
any such period whereupon at the end of such period all
Indebtedness shall be due and payable in full without
presentation, demand, or further notice of any kind, whether or
not all or any part of such Indebtedness is otherwise due and
payable pursuant to the agreement or instrument evidencing same.
Secured Party may terminate this Agreement immediately and without
notice upon the occurrence of an Event of Default.
Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the Security Interest, Secured Party's
rights and remedies under the Transaction Documents and Debtor's
obligations and liabilities under the Transaction Documents, shall
survive any termination of this Agreement and shall remain in full
force and effect until all of the Indebtedness outstanding, or
contracted or committed for (whether or not outstanding), before
the receipt of such notice by Secured Party, and any extensions or
renewals thereof (whether made before or after receipt of such
notice), together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full. No
Collateral shall be released or financing statement terminated
until: (i) such final and irrevocable payment in full of the
Indebtedness as described in the preceding sentence; and (ii)
Debtor and Secured Party execute a mutual general release, subject
to
<PAGE>
Section 13.12 of this Agreement, in form and substance
satisfactory to the Secured Party and Debtor and their counsel.
(b) Prepayment Premium. If Debtor pays in full all or
substantially all of the principal balance of Advances prior to
the end of the initial term or any renewal term of this Agreement
as set forth in Item 32 of the Schedule, other than temporarily
from funds internally generated in the ordinary course of
business, at the time of any such payment Debtor shall also pay to
Secured Party the prepayment premium set forth in Item 34 of the
Schedule. Any tender of payment in full of such principal balance
following an acceleration by Secured Party of the Indebtedness
pursuant to Section 11.2 shall be, for purposes of this Section
13.13(b), deemed to be considered a prepayment requiring Debtor to
pay the prepayment premium set forth in Item 34 of the Schedule,
unless, however, Debtor can reasonably demonstrate (by certificate
signed by Debtor's chief executive officer and chief financial
officer) that its primary reason for making such payment was not
to avoid the prepayment premium otherwise applicable..
13.14 FURTHER ASSURANCES. From time to time, Debtor shall take
such action and execute and deliver to Secured Party such additional
documents, instruments, certificates, and agreements as Secured Party
may reasonably request to effectuate the purposes of the Transaction
Documents.
13.15 HEADINGS. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction
of this Agreement.
13.16 CUMULATIVE SECURITY INTEREST, ETC. The execution and
delivery of this Agreement shall in no manner impair or affect any other
security (by endorsement or otherwise) for payment or performance of the
Indebtedness, and no security taken hereafter as security for payment or
performance of the Indebtedness shall impair in any manner or affect
this Agreement, or the security interest granted hereby, all such
present and future additional security to be considered as cumulative
security.
13.17 SECURED PARTY'S DUTIES. Without limiting any other
provision of this Agreement: (a) the powers conferred on Secured Party
hereunder are solely to protect its interests and shall not impose any
duty to exercise any such powers; and (b) except as may be required by
applicable law, Secured Party shall not have any duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Collateral.
13.18 NOTICES GENERALLY. All notices and other communications
hereunder shall be made by telegram, telex, electronic transmitter,
overnight air courier, or certified or registered mail, return receipt
requested, and shall be deemed to be received by the party to whom sent
one Business Day after sending, if sent by telegram, telex, electronic
transmitter, or overnight air courier, and three Business Days after
mailing, if sent by certified or registered mail. All such notices and
other communications to a party hereto shall be addressed to such party
at the address set forth on the cover page hereof or to such other
address as such party may designate for itself in a notice to the other
party given in accordance with this Section 13.18.
<PAGE>
13.19 SEVERABILITY. The provisions of this Agreement are
independent of, and separable from, each other, and no such provision
shall be affected or rendered invalid or unenforceable by virtue of the
fact that for any reason any other such provision may be invalid or
unenforceable in whole or in part. If any provision of this Agreement
is prohibited or unenforceable in any jurisdiction, such provision shall
be ineffective in such jurisdiction only to the extent of such
prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision to
the extent it is not prohibited or unenforceable nor render prohibited
or unenforceable such provision in any other jurisdiction.
13.20 INCONSISTENT PROVISIONS. The terms of this Agreement and
the other Transaction Documents shall be cumulative except to the extent
that they are specifically inconsistent with each other, in which case
the terms of this Agreement shall prevail.
13.21 ENTIRE AGREEMENT. This Agreement and the other
Transaction Documents constitute the entire agreement and understanding
between the parties hereto with respect to the transactions contemplated
hereby and supersede all prior negotiations, understandings, and
agreements between such parties with respect to such transactions,
including, without limitation, those expressed in any commitment letter
delivered by Secured Party to Debtor.
13.22 APPLICABLE LAW. THIS AGREEMENT, AND THE TRANSACTIONS
EVIDENCED HEREBY, SHALL BE GOVERNED BY, AND CONSTRUED UNDER, THE
INTERNAL LAWS OF THE STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW, AS THE SAME MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT
LIMITATION, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE.
13.23 CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE
THAT ANY ACTION OR PROCEEDING TO ENFORCE, OR ARISING OUT OF, THE
TRANSACTION DOCUMENTS MAY BE COMMENCED IN ANY STATE COURT LOCATED IN
JACKSON COUNTY, MISSOURI, OR IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI, AND DEBTOR WAIVES PERSONAL SERVICE OF
PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR
PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER
PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO
DEBTOR, OR AS OTHERWISE PROVIDED BY THE LAWS OF THE STATE OR THE UNITED
STATES.
13.24 JURY TRIAL WAIVER. DEBTOR AND SECURED PARTY HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY
JURY DEBTOR OR SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN
LAW OR IN EQUITY, IN CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO. DEBTOR REPRESENTS AND WARRANTS THAT NO
REPRESENTATIVE OR AGENT OF SECURED PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SECURED PARTY WILL NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THIS RIGHT TO JURY TRIAL WAIVER. DEBTOR ACKNOWLEDGES THAT
SECURED PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE PROVISIONS OF THIS SECTION 13.24.
<PAGE>
13.25 ORAL AGREEMENTS NOT ENFORCEABLE. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE
NOT ENFORCEABLE. TO PROTECT DEBTOR AND SECURED PARTY FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED COVERING SUCH
MATTERS ARE CONTAINED IN THE TRANSACTION DOCUMENTS, WHICH ARE THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
EXCEPT AS THEY MAY LATER AGREE IN WRITING TO MODIFY IT.
DEBTOR:
OTR EXPRESS, INC.
By: /s/ Gary J. Klusman
Gary J. Klusman, Executive Vice President
By: /s/ Steven W. Ruben
Steven W. Ruben, Vice President Finance
and Chief Financial Officer
ACCEPTED AT KANSAS CITY, MISSOURI BY:
HSBC BUSINESS LOANS, INC.
BY: /s/ M. Catherine Draper 5908
M. Catherine Draper
<PAGE>
EXHIBIT A
FINANCIAL STATEMENT CERTIFICATION
The undersigned, the _________________________________ of OTR EXPRESS,
INC., a Kansas corporation ("Debtor"), hereby certifies to HSBC BUSINESS
LOANS, INC. ("Secured Party") that attached hereto is a true, correct and
complete copy of the Debtor's financial statements as of the month ending
________________, 19__, which financial statements fairly present Debtor's
financial position and consist of a balance sheet and related statements of
income, retained earnings, and cash flow covering the period from the end of
the immediately preceding fiscal year to the end of such month; provided,
however, that statements of retained earnings and cash flow shall be provided
on a quarterly basis only in accordance with Section 9.1(c) of the Loan and
Security Agreement dated June 11, 1997 between Debtor and Secured Party.
Name:
Title:
Date: ___________________, 19__
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
OTR EXPRESS, INC., a Kansas corporation ("Debtor"), hereby certifies to
HSBC BUSINESS LOANS, INC. ("Secured Party") pursuant to the Loan and Security
Agreement between Debtor and Secured Party dated June 11, 1997, as amended
from time to time (the "Loan Agreement") that:
13.26 General
Capitalized terms not defined herein shall have the meanings set forth
in the Loan Agreement.
The Debtor has complied with all the terms, covenants and conditions to
be performed or observed by it contained in the Loan Agreement and the
Transaction Documents to which Debtor is a party.
Neither on the date hereof nor, if applicable, after giving effect to
the Advance made on the date hereof, does there exist an Event of Default or
an event which would with notice or the lapse of time, or both, constitute an
Event of Default.
The representations and warranties contained in the Loan Agreement, in
any Transaction Document to which Debtor is a party and in any certificate,
document or financial or other statement furnished at any time thereunder are
true, correct and complete in all material respects with the same effect as
though such representations and warranties had been made on the date hereof,
except to the extent that any such representation and warranty relates solely
to an earlier date (in which case such representation and warranty shall be
true, correct and complete on and as of such earlier date).
13.27 Financial Covenants:
1. As of the date hereof or, for such period as may be designated
below, the computations, ratios and calculations as set forth below in
accordance with Item 30 of the Schedule, are true and correct:
(a) Tangible Net Worth
as of ________, 19__:
(i) Stockholders' equity = $_______
(ii) Subordinated debt = $_______
(iii) (i) plus (ii) = $_______
(iv) Intangible Assets = $_______
(v) (iii) less (iv) = $_______
(b) Leverage Ratio
as of ________, 19__ ________ to _______
<PAGE>
(c) Debt Service Coverage Ratio
as of ________, 19__ ________ to ________
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of
Debtor, has executed and delivered this certificate in the name and on behalf
of the Debtor on ___________, 19__.
OTR EXPRESS, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE
This Schedule is a part of a Loan and
Security Agreement, dated June 11, 1997, between OTR EXPRESS, INC. and HSBC
BUSINESS LOANS, INC.
1. Borrowing Capacity (1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) the applicable Maximum Amount,
or
(B) up to 85% of the Receivables Borrowing Base;
and subtracting from the lesser of (A) or (B) above, the sum of (a)
banker's acceptances, plus (b) letters of guaranty, plus (c) guarantees
of Letters of Credit.
2. Intentionally omitted.
3. Cash Discount (1.1(g) & 9.3)
No cash discounts.
4. Receivables--Age (1.1(v)(i))
Sixty (60) days after the Invoice date
5. Receivables Disqualification Percentage (1.1(v)(v))
50% or more
6. Permissible Foreign Account Debtors (1.1(v)(vi))
Account Debtors whose chief executive office is located in Canada.
7. Intentionally omitted.
8. HSBC Payment Account (1.1(t-1))
There is an HSBC Payment Account.
Name and address of depository bank: UMB Bank, n.a.
1010 Grand Avenue
Kansas City, Missouri 64106
Account number: 9870769492
<PAGE>
9. Letters of Credit (2.4)
$2,500,000.00
10. State of Incorporation (4.l)
Debtor: Kansas
Consolidated Subsidiaries: No subsidiaries
11. Intentionally omitted.
12. Permitted Encumbrances (4.5(a), 4.5(c) & 10.3)
None
13. Business Records Location (4.8(a), 4.8(c) & 10.1)
804 North Meadowbrook Drive
Olathe, Kansas 66063
14. Intentionally omitted.
15. Labor Contracts (4.21)
Debtor: None
Consolidated Subsidiaries: No subsidiaries
16. Authorized Shares (4.23)
No. of authorized common shares: 5,000,000
Par Value of common shares: $.01
No. of issued and outstanding shares: 1,842,209
Check If Frequency
17. Required Documents (5.1, Required Due
8.2(b))
Receivables Schedules _ At least monthly*
Cargo Claim Report _ At least monthly*
Daily Billing Adjustment Report _ At least monthly*
<PAGE>
Receivables Aging (including _ Monthly - within 20
unbilled Receivables) days after month end
Credits and Extensions Reports _ At least monthly*
Cash Receipts Journal and _ At least monthly*
Schedule of Payments on
Receivables
List of names and addresses _ As requested
of Account Debtors
Reconciliation report showing _ As requested*
all Receivables, collections,
payments, Credits and Extensions
since the preceding report
Payables aging report, showing the _ Monthly - within 30
amounts due and owing on all of days after month end
Debtor's payables according to
Debtor's records as of the close
of such periods as shall be
specified by Secured Party
Reconciliation report reconciling _ Monthly - within 30
monthly financial statements with days after month end
Receivable Aging and Payable Aging
Loan Request, Remittance and _ On the Date of each
Collateral Report Advance Request
Other as indicated below:
Written Request for Advance _ At the time required
under Section 2 of the
Loan Agreement
*Secured Party may require report to be submitted as often as daily if
Secured Party deems necessary.
18. Interest Rate (7.2)
Debtor shall pay interest to Secured Party on the outstanding unpaid
principal balance of Advances under the Revolving Credit made pursuant
to this Agreement at a rate per annum as follows:
(1) for a Prime Rate Loan, at a fluctuating per annum rate equal to
the Prime Rate, adjusted daily; and
<PAGE>
(2) for a LIBOR Loan, at a per annum rate equal to the LIBOR Interest
Rate.
19. Fees and Due Dates (2.4, 7.3)
Type Amount Due Date(s)
Application fee $15,000.00, which will be applied Paid at time of
to expenses incurred by Secured Party application for
in connection with negotiating and closing credit.
the transaction described in the
Transaction Documents. Any unused
portion of the fee will be refunded to
Debtor after the Closing Date.
Unused line fee 1/4th of 1% per annum of unused portion Monthly in
of the Revolving Credit, which unused arrears.
portion shall be computed on the average
daily unused principal balance of the
Revolving Credit during the prior month.
For purposes of making this calculation,
the face amount of outstanding Letter of
Credit guaranties issued by Secured Party
shall be treated as having been
advanced under the Revolving Credit,
thereby reducing the unused principal
balance of the Revolving Credit.
Letter of Credit 1.25% per annum of average unpaid balance Monthly in
guaranty of Letters of Credit guaranteed by arrears
Secured Party.
Audit fee $1,000.00 per audit Upon receipt
of billing
20. Uncollected Funds Adjustment (7.6)
One-half (1/2) Business Day after receipt by Secured Party of collected
funds.
21. Additional Covenants (9 & 10)
None
<PAGE>
22. Terms of Sale (9.3)
Due dates of no more than thirty (30) calendar days from date of
Invoice, except in regard to transactions specified below under
"Datings."
Datings: None
23. Permitted Borrowings (10.2)
Debtor:
(a) Borrowings outstanding on the Closing Date:
Approximate Unpaid
Lending Institution Principal Balance
Mark Twain Bank $840,000.00
NaviStar $5,144,000.00
Associates Commercial $7,250,006.46
Mercantile Bank $1,286,000.00
NationsBank $705,000.00
NationsBank, N.A. (Mid-West) $4,398,000.00
GE Capital Corporation $815,000.00
BancBoston $3,336,000.00
Fleet Credit $4,006,000.00
Mercedes Credit $6,620,000.00
CoreStates $663,000.00
Fifth Third Bank $599,000.00
Oak Park Bank $1,341,000.00
Toni Waggoner $189,000.00
(b) Purchase money indebtedness incurred to purchase tractors,
trailers, terminal facilities, office equipment, computer
equipment, software and communications equipment after the Closing
Date.
Consolidated Subsidiaries: No subsidiaries.
<PAGE>
24. Permitted Investments and Advances (10.8(d))
Debtor: Advances of expenses to drivers in the ordinary course of
business not to exceed $400,000.00 in the aggregate
outstanding at any one time.
Consolidated Subsidiaries: No subsidiaries.
25. Permitted Guaranties (4.18, 10.9)
Debtor: None
Consolidated Subsidiaries: No subsidiaries.
26. Intentionally Omitted.
27. Intentionally Omitted.
28. Intentionally Omitted.
29. Intentionally Omitted.
30. Financial Covenants (10.15)
(a) Minimum Tangible Net Worth:
(1) So long as the Maximum Amount is $7,000,000.00, Debtor shall
maintain a minimum Tangible Net Worth (as defined below) in
the amounts set forth below for the time periods set forth
below:
Amount Time Period
$8,150,000.00 On the Closing Date
$8,200,000.00 06/30/97
$8,600,000.00 09/30/97
$8,800,000.00 12/31/97
$8,800,000.00 03/31/98
$8,800,000.00 06/30/98
$9,000,000.00 09/30/98
$9,200,000.00 12/31/98 and thereafter
(2) If the Maximum Amount is $8,000,000.00, Debtor shall maintain a
minimum Tangible Net Worth in the amounts set forth below
for the time periods set forth below:
Amount Time Period
$9,000,000.00 12/31/97
$8,800,000.00 03/31/98
<PAGE>
$9,000,000.00 06/30/98
$9,200,000.00 09/30/98
$9,400,000.00 12/31/98 and thereafter
"Tangible Net Worth" means the sum of stockholders' equity plus the
principal balance of any debt that is subordinated to the
Indebtedness in a manner satisfactory to Secured Party,
minus the book value of Intangible Assets (as defined
below), all determined in accordance with generally accepted
accounting principles consistently applied.
"Intangible Assets" means (1) all loans or advances to, and
other Receivables owing from, any employee or Affiliate,
other than advances of expenses to drivers in the ordinary
course of business not to exceed $400,000.00 in the
aggregate outstanding at any one time, (2) all investments,
whether in a subsidiary or otherwise, (3) goodwill, (4) any
other assets deemed intangible under generally accepted
accounting principles, and (5) any other assets determined
to be intangible by Secured Party in its reasonable credit
judgment.
The foregoing Tangible Net Worth covenant shall be tested for
compliance at the end of each calendar quarter.
(b) Leverage Ratio: Debtor shall maintain a Leverage Ratio (as defined
below) of not greater than the following ratios for the applicable
time periods, determined in accordance with generally accepted
accounting principles consistently applied:
Ratio Time Period
6.5 to 1 Closing Date through 12/31/97
6.25 to 1 01/01/98 through 12/31/98
6 to 1 01/01/99 and thereafter
"Leverage Ratio" means the ratio of Debtor's total liabilities
(excluding indebtedness of Debtor for borrowed money that is
subordinated in writing to the Indebtedness in form acceptable to
Secured Party) to Tangible Net Worth (as defined above).
The foregoing Leverage Ratio shall be tested for compliance with
this covenant at the end of each calendar quarter.
(c) Debt Service Coverage Ratio: Debtor shall maintain a Debt Service
Coverage Ratio (as defined below) of not less than the following
ratios for the applicable time periods, determined in accordance
with generally accepted accounting principles consistently
applied:
Ratio Time Period
.85 to 1 Closing Date through 12/31/97
1 to 1 01/01/98 and thereafter
<PAGE>
"Debt Service Coverage Ratio" means the ratio of (a) net income, plus
depreciation, plus deferred income taxes, plus increases in
operating liabilities, plus interest expense, plus proceeds from
equipment disposal, plus proceeds of other financings, less
pay-downs from equipment trades, less unfinanced capital
expenditures, less increases in operating assets to (b) principal
and interest payments on indebtedness for borrowed money or
capitalized leases.
The foregoing Debt Service Coverage Ratio will be tested annually
at the end of each calendar year.
31. State (1.1(nn))
Missouri
32. Initial Term and Renewal Term (13.13(a))
Initial Term: Expires June 9, 2000.
Renewal Terms: One (1) year terms as provided in the Loan Agreement.
33. Percentage of Stock Ownership of Consolidated Subsidiaries (4.22)
Consolidated Subsidiary Debtor's Percentage of Ownership
None Not applicable
34. Prepayment Premium (13.13(b))
If the Indebtedness is paid in full and this Agreement is terminated
other than as described in Section 13.13(b) of the Agreement (whether at
the request of Debtor, as a result of default and acceleration, or
otherwise), Debtor will be required to pay to Secured Party, at the time
of such termination, a prepayment premium equal to: (i) two percent (2%)
of the applicable Maximum Amount if such termination occurs on or before
the first anniversary of the Closing Date, and (ii) one percent (1%) of
the applicable Maximum Amount if such termination occurs after the first
anniversary of the Closing Date but on or before the second anniversary
of the Closing Date. No prepayment premium will be due from Debtor to
Secured Party if the Indebtedness is paid in full after the second
anniversary of the Closing Date.
35. Other Provisions (13.9)
The following is a listing of the Transaction Documents:
(a) Promissory Note ($8,000,000.00);
(b) Loan and Security Agreement;
(c) Schedule;
<PAGE>
(d) UCC-1 Financing Statement for filing with the Kansas Secretary of
State;
(e) Receivables Certification;
(f) Payoff/Lien Release Letter from UMB Bank and Termination Statements
from UMB Bank;
(g) No Default Letter;
(h) Pay Proceeds Letter;
(i) Liability and Property Insurance Certificates (certified copies of
policies);
(j) Lender Loss Payable Endorsement for Property Insurance;
(k) Opinion of Debtor's Counsel;
(l) Special Deposit Account Agreement;
(m) Letter Agreement re Proceeds of Advances;
(n) Conditions to Funding Letter (if necessary);
(o) Post-Closing Letter (if necessary);
(p) Debtor General Certificate, including, without limitation, certified
Articles of Incorporation, Bylaws, Board of Directors resolutions,
Certificates of Good Standing and Incumbency Certification;
(q) Environmental Questionnaires;
(r) Debtor Questionnaire;
(s) Such other documents, agreements and instruments as may from time to
time be delivered by Debtor or any Third Party to Secured Party in
connection with the transactions described in the Transaction
Documents.
The undersigned have executed this Schedule on June 11, 1997.
SECURED PARTY: DEBTOR:
HSBC BUSINESS LOANS, INC. OTR EXPRESS, INC.
By:/s/ M. Catherine Draper 5908 By:/s/ Gary J. Klusman
M. Catherine Draper Gary J. Klusman
Vice President Executive Vice President
By:/s/ Steven W. Ruben
Steven W. Ruben
Vice President Finance
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 119,190
<SECURITIES> 0
<RECEIVABLES> 7,579,983
<ALLOWANCES> 90,504
<INVENTORY> 586,910
<CURRENT-ASSETS> 9,406,491
<PP&E> 61,314,713
<DEPRECIATION> 14,342,683
<TOTAL-ASSETS> 56,378,521
<CURRENT-LIABILITIES> 18,916,633
<BONDS> 0
<COMMON> 18,492
0
0
<OTHER-SE> 8,738,698
<TOTAL-LIABILITY-AND-EQUITY> 56,378,521
<SALES> 29,493,916
<TOTAL-REVENUES> 29,493,916
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,989,707
<LOSS-PROVISION> 73,669
<INTEREST-EXPENSE> 1,520,468
<INCOME-PRETAX> (89,928)
<INCOME-TAX> (34,173)
<INCOME-CONTINUING> (55,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,755)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
