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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 30, 1996
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SI DIAMOND TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
TEXAS 1-11602 76-0273345
(State of (Commission (IRS Employer
Incorporation) File Number) Identification Number)
12100 Technology Boulevard
Austin, Texas 78727
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (512) 331-6200
(Former name or former address, if changed since last report):
Not Applicable
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ITEM 5. OTHER EVENTS
On October 31, 1996, Diamond Tech One, Inc. ("DTO"), a wholly-owned
subsidiary of SI Diamond Technology, Inc. (the "Company") completed transactions
in which it raised a total of $1,000,000 in debt from four separate sources,
each of which loaned $250,000 to DTO. DTO issued identical promissory notes to
each of these sources in which it agreed to pay interest at a rate fifteen
percent (15%) per annum, which interest is payable on February 1, 1997 and June
1, 1997. These promissory notes mature on June 1, 1997 and are guaranteed by the
Company. In addition, the Company issued warrants to each of these sources to
purchase 50,000 shares of the Company's Common Stock at $1.00 per share. These
warrants expire on June 1, 1998.
On October 30, 1996, DTO entered into an agreement and promissory note
with Austin National Bank for a $500,000 revolving line of credit. Any funds
borrowed pursuant to this agreement shall be payable on demand, or if no demand
is made, in one payment of all outstanding principal plus all accrued and unpaid
interest on July 30, 1997. In addition, DTO will pay regular quarterly payments
of accrued unpaid interest beginning January 30, 1997, and all subsequent
interest payments are due on the same day of each quarter after that. The
Company also executed a commercial guaranty in which it agreed to guarantee the
loan of any funds to DTO pursuant this agreement and promissory note.
Since the above described transactions were completed by October 31, 1996,
the remaining holders of the Company's Series E Preferred Stock have agreed (i)
not to convert any remaining Series E Preferred Stock into Common Stock of the
Company until January 15, 1997 and (ii) to only convert Series E Preferred Stock
during the period from and including January 15, 1997 to February 28, 1997 in an
amount equal to one-third of the shares held by each holder of Series E
Preferred Stock on September 16, 1996, less certain amounts already converted.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
4.1 Form of Warrant to purchase Common Stock of the Company issued in
connection with the loan of $1,000,000 to Diamond Tech One, Inc. (October,
1996).
10.1 Form of Promissory Note payable by Diamond Tech One, Inc. for $250,000
in connection with the loan of $1,000,000 to Diamond Tech One, Inc. (October,
1996).
10.2 Form of Guaranty by the Company in connection with the loan of
$1,000,000 to Diamond Tech One, Inc. (October, 1996).
10.3 Form of Loan and Security Agreement in connection with loan of
$1,000,000 to Diamond Tech One, Inc. (October, 1996).
10.4 Form of Agreement by and among the Company concerning Agreements
relating to Series E Preferred Stock (Exhibit 10.1 to the Company's Current
Report on Form 8-K dated September 25, 1996 (File No. 1-11602).
10.5 Promissory Note dated as of October 30, 1996 made payable to Austin
National Bank by Diamond Tech One, Inc.
10.6 Commercial Guaranty by SI Diamond Technology, Inc. of Promissory Note
made payable to Austin National Bank by Diamond Tech One and dated as of October
30, 1996.
10.7 Commercial Security Agreement dated as of October 30, 1996 by and
between Austin National Bank and Diamond Tech One.
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SIGNATURES
Pursuant to the Securities Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereto duly authorized.
SI DIAMOND TECHNOLOGY, INC.
By: /s/ DOUGLAS P. BAKER
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Douglas P. Baker
Vice President and
Chief Financial Officer
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EXHIBIT 4.1
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER,
SALE OR TRANSFER.
Warrant to Purchase
50,000 Shares
WARRANT TO PURCHASE COMMON STOCK
OF
SI DIAMOND TECHNOLOGY, INC.
THIS CERTIFIES that ("Holder") or any subsequent holder
hereof, has the right to purchase from SI Diamond Technology, Inc., a Texas
Corporation (the "Company"), not more than 50,000 fully paid and nonassessable
shares of the Company's Common Stock, $.001 par value ("Common Stock"), at a
price of $ per share (the "Exercise Price"), subject to adjustment as
provided below at any time on or before 5:00 p.m., Austin, Texas time, on June
1, 1998 ("Expiration Date").
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise.
This Warrant may be exercised as to all or any lesser number of full shares
of Common Stock covered hereby upon surrender of this Warrant, with the
Subscription Form attached hereto duly executed, together with the full Exercise
Price (as hereinafter defined) for each share of Common Stock as to which this
Warrant is exercised, at the office of the Company, Attn: President, SI Diamond
Technology, Inc., 12100 Technology Boulevard, Austin, Texas 78727 or at such
other office or agency as the Company may designate in writing, by overnight
mail, with an advance copy of the Subscription Form attached as Exhibit A
("Subscription Form") by facsimile (such surrender and payment hereinafter
called the "Exercise of this Warrant"). The "Date of Exercise" of the Warrant
shall be defined as the date that the advance copy of the Subscription Form is
sent by facsimile to the Company, provided that the original Warrant and
Subscription Form are received by the Company within five business days
thereafter. The original Warrant and Subscription Form must be received within
five business days of the Date of Exercise, or the Subscription Form may, at the
Company's option, be considered void. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the
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Date of Exercise, the Holder hereof shall be entitled to receive a certificate
or certificates for the number of shares of Common Stock purchased upon such
Exercise and a new Warrant or Warrants (containing terms identical to this
Warrant) representing any unexercised portion of this Warrant. Each person in
whose name any certificate for shares of Common Stock is issued shall, for all
purposes, be deemed to have become the Holder of record of such shares on the
Date of Exercise of this Warrant, irrespective of the date of delivery of such
shares on the Date of Exercise of this warrant, irrespective of the date of
delivery of such certificate. Nothing in this Warrant shall be construed as
conferring upon the Holder hereof any rights as a shareholder of the Company.
2. Payment of Warrant Exercise Price.
Payment of the Exercise Price shall be made by cash, certified check or
cashiers check or wire transfer.
3. Transfer and Registration.
(a) Subject to the provisions of Section 7 of this Warrant, this Warrant
may only be transferred on the books of the Company, wholly or in part, in
person or by attorney, upon surrender of this Warrant properly endorsed, with
signature guaranteed. This Warrant shall be canceled upon such surrender and, as
soon as practicable thereafter, the person to whom such transfer is made shall
be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and the Holder of this Warrant shall be entitled to receive
a new Warrant or Warrants as to the portion hereof retained.
(b) Within 15 days of the date of issuance of this Warrant, the Company
shall file a post-effective amendment to the Registration Statement previously
filed by the Company with the Securities and Exchange Commission on Form S-3
under the Securities Act of 1933, as amended (the "Act"), file No. 333-00674
(the "Registration Statement") to include the Common Stock in the Registration
Statement. Until the Expiration Date, or such earlier time as this Warrant has
been exercised in its entirety, the Company shall prepare and cause to be filed
and cause to become and remain effective such amendments or supplements to the
Registration Statement and the Prospectus contained therein, as shall be
required under the Act in order to keep Common Stock registered under the Act,
in order to deliver to the Holder, upon exercise of the Warrant, a Prospectus
meeting the requirements of Section 10(a)(3) of the Act.
The Company shall obtain and keep effective all permits, consents and
approvals of governmental agencies and authorities, and shall take all actions
which may be necessary to maintain the registration of the Common Stock under
the Securities and Exchange Act of 1934 and to qualify the Common Stock for sale
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under the securities laws of such states, territories and possessions of the
United States under which the Common Stock is presently qualified and shall
maintain such qualifications until the Expiration Date.
4. Anti-Dilution Adjustments.
(a) If the Company shall at any time declare a dividend payable in shares
of Common Stock, then the Holder hereof, upon Exercise of this Warrant after the
record date for the determination of holders of Common Stock entitled to receive
such dividend, shall be entitled to receive upon Exercise of this Warrant, in
addition to the number of shares of Common Stock as to which this Warrant is
Exercised, such additional shares of Common Stock as such Holder would have
received had this Warrant been Exercised immediately prior to such record date.
(b) If the Company shall at any time effect a recapitalization or
reclassification of such charter that the share of Common Stock shall be changed
into or become exchangeable for a larger or smaller number of shares, then upon
the effective date thereof, the number of shares of Common Stock which the
Holder hereof shall be entitled to purchase upon Exercise of this Warrant shall
be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of Common Stock by reason of such
recapitalization or reclassification, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionately decreased and, in
the case of a decrease in the number of shares, proportionally increased.
(c) If the Company shall at any time distribute to holders of Common Stock
cash, evidences of indebtedness or other securities or assets (other than cash
dividends or distributions payable out of earned surplus or net profits for the
current or preceding year) then, in any such case, the Holder of this Warrant
shall be entitled to receive, upon exercise of this Warrant, with respect to
each share of Common Stock issuable upon such Exercise, the amount of cash or
evidences of indebtedness or other securities or assets which such Holder would
have been entitled to receive with respect to each such share of Common Stock as
a result of the happening of such event had this Warrant been Exercised
immediately prior to the record date or other date fixing shareholders to be
affected by such event (the "Determination Date") or, in lieu thereof, if the
Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
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(d) If the Company shall at any time consolidate or merge with any other
corporation or transfer all or substantially all of its assets, then the Company
shall deliver written notice to the Holder of such merger, consolidation or sale
of assets at least thirty (30) days prior to the closing of such merger,
consolidation or sale of assets and this Warrant shall terminate and expire
immediately prior to the closing of such merger, consolidation or sale of
assets.
(e) As used in this Warrant, the term "Exercise Price" shall mean the
purchase price per share specified in this Warrant until the occurrence of an
event stated in subsection (b) or (c) of this Section 4 and thereafter shall
mean said price as adjusted from time to time in accordance with the provisions
of said subsection. No such adjustment shall be made unless such adjustment
would change the Exercise Price at the time by $.01 or more; provided, however,
that all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 4 shall have the
effect of increasing the total consideration payable upon Exercise of this
Warrant in respect of all the Common Stock as to which this Warrant may be
exercised.
(f) In the event that at any time, as a result of an adjustment made
pursuant to this Section 4, the Holder of this Warrant shall, upon Exercise of
this Warrant, become entitled to receive shares and/or other securities or
assets (other than Common Stock) then, wherever appropriate, all references
herein to shares of Common Stock shall be deemed to refer to and include such
shares and/or other securities or assets; and thereafter the number of such
shares and/or other securities or assets shall be subject to adjustment from
time to time in a manner and upon terms as nearly equivalent as practicable to
the provisions of this Section 4.
5. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. The
Company shall make a payment in cash in respect of any fractional shares which
might otherwise be issuable upon Exercise of this Warrant, calculated by
multiplying the fractional share amount by the market price of the Company's
Common Stock on the Date of Exercise as quoted on the Nasdaq Small-Cap Market or
such other exchange as Company's Common Stock is traded or quoted on.
6. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other
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securities substituted therefor as herein above provided) as shall be sufficient
for Exercises of this Warrant. The Company covenants and agrees that upon
Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise
shall be duly and validly issued, fully paid, non assessable and not subject to
preemptive rights, rights of first refusal or similar rights of any person or
entity.
7. Restrictions on Transfer.
(a) This Warrant has not been registered under the Act and may not be sold,
transferred, pledged, hypothecated or otherwise disposed of in the absence of
registration or the availability of an exemption from registration under the
Act.
(b) Assuming the conditions of (a) above regarding registration or
exemption have been satisfied, the Holder may sell, transfer, assign, pledge or
otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a
written notice to Company, substantially in the form of the Assignment attached
hereto as Exhibit B, indicating the person or persons to whom the Warrant shall
be assigned and the respective number of warrants to be assigned to each
assignee. The Company shall effect the assignment within ten days, and shall
deliver to the assignee(s) designated by the Holder, a Warrant or Warrants of
like tenor and terms for the appropriate number of shares.
(c) Until registration under the Act of the Common Stock, pursuant to
Section 3(b), the provisions of Sections (a) and (b) above shall apply to the
Common Stock as well as the Warrant.
8. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder of this Warrant.
9. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Texas. Jurisdiction for
any dispute regarding this Warrant lies in Texas.
10. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of
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this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date.
11. Notice to Company.
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, Attn: President, SI Diamond Technology, Inc., 2435 North Boulevard,
Houston, Texas 77098. Notices or demands pursuant to this Warrant to be given or
made by the Company to or on the Holder of this Warrant shall be sufficiently
given or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed to:
---------------------------------------------
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until another address is designated in writing by the Holder.
IN WITNESS WHEREOF, this Warrant is hereby executed as of the date set
forth below.
Dated as of October , 1996.
SI DIAMOND TECHNOLOGY, INC.
By:
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President
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EXHIBIT A
SUBSCRIPTION FORM
TO: SI DIAMOND TECHNOLOGY, INC.
The undersigned hereby irrevocably exercises the right to purchase
______________ of the shares of Common Stock of SI Diamond Technology, Inc., a
Texas corporation, evidenced by the attached Warrant, and herewith makes payment
of the Exercise Price with respect to such shares in full, all in accordance
with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any of such Common Stock, except in accordance with the provisions of Section
7 of the Warrant, and consents that the following legend may be affixed to the
certificates for the Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or any
state securities law, and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of until either (i) a registration statement under the
Securities Act and applicable state securities laws shall have become effective
with regard thereto, or (ii) an exemption from registration under the Securities
Act or applicable state securities laws is available in connection with such
offer, sale or transfer."
The undersigned requests that certificates for such shares be issued,
and a warrant representing any unexercised portion thereof
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be issued, pursuant to the Warrant in the name of the Registered Holder and
delivered to the undersigned at the address set forth below:
Dated:
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Signature of Registered Holder
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Name of Registered Holder (Print)
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Address
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The Attached Warrant has not been registered under the Securities Act of 1933,
as amended, and may not be sold, transferred, pledged, hypothecated or otherwise
disposed of in the absence of registration or the availability of an exemption
from registration under said Act.
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EXHIBIT B
ASSIGNMENT
(To be executed by the registered holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _____________________ shares of the Common Stock of SI DIAMOND
TECHNOLOGY, INC. evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint ___________________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ___________________________
Signature
Fill in for new Registration of Warrant
- ---------------------------------------------
Name
- ---------------------------------------------
Address
- ---------------------------------------------
Please print name and address of assignee
(including zip code number)
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NOTICE
The signature to the foregoing Subscription Form or Assignment must correspond
to the name as written upon the face of the attached Warrant in every
particular, without alteration or enlargement of any change whatsoever.
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EXHIBIT 10.1
PROMISSORY NOTE
$250,000 OCTOBER __, 1996
AUSTIN, TEXAS
On or before June 1, 1997, the undersigned, Diamond Tech One, Inc.
("Borrower"), promises to pay to the order of___________________________
_______________________________("Lender"), at __________________________
__________________________, or at such other place as the holder of this Note
may from time to time designate in writing, the principal sum of Two Hundred
Fifty Thousand Dollars ($250,000), together with interest thereon from the date
hereof at the rate of 15% per annum. Interest is payable on February 1, 1997 and
on June 1, 1997.
This Note may be prepaid in whole or in part without premium or penalty.
Payments and prepayments of this Note shall first be credited to interest and
the remainder to principal.
In the event any interest is not paid when due, or any default occurs
under the Loan and Security Agreement entered into between Borrower and Lender
on the date hereof (the "Loan Agreement"), Lender may, at its option, declare
the entire indebtedness due and payable. The Loan Agreement is incorporated by
reference into this Promissory Note.
The Borrower agrees to pay or reimburse Lender for its reasonable costs
incurred in connection with the collection of this Note, including, without
limitation, the fees and disbursements of counsel for Lender, whether or not
suit is brought.
All persons now or at any time liable for payment of this Note hereby
waive presentment, protest, notice of protest, and notice of dishonor.
This Note shall be governed by the laws of Texas, without application of
conflicts of law principles.
DIAMOND TECH ONE, INC.
By:________________________
President
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EXHIBIT 10.2
GUARANTY AGREEMENT
This is a Guaranty Agreement (the "Guaranty"), dated as of the __ day of
October, 1996, made by SI Diamond Technology, Inc., a Texas corporation ("SIDT")
in favor of ("Lender").
RECITALS
SIDT is the owner of all of the outstanding capital stock of Diamond
Tech One, Inc., a Delaware corporation ("DTO"). In order to induce Lender to
make a loan in the amount of $250,000 to DTO (the "Loan"), SIDT is willing to
guaranty the obligations of DTO to Lender and to grant Lender a warrant to
purchase 50,000 shares of SIDT common stock (par value $ .001 per share) (the
"Warrant").
In consideration of the Lender making the Loan to DTO, SIDT agrees:
1. SIDT irrevocably and unconditionally guarantees the full and
prompt payment when due of the principal of and interest on the Loan and of all
other obligations and liabilities under the Loan and Security Agreement to be
entered into between DTO and Lender.
2. Simultaneously with the funding of the Loan, SIDT shall issue and
deliver the Warrant to Lender.
3. SIDT represents and warrants to the Lender that this Guaranty and the
Warrant have been duly authorized by the Board of Directors of SIDT as evidenced
by the Certificate of Corporate Resolutions attached hereto.
Dated at Austin, Texas this ___ day of October, 1996.
SI DIAMOND TECHNOLOGY, INC.
By:________________________
President
Attest:____________________
Secretary
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EXHIBIT 10.3
LOAN AND SECURITY AGREEMENT
This is a Loan and Security Agreement (the "Agreement") entered into as of
the day of October, 1996, by Diamond Tech One, Inc., a Delaware corporation
("Borrower") and ("Lender").
RECITALS
Borrower as requested a loan (the "Loan") from Lender in the principal
amount of Two Hundred Fifty Thousand Dollars ($250,000). The Lender has agreed
to extend such financing to Borrower upon the terms, and subject to the
conditions, of this Agreement.
In consideration of the mutual promises contained herein, the Borrower and
the Lender agree:
1. Agreement to Lend. Upon the terms and subject to the conditions of this
Agreement, the Lender shall make the Loan and shall disburse the Loan proceeds
in the full amount thereof to Borrower pursuant to wire transfer instructions
from Borrower.
2. Promissory Note. The Loan shall be evidenced by a promissory note (the
"Note") of even date herewith, in the principal amount of $250,000 bearing
interest at 15% per annum, maturing June 1, 1997 (the "Maturity Date"). Interest
shall be payable on February 1, 1997 and June 1, 1997.
3. Security. The Loan, in common with any Companion Loans (as hereinafter
defined), shall be secured by a security interest hereby granted to Lender on
the property described on Schedule A hereto (the "Collateral"). If the
Collateral is not encumbered by a security interest granted to a bank or other
financial institution (a "Bank") when this Agreement is executed, the Lender
shall thereafter subordinate the lien of its security interest to security
interests granted to Banks, securing an aggregate principal amount not exceeding
$1,000,000.
4. Guaranty and Warrant. The Loan shall be unconditionally guaranteed by
SI Diamond Technology, Inc. ("SIDT"), a Texas corporation, the parent company of
Borrower (the "Guaranty"). In addition to the Guaranty, SIDT shall grant Lender
a presently exercisable warrant to purchase 50,000 shares of the common stock
(per value $.001 per share) of SIDT (the "Warrant") dated the date of this
Agreement, upon the terms and conditions therein set forth.
5. Representation and Warranties. Borrower represents and warrants:
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(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, is duly authorized to
do business in the State of Texas and has full power and authority to
conduct its business as presently conducted;
(b) Borrower has full power and authority to perform its obligations
under the Note and this Agreement;
(c) other than a security interest which may be held by a Bank,
Borrower owns the Collateral free and clear of any liens or encumbrances;
and
(d) this Agreement is being executed on behalf of Borrower by its duly
authorized officers and such execution has been approved by all necessary
and proper corporate action.
6. Further Assurances. Whenever required to give effect to the terms of
this Agreement, both parties shall timely execute such financing statements,
subordination agreements or other agreements and documents as may be required.
Borrower will, at any time on Lender's request, make, do, execute and deliver to
Lender or any Bank, and, where appropriate, shall cause to be recorded or filed,
any and all further acts, documents and assurances as may be reasonably
necessary or desirable to effectuate, complete and confirm the transaction
sought to be consummated hereunder.
7. Related Loans. The Loan is identical to other loans, each dated as of
the date hereof for the same amount and upon identical terms and conditions as
the Loan (the "Companion Loans"). The Companion Loans are evidenced by notes
identical to the Note (the "Companion Notes"). The Loan and the Companion Loans
collectively, are sometimes called the "Total Loan". The Total Loan principal
amount shall not, in the aggregate, exceed One Million Dollars ($1,000,000). If
there are less than three Companion Loans to be made to Borrower as of the date
hereof in addition to this Loan, the Borrower shall have the right to refuse to
accept this Loan.
8. Borrower's Total Loan Covenant. The Loan and each loan constituting the
Total Loan shall at all times receive equal payments and benefits from the
Borrower.
9. Events of Default. The happening of any one or more of the following
events shall constitute an Event of Default under this Agreement and the Note:
a. Failure of Borrower to make any required payment of interest or
other charges or fees under the Loan or any Companion Loan;
b. Failure of Borrower to pay all accrued interest and outstanding
principal on the Maturity Date (whether by acceleration or otherwise) or of
any note representing a Companion Loan;
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c. Breach of any of the terms and conditions of the Agreement or
any Companion Loan agreement;
d. Failure of SIDT to comply with any of the terms and
conditions of the Guaranty and/or the Warrant.
10. Remedies. Upon the occurrence of any Event of Default, the Lender
may declare the Loan in default and shall have the right at its option to:
a. Accelerate the maturity of the Note and demand payment of
the principal sums due thereunder, with interest, reasonable costs and legal
fees (whether or not suit is brought, incurred in connection with collection,
trail or appeal) and enforce collection of such payment in any court of
competent jurisdiction; or
b. Exercise any other right, privilege or remedy available to
Lender as may be provided by applicable law.
11. Lender's Covenants. If any lender of a Companion Loan declares
a Companion Loan to be in Default, the Lender hereunder and all Companion Loan
lenders shall join in the action taken to obtain the remedy elected by the
lender initiating such action. Each lender shall pay a prorata portion of the
expenses of enforcing the Total Loan obligation. Once any action for collection
against the Borrower, the Guarantor or the Collateral has been commenced, the
lenders of the Total Loan shall take action as determined by majority vote of
all lenders of the Total Loan.
12. Exclusivity of Agreement. This Agreement and the Note are made
for the sole benefit and protection of Borrower, Lender, the Companion Loan
lenders and their assigns and no other person shall have any right of action
hereunder.
13. Notices to All Lenders. When the Loan and the Companion Loans
are disbursed, Borrower shall promptly give notice to each lender of the name,
address, telephone and fax numbers of each other lender. Borrower shall
promptly notify all lenders of the occurrence of any Event of Default.
14. Notices. All notices or other communications between Borrower
and Lender shall also be given to each Companion Loan lender and may be given by
hand (or courier) delivery, or by certified or registered return receipt
requested mail, addressed to the appropriate party (including Companion Loan
lenders) at the address designated by such party who is to receive such notice.
Notices shall be deemed complete upon actual delivery.
15. Governing Law. This Agreement and the Note shall be governed by
the laws of the State of Texas, without application of conflicts of law
principles.
<PAGE>
16. No Oral Modification. No provision of this Agreement, or any
Companion Loan agreement, shall be amended, waived or modified except by an
instrument in writing signed by the parties hereto and agreed to by the
Companion Loan lenders. Waiver by Lender of any breach or default by Borrower
under any of the terms of the Note or this Agreement shall not be deemed to be,
not shall the same constitute a waiver of any subsequent breach or default.
17. Severability. Inapplicability or unenforceability of any provision
of this Agreement shall not limit or impair the operation or validity of any
other provision of this Agreement.
18. Funding Conditions. Lender shall not be obligated to disburse the
Loan funds unless Lender shall have received the following:
a. Certificate of Borrower's corporate resolutions authorizing
the consummation of the transactions contemplated herein.
b. This Agreement and the Note duly executed by Borrower.
c. A UCC-1 Financing Statement executed by Borrower.
d. Any other documents or instruments reasonably required by
Lender to evidence the transactions contemplated hereby.
19. Payment of Brokers. The Lender shall not be obligated to pay any
fees, charges, costs or commissions in connection with the Loan, and the
Borrower agrees to indemnify the Lender against and to hold the Lender harmless
from any and all such fees, charges, costs, expenses or commissions.
20. Headings. The descriptive section headings herein have been inserted
for convenience of reference only and shall not be deemed to limit or otherwise
affect the construction or interpretation of any provision of this Agreement.
21. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one Agreement.
Executed as of the date and year first above written.
<PAGE>
DIAMOND TECH ONE, INC.
12100 Technology Boulevard
Austin, Texas 78727
By:
-------------------------------
ZVI YANIV
Attest:
---------------------------
Secretary
(SEAL)
LENDER
----------------------------------
----------------------------------
----------------------------------
Name:
-----------------------------
Title:
----------------------------
Address:
--------------------------
<PAGE>
EXHIBIT 10.5
AUSTIN
NATIONAL
BANK
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$500,000.00 10-30-1996 07-30-1997 605740 73 6271 JCH
- -----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: Diamond Tech One, Inc. (TIN: 760273345) LENDER: Austin National Bank
12100 Technology Blvd. 2110 Boca Raton Drive
Austin, TX 78727 Austin, TX 78747
================================================================================
PRINCIPAL AMOUNT:$500,000.00 INITIAL RATE:10.000% DATE OF NOTE:OCTOBER 30, 1996
PROMISE TO PAY. DIAMOND TECH ONE, INC. ("BORROWER") PROMISES TO PAY TO AUSTIN
NATIONAL BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF FIVE HUNDRED THOUSAND & 00/100 DOLLARS
($500,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE
UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE OR
MATURITY, WHICHEVER OCCURS FIRST. THE INTEREST RATE WILL NOT INCREASE ABOVE
18.000%.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this Note has
been implemented under the "Indicated Rate Ceiling" as referred to in Article
5069-1.04 (a)(1) V.T.C.S. The terms, including the rate, or index, formula, or
provision of law used to compute the rate on the Note, will be subject to
revision as to current and future balances, from time to time by notice from
Lender in compliance with Article 5069-1.04(i) V.T.C.S.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON JULY
30, 1997. IN ADDITION, BORROWER WILL PAY REGULAR QUARTERLY PAYMENTS OF ACCRUED
UNPAID INTEREST BEGINNING JANUARY 30, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS
ARE DUE ON THE SAME DAY OF EACH QUARTER AFTER THAT. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding, unless such calculation would result in a usurious rate, in
which case interest shall be calculated on a per diem basis of a year of 365 or
366 days, as the case may be. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges. Notwithstanding any other provision
of this Note, Lender will not charge interest on any undisbursed loan proceeds.
No scheduled payment, whether of principal or interest or both, will be due
unless sufficient loan funds have been disbursed by the scheduled payment date
to justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Austin National Bank
Base Rate (the "index"). The Index is not necessarily the lowest rate charged
by Lender on its loans and is set by Lender in its sole discretion. If the
Index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notifying Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each Day. THE INDEX CURRENTLY IS 10.000% PER ANNUM. THE
INTEREST RATE TO BE APPLIED PRIOR TO MATURITY TO THE UNPAID PRINCIPAL BALANCE OF
THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX, ADJUSTED IF NECESSARY FOR THE
MAXIMUM RATE LIMITATION DESCRIBED BELOW, RESULTING IN AN INITIAL RATE OF 10.000%
PER ANNUM. NOTWITHSTANDING ANY OTHER PROVISION OF THIS NOTE, THE VARIABLE
INTEREST RATE OR RATES PROVIDED FOR IN THIS NOTE WILL BE SUBJECT TO THE
FOLLOWING MAXIMUM RATE. NOTICE: Under no circumstances will the interest rate
on this Note be more than (except for any higher default rate or Post Maturity
Rate shown below) the lesser of 18.000% per annum or the maximum rate allowed by
applicable law. For purposes of this Note, the "maximum rate allowed by
applicable law" means the greater of (a) the maximum rate of interest permitted
under federal or other law applicable to the indebtedness evidenced by this
Note, or (b) the "Indicated Rate Ceiling" as referred to in Article 5069-1.04
(a)(1) V.T.C.S.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable law or 5.000 percentage points over the
Index. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the indebtedness is impaired. (h) Lender in good faith deems itself
insecure.
If any default, other than a default in payment, is curable, it may be cured
(and no event of default will have occurred) if Borrower, after receiving
written notice from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually
<PAGE>
10-30-1996 PROMISSORY NOTE PAGE 2
LOAN NO 605740 (CONTINUED)
===============================================================================
expended for repossessing, storing, preparing for sale, and selling any
security; and fees for noting a lien on or transferring a certificate of title
to any motor vehicle offered as security for this loan, or premiums or
identifiable charges received in connection with the sale of authorized
insurance. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF TEXAS. IF THERE IS A LAWSUIT, AND IF THE TRANSACTION EVIDENCED BY THIS
NOTE OCCURRED IN TRAVIS COUNTY, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF TRAVIS COUNTY, THE STATE OF TEXAS. THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS AND APPLICABLE FEDERAL LAWS.
DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by all equipment now owned or hereafter
acquired owned by Diamond Tech One, Inc.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: MARC ELLER, CHAIRMAN OF
THE BOARD & CEO; TREY FECTEAU, SR. VICE PRESIDENT; AND DOUGLAS P. BAKER, VICE
PRESIDENT & CFO. Borrower agrees to be liable for all sums either: (a) advanced
in accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower. THIS REVOLVING LINE OF CREDIT SHALL NOT BE SUBJECT TO
CHAPTER 15, ARTICLE 5069 V.T.C.S. (THE TEXAS CREDIT CODE).
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. If any part of this Note cannot be
enforced, this fact will not affect the rest of the Note. In particular, this
section means (among other things) that Borrower does not agree or intend to
pay, and Lender does not agree or intend to contract for, charge, collect, take,
reserve or receive (collectively referred to herein as "charge or collect"), any
amount in the nature of interest or in the nature of a fee for this loan, which
would in any way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Texas
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forebearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
DIAMOND TECH ONE, INC.
COPY
BY:
---------------------------------------
DOUGLAS P. BAKER, VICE PRESIDENT & CFO
===============================================================================
<PAGE>
EXHIBIT 10.6
COMMERCIAL GUARANTY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
73 6271 JCH
- -----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: Diamond Tech One, Inc. (TIN: 760273345) LENDER: Austin National Bank
12100 Technology Blvd. 2110 Boca Raton Drive
Austin, TX 78727 Austin, TX 78747
GUARANTOR: SI Diamond Technology, Inc.
12100 Technology Blvd.
Austin, TX 78727
===============================================================================
AMOUNT OF GUARANTY. THIS IS A GUARANTY OF PAYMENT OF THE NOTE, INCLUDING
WITHOUT LIMITATION THE PRINCIPAL NOTE AMOUNT OF FIVE HUNDRED THOUSAND & 00/100
DOLLARS ($500,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, SI DIAMOND TECHNOLOGY, INC.
("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO
AUSTIN NATIONAL BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE
UNITED STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF
DIAMOND TECH ONE, INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET
FORTH IN THIS GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
BORROWER. The word "Borrower" means Diamond Tech One, Inc.
GUARANTOR. The word "Guarantor" means SI Diamond Technology, Inc.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated October 30, 1996.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services.
LENDER. The word "Lender" means Austin National Bank, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement
dated October 30, 1996, in the original principal amount of $500,000.00
from Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions
for the promissory note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED ABOVE, PLUS
ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION
AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
Indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all Indebtedness within the limits set forth in
the preceding section of this Guaranty.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all Indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without
notice or demand and without lessening or otherwise affecting Guarantor's
liability under this Guaranty, from time to time: (a) to make one or more
additional secured or unsecured loans to Borrower, to lease equipment or other
goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or more
times the time for payment or other terms of the Indebtedness or any part of the
Indebtedness, including increases and decreases of the rate of Interest on the
Indebtedness; extensions may be repeated and may be for longer than the original
loan term; (c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fall or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Lender may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
Interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including
<PAGE>
10-30-1996 COMMERCIAL GUARANTY PAGE 2
LOAN NO 605740 (CONTINUED)
================================================================================
those for unpaid taxes) against Guarantor is pending or threatened; (i) Lender
has made no representation to Guarantor as to the creditworthiness of Borrower;
and (j) Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events, or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand, or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses arising
by reason of (a) any "one action" or "anti-deficiency" law or any other law
which may prevent Lender from bringing any action, including a claim for
deficiency, against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of a
power of sale; (b) any election of remedies by Lender which destroys or
otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights
to proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral for
the Indebtedness; (e) any statute of limitations, if at any time any action or
suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable statute
of limitations; or (f) any defenses given to guarantors at law or in equity
other than actual payment and performance of the Indebtedness. If payment is
made by Borrower, whether voluntarily or otherwise, or by any third party, on
the Indebtedness and thereafter Lender is forced to remit the amount of that
payment to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of setoff,
counterclaim, counter demand, recoupment or similar right, whether such claim
demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, and Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Guaranty. No alteration of or amendment to
this Guaranty shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted
by Lender in the State of Texas. If there is a lawsuit, and if the
transaction evidenced by this Guaranty occurred in Travis County,
Guarantor agrees upon Lender's request to submit to the jurisdiction
of the courts of Travis County, State of Texas. This Guaranty shall be
governed by and construed in accordance with the laws of the State of
Texas and applicable Federal laws.
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth
above, Lender may hire an attorney to help enforce this Guaranty if
Guarantor does not pay, and Guarantor will pay Lender's reasonable
attorneys' fees. Guarantor also will pay Lender all other amounts
actually incurred by Lender as court costs, lawful fees for filing,
recording, or releasing to any public office any instrument securing
this Guaranty; the
<PAGE>
10-30-1996 COMMERCIAL GUARANTY PAGE 3
LOAN NO 605740 (CONTINUED)
================================================================================
reasonable cost actually expended for repossessing, storing, preparing for sale,
and selling any security; and fees for noting a lien on or transferring a
certificate of title to any motor vehicle offered as security for this Guaranty.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally recognized
overnight courier, or when deposited in the United States mail, first class
postage prepaid, addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may designate to
the other in writing. If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice purposes,
Guarantor agrees to keep Lender informed at all times of Guarantor's current
address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be deemed
to have been used in the plural where the context and construction so require;
and where there is more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words "Borrower" and
"Guarantor" respectively shall mean all and any one or more of them. The words
"Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns,
and transferees of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Guaranty. If a court of competent jurisdiction finds any
provision of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances, and all provisions of
this Guaranty in all other respects shall remain valid and enforceable. If any
one or more of Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or Guarantor or of
the officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Guaranty shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of dealing between
Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of
any of Guarantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Guaranty, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED OCTOBER 30, 1996.
GUARANTOR:
SI DIAMOND TECHNOLOGY, INC.
BY:
-----------------------------------------
DOUGLAS P. BAKER, VICE PRESIDENT AND CFO
================================================================================
<PAGE>
AUSTIN EXHIBIT 10.7
NATIONAL
BANK
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
$500,000.00 10-30-1996 07-30-1997 605740 73 6271 JCH
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BORROWER: Diamond Tech One, Inc. (TIN: 760273345) LENDER: Austin National Bank
12100 Technology Blvd. 2110 Boca Raton Drive
Austin Tx 78727 Austin, Tx 78747
====================================================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN DIAMOND TECH ONE,
INC. (REFERRED TO BELOW AS "GRANTOR"); AND AUSTIN NATIONAL BANK (REFERRED TO
BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL EQUIPMENT NOW OWNED OR HEREAFTER ACQUIRED OWNED BY DIAMOND
TECH ONE, INC.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means Diamond Tech One, Inc., its successors
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and earned interest, together with all
other indebtedness and costs and expenses for which Grantor is responsible
under this Agreement or under any of the Related Documents. In addition,
the word "Indebtedness" includes all other obligations, debts and
liabilities, plus interest thereon, of Grantor, or any one or more of them,
to Lender, as well as all claims by Lender against Grantor, or any one or
more of them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise.
LENDER. The word "Lender" means Austin National Bank, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated October 30,
1996, in the principal amount of $500,000.00 from Diamond Tech One, Inc. to
Lender, together with all renewals of , extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Texas.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and
<PAGE>
10-30-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO 605740 (CONTINUED)
================================================================================
(d) all other properties where Collateral is or may be located. Except
in the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent
of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown above,
or at such other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of inventory,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property, Grantor shall
not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Texas,
without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall
not sell, offer to sell, otherwise transfer or dispose of the
Collateral. While Grantor is not in default under this Agreement,
Grantor may sell inventory, but only in the ordinary course of its
business and only to buyers who qualify as a buyer in the ordinary
course of business. A sale in the ordinary course of Grantor's business
does not include a transfer in partial or total satisfaction of a debt
or any bulk sale. Grantor shall not pledge, mortgage, encumber or
otherwise permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security interest
provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other disposition.
Upon receipt, Grantor shall immediately deliver any such proceeds to
Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands
of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists
of inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral
as Lender may require to identify the nature, extent, and location of
such Collateral. Such information shall be submitted for Grantor and
each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
TEXAS, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is
in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is subjected
to a lien which is not discharged within fifteen (15) days, Grantor
shall deposit with Lender cash, a sufficient corporate surety bond or
other security satisfactory to Lender in an amount adequate to provide
for the discharge of the lien plus any interest, costs, attorneys' fees
or other charges that could accrue as a result of foreclosure or sale of
the Collateral. In any contest Grantor shall defend itself and Lender
and shall satisfy any final adverse judgment before enforcement against
the Collateral. Grantor shall name Lender as an additional obligee under
any surety bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest
in good faith any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate appeals, so long
as Lender's interest in the Collateral, in Lender's opinion, is not
jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup of other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of
this Agreement. This obligation to indemnify shall survive the payment
of the indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonable acceptable to Lender. GRANTOR MAY FURNISH THE REQUIRED
INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY
GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY INSURANCE COMPANY
AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF TEXAS. If Grantor fails
to provide any required insurance or fails to continue such insurance in
force, Lender may, but shall not be required to, do so at Grantor's
expense, and the cost of the insurance will be added to the
indebtedness. If any such insurance is procured by Lender at a rate or
charge not fixed or approved by the State Board of Insurance, Grantor
will be so notified, and Grantor will have the option for five (5) days
of furnishing equivalent insurance through any insurer authorized to
transact business in Texas. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least thirty
(30) days' prior written notice to Lender and not including any
disclaimer of the insurer's liability for failure to give such a notice.
Each insurance policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way by any act,
omission or default of Grantor or any other person. In connection with
all policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss payable or
other endorsements as Lender may require. If Grantor at any time fails
to obtain or maintain any insurance as required under this Agreement,
Lender may (but shall not be obligated to) obtain such insurance as
Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to
pay all of the indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid.
If fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender.
The reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of determining
that value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor
<PAGE>
10-30-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO 605740 (CONTINUED)
================================================================================
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve or maintain
any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the Note rate from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses shall become a
part of the Indebtedness and, at Lender's option, will (a) be payable on demand,
(b) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with Lender
monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or become incompetent. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of
the same provision of this Agreement, it may be cured (and no Event of
Default will have occurred) if Grantor, after Lender send written notice
demanding cure of such default, (a) cures the default within fifteen
(15) days; or (b), if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title
and other documents relating to the Collateral. Lender may require
Grantor to assemble the Collateral and make it available to Lender at a
place to be designated by Lender. Lender also shall have full power to
enter, provided Lender does so without a breach of the peace or a
trespass, upon the property of Grantor to take possession of and remove
the Collateral. If the Collateral contains other goods not covered by
this Agreement at the time of repossession, Grantor agrees Lender may
take such other goods, provided that Lender makes reasonable efforts to
return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses
of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the Indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as Lender may
determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial
Code, as may be amended from time to time. In addition, Lender shall
have and may exercise any or all other rights and remedies it may have
available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Texas. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of the
State of Texas. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and applicable Federal
laws.
ATTORNEYS' FEE AND OTHER COSTS. Lender may hire an attorney to help
collect the Note if Grantor does not pay, and Grantor will pay Lender's
reasonable attorneys' fees. Grantor also will pay Lender all other
amounts actually incurred by Lender as court costs, lawful fees for
filing,
<PAGE>
10-30-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO 605740 (CONTINUED)
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recording, or releasing to any public office any instrument securing the
Note; the reasonable cost actually expended for repossessing, storing,
preparing for sale, and selling any security; and fees for noting a lien
on or transferring a certificate of title to any motor vehicle offered
as security for the Note, or premiums or identifiable charges received
in connection with the sale of authorized insurance.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for
notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there
is more than one Grantor, notice to any Grantor will constitute notice
to all Grantors. For notice purposes, Grantor will keep Lender informed
at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and
recover all sums of money or other property which may now or hereafter
become due, owing or payable from the Collateral; (b) to execute, sign
and endorse any and all claims, instruments, receipts, checks, drafts or
warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the
place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power
is given as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full force and
effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases
such consent may be granted or withheld in the sole discretion of
Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
OCTOBER 30, 1996.
GRANTOR:
DIAMOND TECH ONE, INC.
BY:--------------------------------------
DOUGLAS P. BAKER, VICE PRESIDENT & CFO
