UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number 33-89714
RED OAK HEREFORD FARMS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 84-1120614
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2010 Commerce Drive, Red Oak, Iowa 51566
(Address of principal executive offices)
(712) 623-9224
(Issuer's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At August 12, 1998, there were 14,771,165 shares of common stock,
$.001 par value, of the registrant outstanding.
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INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements F-1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3 Defaults Upon Senior Securities 14
Item 4. Results of Votes of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-7 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this Form 10-Q contain forward-looking
statements that involve risks and uncertainties including risk of changing
market conditions with regard to livestock supplies and demand for products
of Red Oak Hereford Farms, Inc. (the "Company"), domestic and international
regulatory risks, competitive and other risks over which the Company has
little or no control. Consequently, future results may differ from
management's expectations. Moreover, past financial performance should not
be considered a reliable indicator of future performance.
This Form 10-Q contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-Q that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may", "will", "expect", "believe",
"anticipate", "estimate" or "continue" or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors.
The Company operates thought its subsidiaries, Red Oak Farms, Inc.
(ROF), Midland Cattle Company ("Midland") and Red Oak Feeders, LLC
("Feeders") which has a 50% interest in a joint venture, Quality Feeders
("Quality").
CURRENT QUARTER DEVELOPMENTS
The Company was honored by receiving two prestigious American Tasting
Institute awards. In blind taste tests, the Company's Certified Hereford
Beef ("CHB") was awarded "The Best Restaurant Beef in America" and "The
Best Supermarket Beef in America" for 1998. The Company believes this
recognition helps bring CHB to the attention of restaurants, retail
supermarkets and consumers. Currently, there are over 100 nationally known
restaurants serving CHB and the Company has increased its premium retail
supermarket stores from 58 as of March 31, 1998 to 79 as of June 30, 1998.
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A sampling of the Company's supermarket and restaurant clientele
currently includes:
Retail Supermarkets
___________________
Sutton Place Gourmet in New York, Connecticut and Washington, DC
Steele's Markets in Colorado
Sunshine Foods in South Dakota
Quillin's IGA Foodliners in Wisconsin
Hen House in Kansas City
Walts's in Illinois
Kowalski's in Minnesota
Bud's Family Food in Oklahoma
Restaurants
___________
The New York Hilton (2)
Newark Hilton
The Riviera in Las Vegas
The Fort in Denver
The Waldorf-Astoria in New York
Market Media. Market Media, a financial public relations service,
will continue to service the Company's 800 number investor information
requests and maintain the Company's website (www.redoakfarms.com).
Nebraska Beef Agreement. On March 25, 1998, the Company entered a
three year slaughter and fabrication agreement with Nebraska Beef. Under
this agreement, Nebraska Beef has agreed to slaughter and fabricate 500 -
4,500 head of cattle per week. If the carcass count falls below these
numbers in any given week, Nebraska Beef has the right to terminate the
agreement. Nebraska Beef has also agreed to purchase all carcasses that do
not meet United States Department of Agriculture ("USDA") specifications for
CHB. The Company has met the quota of beef processed as required in the
agreement and is confident they will continue to be in compliance with the
agreement.
CPNM Agreement. The Company has completed negotiations for a joint-
venture marketing agreement with Cable Print Network Marketing ("CPNM").
CPNM is an established leader in multi-media marketing; Television, radio,
magazines, direct mail and newspaper fliers. The Company and CPNM will
market CHB through consumer direct marketing channels and look to create a
Beef of the Month Club for customers throughout the United States. The CPNM
venture will provide nationwide consumer marketing following test results
in a selected major market.
The Company has formed a Nevada Corporation, Here's the Beef, for the
purpose of the joint venture between CPNM and the Company. The Company owns
80% of Here's the Beef and CPNM owns 20%.
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McClellan Creek Meat Company Agreement. The Company has established
a new joint venture with McClellan Creek Meat Company to produce, market and
sell, nationwide, a natural style beef jerky. My Favorite Jerky is owned
50% by each the Company and McClellan Creek Meat Company. This product has
had extensive market research, flavor profile, product safety and packaging
development and has received favorable reception at national food shows and
conventions. The Company has accomplished successful production test runs
and has screened potential co-packers.
The negotiations with McClellan Creek Meat Company have been completed,
and the Company expects to finalize the agreement by the end of the third
quarter of 1998.
Stubbs Barbeque Agreement. ROF, along with Stubbs Barbeque, is
developing a line of precooked beef products, which will be marketed under
the Stubbs label. Stubbs Barbeque has a nationally known product line with
brand identification in over 10,000 retail supermarkets. ROF is working to
source a cooking facility to smoke our selected CHB products on a co-pack
basis. ROF would provide a complete finished package to Stubbs at the
regular "branded" raw product price plus further processing costs. Stubbs
would then market the product to the retail trade, splitting profit with
ROF. The Company is in the process of finalizing negotiations with Stubbs
and anticipates reaching a final agreement by the end of the third quarter
1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had a consolidated cash and cash
equivalents balance of $0 and net working capital of $35,250.
The Company's sources of capital are primarily the issuance of private
debt, borrowings on lines of credit and the issuance of equity securities.
As the Company continues its investment in brand development, these
resources will be critical to the success of the Company. The Company will
require additional resources to move to the next stage of development.
The Company has two notes payable to a major stockholder and director
for $100,000 which will be used for the My Favorite Jerky company and
$50,000 for the Company's investment in Here's the Beef. The notes are
payable on demand and bear interest of 9%.
The Company commenced a private placement on January 14, 1998. The
private placement is for 840,000 Units at $4.00 per Unit. Each Unit
consists of one share of common stock of the Company and a Warrant to
purchase one share of common stock of the Company at $6.00 per share. As
of June 30, 1998, the Company had raised $1,304,500 through the sale of
326,125 Units before deducting offering expenses of $149,148. The Company
anticipates that capital raised from this offering will be used for working
capital and to implement the Company's marketing and consumer awareness
plans.
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Pursuant to the 1997 Stock Option Plan, options for 758,000 shares have
been granted to date. As of June 30, 1998, none of the options granted
pursuant to the 1997 Stock Option Plan have been exercised.
Cash used in operating activities decreased from $3,788,750 in the
first six months of 1997 to $1,324,845 in the first six months of 1998. The
principle uses for the first six months of 1998 were attributable to the
Company's net loss and an increase in inventory which were offset by an
increase in accounts payable and a decrease in accounts receivable.
Cash provided/ used by investing activities changed from providing
$46,649 during the first six months of 1997 to using $300,245 in the first
six months of 1998. The majority of the cash used by investing activities
in the first six months of 1998 is attributed to the Company's additional
investment in Feeders.
Cash provided from financing activities decreased from $3,797,101 in
the first six months of 1997 to $1,612,097 in the first six months of 1998.
Sales of common stock and additional borrowings were the primary sources of
cash flows for financing activities in the first six months of 1998.
The Company believes that through its marketing strategy and business
development plan it is recognizing an increase in the retail account base,
increased CHB sales and a broader CHB product mix. With increased sales of
CHB, along with proceeds from the private offerings and the availability of
credit, the Company believes there will be adequate funds to meet the
Company's obligations.
Revolving Lines of Credit. On April 13, 1998, ROF entered into an
agreement in principle with KBK Capital Corporation to provide ROF an asset
based line of credit. The line of credit provides borrowings up to
$2,500,000 for accounts receivable and $1,500,000 for inventory, based on
eligible assets. The line of credit is collateralized by substantially all
of the subsidiary's assets and personal guarantees of the Company's
President and a Director. The KBK Capital Corporation began funding ROF on
April 24, 1998 and the agreement was finalized in May 1998.
Midland is currently in the process of negotiating new financing
arrangements with other lenders.
IDED Loan. ROF is current on its long term loan obligation with the
Iowa Department of Economic Development ("IDED") and as of June 30, 1998,
the principal balance remaining on this loan was approximately $468,047.
Management believes that proceeds from capital raising activities and
product sales revenue will be adequate to continue meeting this obligation.
MoorMan's Loan. ROF is in technical non-compliance on certain non-
financial conditions on its loan agreement with MoorMan's, the Company's
feed supplier (protein supplement), which gives MoorMan's the right to call
the loan. However, MoorMan's has given no indication of any intention to
call this obligation. The loan amount of $1,000,000 is due October 2001,
with interest only currently payable monthly at approximately $9,000 per
month. On November 1, 1998, principal
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payments over a thirty-six (36) month
period will commence. The Company is currently meeting the payment
obligations from proceeds of capital raising activities and believes
additional stock sales and revenue from product sales will be sufficient to
satisfy this obligation.
AHA Contract. ROF is under contract with the American Hereford
Association ("AHA"), a non-profit organization, and has exclusive license
to market CHB. As of the reporting date the Company has not met the pro-
rata volume commitment necessary for the royalty liability; however, the
Company has accrued an amount representative of the pro-rata liability as
of the reporting date. The 1998 obligation is for $725,000 of which
$425,000 is due by August 31, 1998. The Company believes that sufficient
funds will be available to meet this obligation from proceeds of stock sales
and product sales revenue.
Capital Expenditures. ROF has made a capital commitment for a
management information system that will require payment of approximately
$56,000 to third party vendors. The majority of this system cost will be
financed through a lease from IBM. The Company does not currently have any
other capital expenditures commitments. The Company anticipates initiating
the management information system during the third quarter of 1998.
Inflation. While inflation has not had a material effect on the
Company's operations in the past, there can be no assurance that the Company
will be able to continue to offset the effects of inflation on the costs of
its products or services through price increases to its customers without
experiencing a reduction in the demand for its products; or that inflation
will not have an overall effect on the beef market that would have a
material effect on the Company.
RESULTS OF OPERATIONS
The Company has suffered recurring losses and negative cash flows from
operations since its inception due to its start-up nature in establishing
a premium branded Hereford beef product. The Company has not yet been
successful in establishing profitable operations and is in technical
noncompliance with certain loan agreements. In addition, the Company was
notified during the first quarter of 1998 that their lenders were
terminating their relationships with the Company. ROF subsequently obtained
a new financing arrangement; however, Midland is still negotiating new
financing arrangements. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. In this regard,
management is in the process of negotiating loan agreements, completing a
private placement offering, and increasing product awareness through
marketing efforts to improve profitability and cash flow. Sales efforts are
being made to change the product mix of sales to increase the volume
percentage of branded versus commodity sales. Management believes these
steps will enhance the Company's ability to achieve favorable operating
results. There is no assurance that the Company will be successful in
raising additional capital or achieving profitable operations. The
condensed consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
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Consolidated comparison for the three months ended June 30, 1998 and
the three months ended June 30, 1997 and consolidated comparison for the
six months ended June 30, 1998 and the six months ended June 30, 1997.
Red Oak Hereford Farms, Inc.
The Company was formerly Wild Wings, Inc., and is the holding company,
owning 100% of ROF, Midland and Feeders.
Net sales decreased to $31,955,406 in the first six months of 1998 from
$49,973,658 in the same period in 1997, a decrease of $18,018,252 or 36.06
%. Net sales decreased to $15,451,963 in the three months ended June 30,
1998 from $22,579,192 in the same period in 1997, a decrease of $7,127,229
or 31.57 %. This decrease is primarily from lower sales volume resulting
from changes in CHB customer and product mix and from fewer CHB cattle
processed. Additionally, negative returns in the cattle feeding business
weakened demand for feeder cattle resulting in fewer feeder cattle brokerage
sales. Net sales also decreased as the Company attempted to shift to a
higher percentage of "branded sales" versus "commodity sales", with the goal
to reach profitability by selling more CHB at branded prices. As the
Company anticipates an increase in retail customers during 1998, the number
of cattle processed should increase, resulting in an increase of branded
sales.
Cost of goods sold decreased to $32,941,098 in the first six months of
1998 from $50,363,282 in the same period in 1997, a decrease of $17,422,184
or 34.59%. These losses as a percentage of net sales measured 103.08% in
1998 versus 100.78% in the first six months of 1997. For the three months
ended June 30, 1998, cost of goods sold decreased to $15,988,694 from
$22,928,217 in the same period in 1997, a decrease of $6,939,523 or 30.27%.
The losses for the three months ended June 30, 1998 and 1997, represent
103.47% and 101.55% of net sales for that period. The decrease in cost of
goods sold resulted from lower sales volume demand as the Company is
producing a perishable branded product and dealing with live cattle which
for the most part require production and processing that correlates with
sales demand.
Gross loss increased $596,068 from a loss of $389,624 for the first
six months of 1997, to a $985,692 loss for the first six months of 1998.
These losses as a percentage of net sales measured 3.08% in 1998 versus
0.78% in the first six months of 1997. The gross loss increased $187,706
to a loss of $536,731 for the three months ended June 30, 1998, from
$349,025 for the same period in 1997, representing 3.47% and 1.55% of net
sales for the three months ended 1998 and 1997, respectively. The increase
in gross loss resulted from a decrease in gross margin due to reduced
selling prices related to costs.
Selling, general and administrative expenses increased to $1,721,568
in the first six months of 1998 from $1,574,079 in the same period in 1997,
an increase of $147,489 or 9.37%. The increase results from personnel and
personnel related expenses and increased selling expenses to position the
Company for future sales growth. For the three months ended June 30, 1998,
selling, general and
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administrative expenses decreased to $808,224 from
$1,017,547 in the same period in 1997, a decrease of $209,323 or 20.57%
resulting from a decrease in initial public company expenses.
Losses from operations increased to $2,707,260 in the first six months
of 1998 from $1,963,703 in the same period in 1997, an increase of $743,557
or 37.87%. These losses as a percentage of sales measured 8.47% in 1998
versus 3.93% in the first six months of 1997. For the three months ended
June 30, 1998, the Company realized $1,344,955 of losses from operations
compared to $1,366,572 for the three months ended June 30, 1997, a decrease
of $21,617 or 1.58%. These losses as a percentage of sales for the three
months ended measured 8.70% in 1998 versus 6.05% in 1997. The majority of
the increase is due to decreased margins on sales and an increase in selling
and personnel related expenses.
Net other expense increased to $341,125 for the first six months of
1998 from $175,156 in the same period in 1997, an increase of $165,969 or
48.65%. These expenses as a percentage of sales measured 1.07% in 1998
versus 0.35% in the first six months of 1997. For the three months ended
June 30, 1998, the Company realized $186,014 of expenses, an increase of
$153,167 or 466.30% from $32,847 for the three months ended June 30, 1997.
This increase is due to the equity expense in Quality and an increase in
interest expense on borrowings.
As a result of the above, net loss for the first six months of 1998
increased to $3,048,385 from $2,138,859 in the same period in 1997. These
losses as a percentage of net sales measured 9.54% in 1998 versus 4.28% in
the first six months of 1997. For the three months ended June 30, 1998, the
Company realized $1,530,969 of losses. This represents 9.91% of net sales
for the period. For the same period in 1997, the Company incurred losses
of $1,399,419, an amount representing 6.20% of sales. The loss per share
remained constant at $0.11.
Additional comparison for the three months ended June 30, 1998 and the
three months ended June 30, 1997 and comparison for the six months ended
June 30, 1998 and the six months ended June 30, 1997.
Red Oak Farms, Inc.
ROF is the processor and distributor of CHB beef products for Red Oak
Hereford Farms, Inc. Net sales in the first six months of 1998 were
$14,873,876 compared to $16,511,147 for the same period in 1997. These
figures represent a sales decrease of $1,637,271 or 9.92%. Net sales in the
three months ended June 30, 1998 increased to $8,465,362 from $8,046,250 for
the same period in 1997, an increase of $419,112 or 5.21%. The change in
net sales resulted from fewer cattle processed and changes in customer's
mix. ROF has been striving for a balance between branded versus commodity
sales with the goal to reach profitability by selling more CHB at branded
prices. In addition, due to a decline in the Asian market, ROF realized a
decrease in export sales of CHB, as well as, a decrease in revenue from the
sale of by-products to the processor. ROF expects the Asian market to
stabilize and improve export sales during the third quarter of 1998. Due
to increased marketing and
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sales efforts, ROF continues to increase its
retail customers during 1998; therefore, the number of cattle processed
should increase, resulting in an increase of branded and overall sales.
Cost of goods sold decreased in the first six months from $17,625,318
in 1997 to $15,699,070 in 1998, a decrease of $1,926,248 or 10.93%. This
decrease resulted from fewer CHB cattle processed and decreased processing
costs. Cost of goods sold represent 105.55% and 106.75% of net sales for
the six months ended June 30, 1998 and 1997, respectively. For the three
months ended June 30, 1998, cost of goods sold increased to $8,854,525 from
$8,708,212 in the same period in 1997, an increase of $146,313 or 1.68%.
As a percentage of net sales, cost of goods sold were 104.60% and 108.23%
for the three months ended June 30, 1998 and 1997, respectively. Although
fewer CHB cattle were processed during the six months ended June 30, 1998,
an increase in market prices caused the cost of goods sold to increase for
the three months ended June 30, 1998. The cost of goods sold includes
$257,060 and $1,027,631 in purchases from Midland for the six months ended
June 30, 1998 and 1997, respectively. The cost of goods sold includes
$29,536 and $891,669 in purchases from Midland for the three months ended
June 30, 1998 and 1997, respectively. These amounts have been eliminated
from the accompanying financial statements.
Selling, general and administrative expenses at ROF for the first six
months of 1998 were $896,714 compared to $671,640 for the same period in
1997. This is a 33.51% increase from the first six months of 1997. For
the three months ended June 30, 1998, selling, general and administrative
expenses increased slightly to $421,540 from $417,681 for the three months
ended June 30, 1997, an increase of $3,859 or 0.9%. An increase in
personnel and personnel related expenses and an increase in selling costs
to position ROF for future sales growth were the primary contributors of the
increase in these expenses.
For the six months ended June 30, 1998, ROF realized net losses in the
amount of $1,842,553, compared to $1,873,818 in net losses for the same
period in 1997. These losses as a percentage of net sales measured 12.39%
in 1998 versus 11.35% in the first six months of 1997. For the three
months ended June 30, 1998, ROF realized $911,137 in net losses representing
10.76% of net sales for that period. For the three months ended June 30,
1997, ROF incurred losses of $1,118,976, an amount representing 5.1% of net
sales for that period. Management attributes the continuing net loss to
decreased margins, decline in the export market and to the current product
mix, in which bulk beef sales continues to be the dominant revenue source.
During the first six months of 1998, however, the company made some
advances in the retail sector for premium CHB by adding 21 new retail stores
during the second quarter of 1998. ROF is continuing to develop retail
prospects and it is anticipated that several of these potential buyers will
become customers.
Midland Cattle Company
Midland is engaged in cattle brokerage activities and facilitates the
identification of CHB producers and feeders and supplies cattle inventory
for ROF. For the six months ended June 30, 1998, Midland had net sales of
$17,338,590 versus $34,490,142 for the same period in 1997. This represents
a decrease of $17,151,552 or 49.73% from 1997 to 1998. For the three months
ended June 30, 1998,
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net sales decreased to $7,016,137 from $15,404,611 in
the same period in 1997, a decrease of $8,388,474 or 54.45%. The net sales
include $257,060 and $1,027,631 in sales to ROF for the six months ended
June 30, 1998 and 1997, respectively. For the three months ended June 30,
1998 and 1997, net sales include $29,536 and $871,669 in sales to ROF,
respectively. These amounts have been eliminated from the accompanying
financial statements. Midland has a wide customer base which is expected
to help increase the amount of cattle brokered through networking and
marketing efforts in anticipation of continued growth of the CHB program.
Midland's customers continued to feed fewer cattle, therefore, causing
a decrease in volume for cattle revenue in the first six months of 1998.
Cattle were also worth less per head resulting in a decease in total
revenue. In addition, Midland sustained losses as a result of Midland's
effort to support ROF's demand for CHB cattle supply.
As a result of the decreased volume in sales, Midland's cost of goods
sold for the first six months of 1998 decreased to $17,529,088 versus cost
of goods sold for the first six months of 1997 of $33,765,595. This
represents a decrease of $16,236,507 or 48.09% between the two periods.
Cost of goods sold were 101.10% and 97.90% of net sales for the six months
ended June 30, 1998 and 1997, respectively. For the three months ended June
30, 1998, cost of goods sold decreased to $7,163,705 from $15,091,674 for
the same period in 1997, a decrease of $7,927,969 or 52.53%. As a percentage
of net sales, cost of goods sold increased to 102.10% for the three months
ended June 30, 1998 from 97.97% for the same period in 1997.
Selling, general and administrative expenses at Midland for the first
six months of 1998 were $434,904 compared to $619,514 for the same period
in 1997. This represents a $184,610 or 29.80% decrease from the first six
months of 1997. For the three months ended June 30, 1998, selling,
general and administrative expenses decreased to $192,868 from $360,940 for
the same period in 1997, a decrease of $168,072 or 46.57%. These decreases
are primarily a result of decreased selling costs consistent with decreased
sales volumes for 1998.
For the six months ended June 30, 1998, Midland realized a net loss
in the amount of $674,400, compared to a net profit of $17,497 for the same
period in 1997. The net loss as a percentage of net sales for the six
months ended June 30, 1998, measured 3.89%. The net profit as a percentage
of net sales for the six months ended June 30, 1997, measured 0.05%. For
the three months ended June 30, 1998, Midland recognized a loss of $344,730,
an amount equal to 4.91% of total sales for the period. For the same three
month period in 1997, Midland recognized a loss of $41,905, an amount equal
to less than 1% of total sales for the period. Management attributes the
increased losses in the six months and three months ended June 30, 1998 to
a reduction in volume of cattle brokered compared to the six months and
three months ended June 30, 1997. The beef industry has experienced
difficult times and in an effort to minimize risk, Midland decided not to
aggressively broker cattle; therefore, the volume of cattle brokered
decreased approximately 50%. In addition, the losses sustained by Midland
to support ROF's demand for CHB cattle supply were approximately $110,000
higher than a year ago. Midland anticipates volume will expand as ROF's CHB
program continues to grow.
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Red Oak Feeders, L.L.C.
Feeders has a 50% interest in a joint venture, Quality, with MoorMan's
and commenced operations in the latter part of December 1997. For the six
months ended June 30, 1998, Feeders net loss was $144,155, of which $112,733
resulted from losses of Feeder's share of the joint venture and $31,422
resulted from operating and interest expenses. Feeders net loss for the
three months ended June 30, 1998 was $81,671 of which $66,382 resulted from
losses of Feeder's share of the joint venture and $15,289 from operating and
interest expenses.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(a) Securities Sold - Exchanges
Date Title Price Per Unit Amount
March 14, 1997 Common Exchange 10,000,000*
*Plus options to purchase an additional 3,000,000 common shares of the
Company.
Date Title Price Per Unit Amount
May 19, 1997 Common Exchange 1,538,462
(b) Underwriters and other purchasers
March 14, 1997 Exchange. The exchange was with the shareholders of Red
Oak Farms, Inc.
May 19, 1997 Exchange. The exchange was with the shareholders of
Midland Cattle Company.
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(c) Consideration
March 14, 1997 Exchange. The Company exchanged 10,000,000 common
shares of the Company plus options to purchase an additional 3,000,000
common shares of the Company for the total issued and outstanding shares of
Red Oak Farms, Inc., an Iowa corporation.
May 19, 1997 Exchange. The Company exchanged 1,538,462 common shares
of the Company for all the issued and outstanding shares of Midland Cattle
Company.
(d) Exemption from Registration Claimed
For both exchange transactions, the securities were exchanged pursuant
to Section 4(2) under the Securities Act of 1933, as amended.
(e) Terms of Conversion or Exercise
March 14, 1997 Exchange. Each option entitles the holder thereof to
purchase one Share during the five year period commencing March 17, 1997 as
follows; 1,000,000 of the Shares may be purchased at a price of $8.00 per
Share; 1,000,000 of the Shares may be purchased at a price of $10.00 per
Share; and 1,000,000 of the Shares may be purchased at a price of $12.00 per
Share. No option may be exercised unless such exercise is registered or an
exemption from registration exists.
(a) Securities Sold - Private Offerings
Date Title Price Per Unit Amount
March through Sept. 1997 Common $3.00* 1,500,000
*Each Unit consisted of one share of the Company's common stock and a
warrant to purchase a share of the Company's common stock at $5.00 per
share.
January through June 1998 Common $4.00* 326,125
*Each Unit consisted of one share of the Company's common stock and a
warrant to purchase a share of the Company's common stock at $6.00 per
share.
(b) Underwriters and other purchasers
The securities were sold to accredited investors and to no more than
35 non-accredited investors.
<PAGE>
(c) Consideration
The aggregate offering price for the March offering was $4,500,000 and
a total of $114,979 was paid in commission or finder's fees.
The aggregate offering price for the January offering is $3,360,000 of
which $1,304,500 has been realized through the sale of 326,125 Units. To
date a total of $146,606 has been paid in commissions for this offering.
(d) Exemption from Registration Claimed
The securities were sold pursuant to Regulation D, Rule 506 as
promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, as amended.
(e) Terms of Conversion or Exercise
March 1997 Offering. Each Warrant represents the right to purchase one
share of Common Stock at an initial exercise price of $5.00 per share. The
Warrants are exercisable during the period commencing upon the closing date
of the offering and ending three years from the date of the offering.
Holders of Warrants may exercise their Warrants for the purchase of shares
of Common Stock only if the purchase of such shares is exempt from federal
registration requirements and qualified for sale, or deemed to be exempt
from qualification under applicable state securities law. The Warrants are
redeemable, in whole or in part, at the option of the Company, upon not
fewer than 60 days notice, at a redemption price equal to $.10 per Warrant
at any time the Common Stock of the Company publicly trades at a bid price
of $8.00 or above for a period of ten consecutive trading days.
January 1998 Offering. Each Warrant represents the right to purchase
one share of Common Stock at an initial exercise price of $6.00 per share.
The Warrants are exercisable during the period commencing upon the closing
date of the offering and ending three years from the date of the offering.
Holders of Warrants may exercise their Warrants for the purchase of shares
of Common Stock only if the purchase of such shares is exempt from federal
registration requirements and qualified for sale, or deemed to be exempt
from qualification under applicable state securities law. The Warrants are
redeemable, in whole or in part, at the option of the Company, upon not
fewer than 60 days notice, at a redemption price equal to $.10 per Warrant
at any time the Common Stock of the Company publicly trades at a bid price
of $8.00 or above for a period of ten consecutive trading days.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
<PAGE>
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 8, 1998,
at the Red Coach Inn, Highway 34, Red Oak, Iowa 51566, at 10:00 a.m. The
following matters were submitted to shareholders for a vote:
(a) To elect the following directors to serve for the ensuing year and
until their successors are duly elected and qualified:
Nominee Number of Number of Votes Number of Abstentions
Votes For Against or Withheld and Broker Non-Votes
Gordon Reisinger 10,604,151 25,000 4,050,264
John Derner 10,604,151 25,000 4,050,264
Charles Kolbe 10,604,151 25,000 4,050,264
Dwayne Lewis 10,604,151 25,000 4,050,264
John A. Sturm 10,604,151 25,000 4,050,264
John Holden 10,604,151 25,000 4,050,264
Ron Dagget 10,604,151 25,000 4,050,264
Steven G. Shafer 10,604,151 25,000 4,050,264
Alfred M. Micallef 10,604,151 25,000 4,050,264
(b) To approve the Red Oak Hereford Farms, Inc. 1998 Stock Option Plan.
Number of Number of Votes Number of Abstentions
Votes For Against or Withheld and Broker Non-Votes
10,602,451 26,700 4,050,264
(c) To ratify the Board of Directors action allocating up to $1,000,000
to a new Cattle Feeding Club.
Number of Number of Votes Number of Abstentions
Votes For Against or Withheld and Broker Non-Votes
10,603,051 25,100 4,050,264
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report.
Exhibit No. SEC Reference Title Location
10.01 10 CPNM Agreements Attached
10.02 10 Promissory Notes Attached
10.03 10 KBK Loan Agreements Attached
27 27 Financial Data Schedule Attached
(b) No reports were required to be filed on Form 8-K for the period ending
June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RED OAK HEREFORD FARMS, INC.
/s/ Gordon Reisinger
August 12, 1998 By:_____________________________
Gordon Reisinger, President
/s/ Harley Dillard
August 12, 1998 By:_______________________________
Harley Dillard, Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RED OAK HEREFORD FARMS, INC.
August 12, 1998 By: /s/ Gordon Reisinger
Gordon Reisinger, President
August 12, 1998 By:/s/ Harley Dillard
Harley Dillard, Chief Financial Officer
<PAGE>
RED OAK HEREFORD FARMS, INC.
FINANCIAL STATEMENTS
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
June 30, December 31,
1998 1997
_________ ___________
CURRENT ASSETS
Cash $ - $ 12,993
Accounts receivable
Trade, less allowance for doubtful
accounts of $10,000 2,999,488 2,920,939
Related parties 941,546 1,102,565
Inventories 472,802 989,190
Prepaid expenses and other assets 105,021 96,404
_________ ___________
Total current assets 5,518,857 5,122,091
PROPERTY AND EQUIPMENT, At cost
Buildings and leasehold improvements 292,574 292,574
Vehicles and equipment 285,711 237,878
578,285 530,452
Less accumulated depreciation 254,805 224,088
_________ ___________
Net book value 323,480 306,364
OTHER ASSETS
Investment in partnership 637,267 500,000
Other assets 78,774 47,229
_________ ___________
Total other assets 716,041 547,229
_________ ___________
$ 6,558,378 $ 5,975,684
_________ ___________
See Accompanying Notes to Consolidated Financial Statements
F-1
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
LIABILITIES
June 30, December 31,
1998 1997
___________ ___________
CURRENT LIABILITIES
Revolving bank lines of credit $ 1,577,987 $ 1,270,294
Note payable - related party 150,000 -
Current maturities of long-term debt 1,035,039 1,029,015
Accounts payable
Trade 2,069,854 546,691
Related parties 283,221 54,528
Accrued expenses 317,506 100,380
Current maturities of deferred income 100,000 100,000
___________ ___________
Total current liabilities 5,533,607 3,100,908
LONG-TERM LIABILITIES
Deferred income 200,000 200,000
Long-term debt 1,014,722 971,694
___________ ___________
Total long-term liabilities 1,214,722 1,171,694
___________ ___________
Total liabilities 6,748,329 4,272,602
___________ ___________
STOCKHOLDERS' EQUITY
Common stock, $.001 par value,
authorized 50,000,000 shares;
issued and outstanding 14,757,815
and 14,429,290 shares 14,757 14,430
Cumulative preferred stock, $.001 par value,
authorized 5,000,000 shares; issued and
outstanding 200,000 shares 200 200
Additional paid-in capital 6,893,630 5,738,605
Retained earnings (deficit) (7,098,538) (4,050,153)
___________ ___________
Total stockholders' equity (189,951) 1,703,082
___________ ___________
$ 6,558,378 $ 5,975,684
See Accompanying Notes to Consolidated Financial Statements
F-2
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
___________ ___________ ___________ __________
NET SALES
Related parties $ 1,570,822 $ 2,591,614 $ 3,581,050 $ 1,220,826
Others 13,881,141 19,987,578 28,374,356 48,752,832
___________ ___________ ___________ __________
15,451,963 22,579,192 31,955,406 49,973,658
COST OF GOODS SOLD
Related parties 4,698,436 1,666,431 9,416,452 3,532,388
Others 11,290,258 21,261,786 23,524,646 46,830,894
___________ ___________ ___________ __________
15,988,694 22,928,217 32,941,098 50,363,282
___________ ___________ ___________ __________
GROSS PROFIT (LOSS) (536,731) (349,025) (985,692) (389,624)
OPERATING EXPENSES 808,224 1,017,547 1,721,568 1,574,079
___________ ___________ ___________ __________
LOSS FROM OPERATIONS (1,344,955) (1,366,572) (2,707,260) (1,963,703)
___________ ___________ ___________ __________
OTHER INCOME (EXPENSE)
Equity in partnership
- losses (66,382) - (112,733) -
Interest Income 55 - 660 3,668
Interest Expense (119,687) (32,847) (229,052) (178,824)
___________ ___________ __________ __________
(186,014) (32,847) (341,125) (175,156)
___________ ___________ ___________ __________
NET LOSS (1,530,969) (1,399,419) (3,048,385) (2,138,859)
PREFERRED STOCK
DIVIDEND REQUIREMENT 32,274 - 77,953 -
___________ ___________ ___________ __________
NET LOSS APPLICABLE
TO COMMON STOCKHOLDERS $(1,563,243) $(1,399,419) $(3,126,338) $(2,138,859)
___________ ___________ ___________ __________
BASIC AND DILUTED
LOSS PER SHARE $(0.11) $(0.11) $(0.11) $(0.17)
___________ ___________ ___________ __________
WEIGHTED AVERAGE
SHARES OUTSTANDING 14,732,456 13,153,566 14,583,915 12,835,900
___________ ___________ ___________ __________
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
1998 1997
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,048,385) $ (2,138,859)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 51,583 41,517
Equity in partnership - losses 112,733 -
Changes in:
Accounts receivable 82,470 176,794
Inventories (483,612) (241,030)
Prepaid expenses (8,617) (127,413)
Accounts payable and accrued expenses 1,968,983 (1,499,759)
__________ __________
Net cash used in operating activities (1,324,845) (3,788,750)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (47,832) (11,798)
Proceeds on sale of equipment - 59,827
Change in other assets (52,413) (1,380)
Investment in partnership (250,000) -
__________ __________
Net cash used in investing activities (350,245) 46,649
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,155,352 2,452,924
Proceeds from subscription of common stock - 1,014,000
Net borrowings (payments) on line of credit 307,693 430,483
Proceeds on issuance of long-term debt 511,344 125,000
Payments on long-term debt (312,292) (133,847)
Purchase of treasury stock - (31,000)
Distributions paid - (60,459)
__________ __________
Net cash provided by financing activities 1,662,097 3,797,101
__________ __________
INCREASE (DECREASE) IN CASH (12,993) 55,000
CASH, BEGINNING OF PERIOD 12,993 -
__________ __________
CASH, END OF PERIOD $ - $ 55,000
__________ __________
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
NOTE 1: NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements do not include all
footnotes and certain financial information normally presented annually
under generally accepted accounting principles and, therefore, should
be read in conjunction with the Company's December 31, 1997 10-KSB.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end. The results of operations for
the six months ended June 30, 1998 and 1997 are not necessarily
indicative of results that can be expected for the full year.
The condensed consolidated financial statements included herein are
unaudited; however, they contain all adjustments (consisting of normal
accruals) which, in the opinion of the Company, are necessary to
present fairly its consolidated financial position at June 30, 1998 and
December 31, 1997, and its consolidated results of operations and cash
flows for the interim periods June 30, 1998 and June 30, 1997. The
results of operations for the interim periods shown are not necessarily
indicative of the results for the entire fiscal year ending December
31, 1998.
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Red Oak
Farms, Inc. ("ROF"), Midland Cattle Company ("Midland") and Red Oak
Feeders, LLC ("Feeders"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and presented
on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. The
Company has suffered recurring losses and negative cash flows from
operations since its inception due to its start-up nature in
establishing a premium branded Hereford beef product. The Company has
not yet been successful in establishing profitable operations and is in
technical noncompliance with certain loan agreements. In addition,
during the first quarter of 1998 the Company was notified that their
lenders were terminating their relationships with the Company. ROF
subsequently obtained a new financing arrangement; however, Midland is
still negotiating new financing arrangements. These factors raise
substantial doubt about the ability of the Company to continue as a
going concern. In this regard, management is in the process of
renegotiating loan agreements, completing a private placement offering,
and increasing product awareness through marketing efforts to improve
profitability and cash flow. Sales efforts are being made to change
the product mix of sales to increase the volume percentage of branded
versus commodity sales. Management believes these steps will enhance
the Company's ability to achieve favorable operating results. There is
no assurance that the Company will be successful in raising additional
capital or achieving profitable operations. The condensed consolidated
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
F-5
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
NOTE 2: RELATED PARTY TRANSACTIONS
The Company sells cattle to certain companies which are owned by
members of the Company's management or Board of Directors. The Company
also purchases cattle and feed from these same entities. Additionally,
both Midland and ROF utilize trucking companies that are owned by
members of the Company's management or Board of Directors. The
activity between the Company and these related parties at and for the
six months ended June 30, 1998 and 1997 are as follows:
June 30, 1998 June 30, 1997
_____________ _____________
Sales $3,581,050 $1,220,826
Purchases 9,416,452 3,532,388
Additionally, during the six months ended June 30, 1998 and 1997,
ROF purchased cattle from Midland in the amount of $257,060 and
$1,027,631, respectively. Such intercompany purchases are eliminated
in consolidation.
The Company also has two notes payable to a major stockholder and
director for $100,000 which will be used for the My Favorite Jerky
company and $50,000 for the Company's investment in Here's the Beef.
The notes are payable on demand and bear interest of 9%. A previous
note payable to a major stockholder for $246,326 was repaid on May 6,
1998.
NOTE 3: INVENTORIES
Inventories at June 30, 1998 and December 31, 1997 consisted of the
following:
June 30, December 31,
1998 1997
__________ ___________
Boxed beef $1,330,975 $ 639,411
Cattle 51,090 296,149
Other 90,737 53,630
__________ ___________
$1,472,802 $ 989,190
NOTE 4: DEBT
On April 13, 1998, ROF entered into an agreement in principle with
KBK Capital Corporation ("KBK") to provide an asset based line of
credit. The line of credit provides borrowings up to $2,500,000 for
accounts receivable and $1,500,000 for inventory, based on eligible
assets. The line of credit is collateralized by substantially all of
the subsidiary's assets and personal guarantees of the Company's
President and a Director. KBK began funding ROF on April 24, 1998 and
the agreement was finalized in May 1998.
Midland is currently negotiating new financing arrangements with
potential lenders.
F-6
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
NOTE 5: STOCKHOLDERS' EQUITY
On January 14, 1998, the Company began a private placement offering
to issue up to 840,000 units, each unit comprising one common share and
one common stock purchase warrant, for $4.00 per unit. The common
stock purchase warrants are callable at $.10 per share upon 60 days'
notice and grant the holder the right to purchase common stock at $6.00
per share. Through June 30, 1998, the Company has raised $1,304,500
through the sale of 326,125 units before deducting offering expenses of
$149,148.
NOTE 6: RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
The financial statements for the quarter ended June 30, 1997 and the
six months ended June 30, 1997 have been restated to reflect certain
marketing costs and professional fees reclassed as operating expenses
during the fourth quarter of 1997. The restatements resulted in the
the following increase in the Company's operating expenses:
Quarter Ended June 30, 1997 $243,062
Six Months Ended June 30, 1997 $287,062
F-7
EXHIBIT 10.1
CPNM AGREEMENTS
<PAGE>
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (the "Agreement"), entered into this
21st day of April, 1998 is by and between the following
corporations, collectively referred to herein as "the
partners"sometimes referred to hereinafter individually as Venturer
or collectively as Venturers, as the context may require;
Red Oak Hereford Farms, Inc. (referred to as "HERF"), a Nevada
corporation with offices at P.O. Box 456, Red Oak, Iowa 51566;
and
Cable/Print Network Marketing, Inc. (referred to as "CPNM"), a
Pennsylvania corporation with offices in Suite 930, Benjamin Fox
Pavillion, Jenkintown, PA 19046.
WHEREAS, CPNM has developed proprietary multimedia marketing
programs and is skilled and experienced in the use of a variety of
promotional, direct and targeted marketing methods ("CPNM's
Marketing");
WHEREAS, HERF is skilled and experienced in beef/cattle business
listed in Exhibit "B", which is attached hereto and herewith made
part of this Agreement ("HERF'S Business").
WHEREAS, the parties desire to enter into an agreement to form a
Joint Venture in the form of a Nevada corporation with the purpose
of utilizing CPNM's Marketing multimedia marketing methods in the
promotion of HERF's Business as to be mutually agreed and listed in
"Exhibit A";
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein the parties, intending to be legally
bound, agree as follows:
ARTICLE I
FORMATION
1.1 Formation and Ownership. The Venturers partners hereby agree
to form a Joint Venture to implement the business as set forth
hereinfor the purposes of utilizing CPNM's Marketing in the
promotion of HERF's Business as set forth herein. The Joint
Venture shall be created in the form of a Nevada corporation under
the name Here's the Beef Corp. (the "Corporation"). Red Oak
Hereford Farms, Inc. shall owning 80% of the common stock of the
Corporation and CPNM, Inc. shall owning 16.25% of the common stock
of the Corporation and others 3.75%.
1.2 Name of Joint Venture. The name of the Joint Venture shall be
Here's the Beef, Corp.
1.32 Term. The this Joint Venture agreement shall commence as of
the date hereof and remain in full force and effect until the stock
of the Corporation is issued to each Venturer as provided herein or
this Agreement is terminated by the parties in accordance with the
terms hereof this Agreement.
1.43 Initial Capitalization. Red Oak Hereford Farms, Inc. HERF
agrees to contribute $50,000 to the Corporation provide, or to
secure investors for the initial marketing, in the amount of who
will contribute, in the aggregate, $50,000 within ninety (90) days
following the execution of this Agreement. These funds will be
placed into a checking account to be set up by the Corporation
Joint Venture. This initial capitalization and CPNM's marketing
management services are to be used for Multi Media Marketing tests
as mutually agreed to by the Venturers partners or as determined by
the Board of Directors of the Corporation, as listed on Exhibit
"A". A Full roll out of CPNM's Multi Media Marketing will be
conducted only after it can be fully funded by revenues from test
sales, and/or from mutually agreed to subsequent additional
capitalization or loans from the Venturers to the Corporation. The
Board of Directors of the Corporation may hire a facilitator will
be mutually agreed upon to be stationed/ liaison with the Joint
Venture with a $2,000 draw per month for six (6) months against a
percentage of profits/equity of the Corporation. In the event the
facilitator is entitled to payment as a percentage of profits of
the corporation in addition to the Two Thousand Dollars ($2,000.00)
draw per month, the additional payment to the facilitator shall be
paid from CPNM's percentage of profits arising under the Marketing
Services Agreement referred to in Article 6.1. Joint Venture.
1.4 Additional Capitalization/Loans from Venturers.
a. Additional Capitalization. It is the intention of the
Venturers that the Corporation's business and activities shall be
conducted in such a manner that additional capital contributions
shall not be required; to that end, the Venturers shall attempt to
conduct activities of the Corporation in such a way that the
Corporation's business can be conducted with the initial capital
contributions as augmented by debt financing and proceeds from
operations. However, to the extent that additional capital
contributions are required, the Venturers shall make such
additional capital contributions as agreed upon by the Board of
Directors of the Corporation in accordance with its Bylaws.
b. Loans from Venturers. All expenses of the Corporation that
are paid by HERF shall be treated as a loan to the Corporation.
Loans by Venturers to the Corporation shall not be capital
contributions to the Corporation. Loans shall be a debt due from
the Corporation to such lending Venturer and shall be, together
with accrued interest thereon, reimbursed to the Venturer making
such loan prior to any payment or distribution to the Venturers in
connection with the division of profits or the liquidation of the
Corporation.
1.5 Inspection. The books and records of the Joint Venture
Corporation, to shall be maintained by CPNM on behalf of the
Corporation Joint Venture and shall be available for inspection by
all shareholders the partners upon reasonable notice of to CPNM.
Inspection shall take place at the offices of CPNM during normal
business hours.
1.6 CPNM Corporation Checking Account. CPNM shall maintain the
checking account for the Corporation. following the initial
capitalization and subsequent capitalization. All revenues
generated by the Joint Venture Corporation shall be deposited into
a Joint Venture the Corporation checking account. Monthly balance
reports shall be submitted to the Joint Venture shareholders
partner no later than ten (10) days following month end.
1.7 Accounting. CPNM shall maintain the accounts of the
Corporation. Joint Venture shall be maintained by CPNM and The
Corporation's accounts shall be audited by BDO Seidman, CPA's, who
shall prepare all necessary tax returns and financial statements
for the Corporation.
1.8 Management. So long as HERF owns 85% of the common stock of
the Corporation and CPNM continues to own 15% of the common stock
of the Corporation, the Joint Venture Corporation shall be managed
by a Board of Directors consisting of the signatories of this
Agreement and three additional nominees, two appointed by HERF and
one appointed by CPNM. As soon as HERF or CPNM transfer part or
all of their common stock holdings to any other person, the Board
of Directors of the Corporation shall be elected by the
shareholders pursuant to the terms of the Bylaws of the
Corporation. The directors shall mutually agree on the budget for
Exhibit "A", selection of officers and all other discretionary
matters.
1.9 Offices. The Joint Venture Corporation shall maintain offices
at the following places, unless otherwise agreed by the parties
from time to time:
a. 930 Benjamin Fox Pavillion, Jenkintown, PA 19046, Phone
215-887-5700, Fax 215-887-7076.
b. P.O. Box 456, Red Oak, IA 51566, Phone 712-623-9224, Fax
712-821-0441.
1.10 Public Offering. The Venturers desire to have the
Corporation's securities registered with the Securities and
Exchange Commission ("SEC") in the future. The Board of Directors
may, in its sole discretion, decide to register the securities of
the Corporation with the SEC if the circumstances warrant such
registration. To the extent that the Corporation's profits are
insufficient to offset the cost of the registration, HERF shall pay
the costs of the registration, such payment from HERF to be treated
as a loan to the Corporation. Failure to register the
Corporation's securities shall not be treated as a breach of this
Agreement by either Venturer.
1.11 Restriction On Sale. Each of the Venturers partners covenant
and agrees that it shall execute a shareholders agreement providing
that it shall not mortgage, pledge, sell, assign, hypothecate or
otherwise encumber, transfer or permit to be transferred in any
manner or by any means whatsoever, whether voluntarily or by
operation of law all or any part of its Joint Venture interest in
the Corporation or withdraw from the Joint Venture Corporation
except as set forth in the shareholders agreement this Agreement.
Except that the Board of Directors of Red Oak Hereford Farms, Inc.
(HERF), at its sole discretion, may vote and approve a motion to
distribute the Joint Venture Corp., Here's The Beef, Corp., in the
form of a Spin Off Dividend to its shareholders. Said Spin Off
distribution who have to be registered with the Securities and
Exchange Commission. The shareholders agreement shall allow HERF,
at its sole discretion, to distribute its shares in the Corporation
to its shareholders in the form of a spin-off dividend following
registration of the Corporation's shares with the SEC.
1.12 Allocation of Profits and Loss. All the Venturers intend
that, prior to the registration of the Corporation's common stock
with the SEC, net profit and loss of the Joint Venture Corporation,
after payment of all of the Corporation's current and prior
financial obligations, including repayment
of loans from Venturers, shall be allocated equally to the among
the Venturers partners after the cost of products to be marketed
and multimedia expenditures as mutually agreed, on a quarterly
basis. The Venturers shall mutually determine an acceptable means
for allocating such profits and losses and shall retain sufficient
funds in the Corporation to continue operations. No allocation or
distribution shall be made until the Venturers are assured that
such allocation or distribution will not cause adverse legal or
income tax consequences to the Corporation. Once the Corporation's
stock is registered with the SEC, all profits and losses shall
inure to the benefit of the shareholders in accordance with their
stock ownership.
1.13 Limitation on Authority of Venturers. Except as otherwise
expressly and specifically provided in this Agreement or by the
organizational documents of the Corporation, neither Venturer shall
have any authority to bind or act for, or assume any obligations or
responsibility on behalf of, the other Venturer. Neither the
Corporation nor either Venturer shall be responsible or liable for
any indebtedness or obligation of the other Venturer or otherwise
relating to HERF's Business or CPNM's Marketing arising either
before or after the execution of this Agreement, except as to those
joint responsibilities, liabilities, indebtedness, or obligations
incurred pursuant to and as limited by the terms of this Agreement.
1.14 Non-Encumbrance. Each of the partners covenants and agrees
that it shall not obligate the other to any third party without
written notice to the other.
ARTICLE II
VENTURER PARTNER'S OBLIGATIONS AND RESPONSIBILITIES
2.1 HERF: Red Oak Hereford Farms, Inc. responsibilities and
obligations shall include, but not be limited to: HERF shall sell
sufficient quantity of beef products to the Corporation at prices
which will not exceed branded prices to the Joint Venture
sufficient qualities of beef products and which the Joint Venture
Corporation may agree to make to be paid out of sales receipts of
the Joint Venture.
2.2 CPNM's: CPNM shall use its best efforts to: responsibilities
and obligations shall include, but not be limited to: Management
of the marketing strategies and plans (listed on Exhibit "A"), for
the promotion and marketing of HERF's Business, the implementation
of which and budgeting for which are subject to the approval of the
Joint Venture Board of Directors of the Corporation partners.
ARTICLE III
INTELLECTUAL PROPERTY
3.1 Copyrights, Patents and Trademarks
a. Any and all patents, trademarks or copyrights, relating
to HERF's Business, which the Joint Venture Corporation may be
entitled to register under state or federal law shall be registered
in the name of the HERF. All other patents, trademarks or
copyrights which the Corporation may be entitled to register under
state or federal law shall be registered in the name of the
Corporation. Joint Venture company, Here's The Beef, Corp.
b. All preexisting patents, trademarks or copyrights of the
Venturers partners shall remain their respective property.
3.2 Customers Lists. All preexisting customer lists disclosed by
HERF to the Corporation shall remain the property of HERF and shall
be returned to HERF upon HERF's request. All customers lists
developed by the Joint Venture Corporation will be the property of
the Joint Venture company Corporation, but shall be distributed to
HERF upon dissolution and liquidation of the Corporation. CPNM
will use its expertise and be responsible for promotion and the
marketing to customers of on the lists on behalf of the Joint
Venture company Corporation.
3.3 Warranty/Indemnification. The parties of the Agreement do
hereby warrant and covenant for themselves for itself that its
their undertaking hereunder does not infringe or interfere with any
intellectual property or other contract rights of third parties,
and each shall indemnify, save and hold the other party harmless,
including attorney's fees and cost of defense, from any suit,
demand, claim, liability or proceeding founded on such third
party's claim, liability, or proceeding founded on such third
party's claim or settlement. The Board of Directors of the
Corporation shall determine, in its sole judgment, whether
marketing beef under the Corporation's name shall cause any
tradename violations and, if so, what course of action, including
revision of the Corporation's name, is advisable under the
circumstances.
ARTICLE IV
CONFIDENTIALITY
4.1 Confidential Information. CPNM acknowledges and agrees that
during the term of this Agreement, it may have access to certain
proprietary confidential information of the HERF, maintained in
confidence by CPNM, including but not limited to information
pertaining to the HERF's customers, processes, products, pricing,
purchasing, accounting, marketing, finances and business practices
(the "Confidential Information"). CPNM further acknowledges and
agrees that all information disclosed to or accessed by CPNM,
including information originated by CPNM in the course of
performing its duties under this Agreement, which CPNM has reason
to believe is confidential or which is treated by HERF as
confidential, shall be presumed to be confidential information,
unless such information was available to the public by publication
or otherwise was part of the public domain through no fault of
CPNM. CPNM further acknowledges and agrees that HERF has developed
and established and is continuing to develop and establish a
valuable and extensive trade in its products and services, and that
HERF would suffer great loss and irreparable injury if the CPNM
discloses any confidential information or uses it to the HERF's
detriment.
4.2 Nondisclosure of Confidential Information. CPNM, during the
term of this Agreement and at all times thereafter, shall maintain
in strictest confidence and shall not directly or indirectly
divulge, release, disclose, or make available to any other firm,
person, corporation, or other entity any Confidential Information
of HERF, except as required by this Agreement or as permitted by
HERF in writing.
4.3 Termination. Upon termination of this Agreement, CPNM shall
deliver promptly to HERF all Confidential Information in any form
to the owner, and shall keep no photocopies, facsimiles, or other
duplications thereof.
4.4 Noncompete. Throughout the term of this Agreement and the
existence of the Corporation, the Corporation will not compete with
either Venturer, nor shall either Venturer compete with the other
Venturer.
ARTICLE IV
TERMINATION
4.1 In the case of any unresolved breach of this Agreement by
either party, and after conformance with the cure provisions as
defined in ARTICLE VI, Subparagraph f, hereafter, either party may
declare this Agreement terminated as to any further business to
which the Joint Venture is not already obligated and the
Corporation shall be liquidated. Upon liquidating, the assets of
the Joint Venture Corporation after retirement of all Joint Venture
of the Corporation's obligations, including loans from Venturers,
shall be divided equally between the distributed to the
shareholders in accordance with the Bylaws of the Corporation
partners. The Venturers partners agree that any obligations,
financial or otherwise to third parties will be satisfied prior to
the dissolution and liquidation of the Joint Venture Corporation.
and that each partner will fulfill its such obligations prior to
such dissolution except as noted in 1.3 of this Agreement.
4.2 At any time during or subsequent to the termination of the
Corporation Joint Venture as provided herein, or otherwise, HERF
Red Oak Hereford Farms, Inc. will not utilize any of CPNM's Multi
Media Marketing techniques that are unique to CPNM, and materials
or any parts thereof, without the express written permission of
CPNM. Any marketing techniques that are employed by any competitor
of CPNM or any other person at any time during the term of this
Agreement shall not be deemed to be unique to CPNM.
ARTICLE VI
MISCELLANEOUS PROVISIONS
5.1 Execution of other Documents. The parties will execute and
deliver all documents and instruments which are reasonably
necessary to carry out the terms of this Agreement, including but
not limited to an Exclusive Supply Contract between the Corporation
and HERF and a Marketing Services Agreement between the Corporation
and CPNM.
5.2 Miscellaneous.
a. This Agreement represents the entire agreement between
the parties and shall not be changed orally. There are no other
contemporaneous oral agreements.
b. This Agreement shall inure to the benefit of the parties
together with their permitted successors and assigns. CPNM may not
assign its rights hereunder without the prior written consent of
HERF.
c. If any portion of the Agreement is struck down or
declared unenforceable by a court of competent jurisdiction, it
shall not affect the other provisions of this Agreement.
d. The waiver by either party of any right hereunder shall
not constitute a waiver of any other rights, nor shall the waiver
of any right in an instance constitute the waiver of such right
ongoing.
e. Any and all disputes arising under or related to this
Agreement shall be submitted to binding arbitration before the
American Arbitration Association, in accordance with the rules and
regulations then in effect. Any award may be entered by either
party as a judgment or decree in any court of competent
jurisdiction and enforced accordingly. The parties shall share
equally an AAA fees incurred by either party in connection with any
dispute. Any such arbitration shall take place in Montgomery
County Pennsylvania. Any dispute under this Agreement shall be
governed by Pennsylvania law.
f. Neither party shall enforce an alleged breach of any
provision of this Agreement clearly without first giving the other
party written notice clearly specifying the nature of such alleged
breach, and an opportunity to cure said alleged breach within
THIRTY (30) DAYS of receipt by certified mail of such notice.
g. All signatories of this Agreement hereby represent and
warrant that they have the requisite authority to execute this
Agreement enter into this transaction, and that the entity which
they represent has complied with all necessary formalities under
all applicable by-laws or agreements, as well as all applicable
state laws and regulations.
h. Except as specifically restricted herein, Each VENTURER
PARTNER agrees that the other shall at all times be free to engage
inn any other business activities.
i. The form and substance of all organizational documents
for the Corporation shall be subject to the approval of the board
of directors of each Venturer.
j. Each signatory to this Agreement shall pay its own
expenses associated with the creation, negotiation and execution
hereof.
k. The Venturers acknowledge that the operation of the
Corporation can be conducted only after the Corporation is licensed
with the American Hereford Association.
Dated this 21st day of April, 1998
Signature /s/ Gordon Reisinger
RED OAK HEREFORD FARMS, INC.
By:
Gordon M. Reisinger, President
CABLE/PRINT NETWORK MARKETING, INC.
By:
/s/ Beryl J. Wolk, President
Signature
Beryl J. Wolk, President, CPNM, Inc.
<PAGE>
EXHIBIT "A"
MARKETING SERVICES
CPNM will provide Multi Media marketing for the Joint Venture as
mutually agrees to by the Board of Directors of the Joint Venture:
* TV -- Production and airing to 20,000,000 households, minimum of
3 times. Infomercial and/or commercials.
* Licensing of products, services and of independent sales
representatives
* CartCade-- test on cart in one of Sales Dynamics licensed sites in
150 regional shopping malls
* Fairs, Festivals and Flea Markets -- via American Vendors
Association
* Magazine advertising and tune ads -- 33 potential magazines/20
million + exposure
* Loyalty marketing via club/association with selected CPNM
membership benefits
* Multi-level marketing opportunities
* College Marketing via National Association of College Marketers
* Advertisements in catalogs
* Sales as a premium
* Sweepstakes, as applicable
* Fax Broadcasting tests (up to 1,000 faxes weekly for five weeks,
via Fax Owners & Users Association)
* Radio -- 180 Radio Stations
* TV Home Shopping Network introductions
* Data Base Marketing
* Internet Test Site
* Family Guide Seal of Approval
* Package Inserts -- based on availability
* "Family Guide" Free Fall Newspaper Inserts, via co-op or sponsor
dollars, when available
* Out bound telemarketing -- 7,000 operators
* Access to our Databases
* E-mail -- 80 million addresses
* ArabNet -- 27 Middle East Countries/40 million Households
* Franchising via Franchise America
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") executed as of the _____ day of May, 1998,
by and between Red Oak Hereford Farms, Inc., a corporation formed under the
laws of the state of Nevada with its principal place of business in Red Oak,
Iowa ("ROHF") and Cable/Print Network Marketing, Inc., a corporation formed
under the laws of the state of Pennsylvania with its principal place of
business in Jenkintown, Pennsylvania ("CPNM").
WHEREAS, the parties hereto have executed that certain Joint Venture
Agreement dated April 21, 1998 ("Joint Venture Agreement") pursuant to which
they have agreed to form a joint venture in the form of a Nevada corporation;
and
WHEREAS, Here's The Beef Corp., a Nevada corporation (the
"Corporation"), has been formed in accordance with the provisions of the Joint
Venture Agreement; and
WHEREAS, the parties to this Agreement wish to specify certain terms and
conditions that will govern the operation of the Corporation during the term
of this Agreement.
NOW THEREFORE, in consideration of the mutual agreements contained in the
Joint Venture Agreement and contained herein as well as other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Term and Termination. This Agreement shall be effective until it
is terminated as provided herein or until the Corporation files a Registration
Statement with the Securities Exchange Commission ("SEC"). The parties may
agree to terminate this Agreement anytime prior to filing a Registration
Statement with the SEC by mutual written agreement.
2. Capital Requirements. CPNM shall not be required to contribute any
cash to the Corporation. All cash requirements for the Corporation shall be
provided by ROHF in the form of loans.
3. Board of Directors. The parties agree to vote their stock in such
a manner as to elect five (5) members of the board of directors, three (3) of
which will be designated by ROHF and two (2) of which will be designated by
CPNM.
4. Allocation of Profits and Loss. Until this Agreement is terminated,
the parties shall cause the Corporation's profits and losses to be allocated
between CPNM and ROHF so as to provide 50% of all profits and losses to CPNM
and 50% of all profits and losses to ROHF, regardless of actual stock
ownership. CPNM and ROHF shall direct their designees to the board of
directors to determine an acceptable means for allocating profits and losses
between the parties as provided herein, while retaining sufficient funds in
the Corporation to continue operations. The Corporation shall consult with
its auditor and/or legal counsel to determine that any allocation or
distribution of profits or losses will not cause adverse legal or income tax
consequences to the Corporation. The allocation of profits and losses
provided herein shall be effective only until the termination of this
Agreement.
5. Binding Effect. All the covenants, stipulations, promises and
agreements contained in this Agreement shall bind the parties hereto and the
parties' successors and permitted assigns.
6. Severability. If any one or more of the provisions contained in
this Agreement shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not be effected or impaired thereby, and this Agreement shall be
interpreted and construed to carry out the intentions of the parties hereto
as nearly as may be possible.
IN WITNESS WHEREOF the parties hereto do hereby execute this Agreement
as of the date and year first above written.
RED OAK HEREFORD FARMS, INC.
By:
Its:
CABLE/PRINT NETWORK MARKETING, INC.
By:
Signature ____________________________________________
Beryl J. Wolk, President, CPNM, Inc.
Its:
<PAGE>
MARKETING SERVICES AGREEMENT
THIS MARKETING SERVICES AGREEMENT, (the "Agreement"), made and entered
into as of the day of , 1998 by and between
CABLE/PRINT NETWORK MARKETING, INC., a Pennsylvania corporation ("CPNM") and
HERE'S THE BEEF CORP., a Nevada corporation ("HTBC").
WITNESSETH
WHEREAS, HTBC is in the business of marketing and promoting food
products manufactured or distributed by one or more subsidiaries of Red Oak
Hereford Farms, Inc., a Nevada corporation ("HTBC's Business"); and
WHEREAS, the CPNM is skilled and experienced in the use of a variety of
promotional, direct and targeted marketing methods; and
WHEREAS, HTBC desires to retain CPNM to provide marketing services to
HTBC, subject at all times to the general supervision and control of HTBC.
NOW, THEREFORE, in consideration of the mutual undertakings contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
APPOINTMENT OF MARKETING SERVICES MANAGER
The HTBC hereby retains CPNM and CPNM hereby agrees to provide or cause
to be provided to HTBC the services specified in Article II of this
Agreement.
ARTICLE II
MARKETING SERVICES
2.1 Marketing Services. Subject to the general authority of the Board
of Directors of HTBC to control the affairs of HTBC, CPNM shall provide
marketing and promotion services (the "Marketing Services"), to HTBC in
connection with HTBC's Business. Consistent with the foregoing, CPNM shall
use its best efforts consistent with sound business practice to provide or
cause others to provide Marketing Services necessary or appropriate for the
successful marketing and promotion of HTBC's Business, including, without
limitation, those services set forth in Exhibit A, attached hereto and by
this reference incorporated herein.
2.2. HTBC Authority. All of the services identified in subparagraph 2.1
above shall be rendered by CPNM subject to the following:
(a) The approval of the Board of Directors of HTBC with the understanding
by CPNM that the ultimate control of HTBC's Business shall remain vested in
HTBC and CPNM shall do nothing inconsistent therewith.
(b) That all facilities, property and equipment used or employed in HTBC's
Business and by HTBC shall at all times remain the property of HTBC.
2.3 Prior Approval by HTBC. Notwithstanding any provision of this
Agreement to the contrary, without the prior written consent of HTBC, CPNM
shall not be authorized on behalf of HTBC to:
(a) Borrow money for any purpose; or
(b) Sell, lease, trade, exchange or otherwise dispose of any property of
HTBC other than in the ordinary course of business;
2.4 CPNM as Agent. All actions taken by CPNM under the provisions of this
Agreement shall be taken as the Agent of HTBC and all obligations or
expenses incurred hereunder shall be for the account, on behalf and at the
expense of HTBC, whether such obligations or expenses are incurred with
respect to independent third parties other than CPNM.
ARTICLE III
REIMBURSEMENT OF COSTS; MARKETING SERVICES FEE
3.1 Reimbursement of Costs. HTBC shall be responsible for and shall
reimburse CPNM for all reasonable costs incurred by CPNM directly in
connection with the performance by CPNM of its duties hereunder.
3.2 Marketing Services Fee. HTBC shall also pay to CPNM a Marketing
Services Fee in the amount of fifteen percent (15%) of the Net Profits of
HTBC per year beginning in 1998 and thereafter during the existence of this
Agreement (the "Marketing Service Fee"). The term Net Profits shall mean
earnings of the Corporation after all taxes or reserves for taxes,
determined in accordance with generally accepted accounting principles
taking account of cumulative losses for all prior periods. The Marketing
Services Fee shall be paid in January of each year for the services rendered
in the previous year.
ARTICLE IV
TERM OF THE AGREEMENT
This Agreement shall commence as of the day of , 1998 (the
"Commencement Date"), and shall continue for a period of one (1) year from
the date hereof. This Agreement shall automatically continue for additional
one year periods on the same terms and conditions as provided for herein,
subject at all times to termination as provided herein. This Agreement may
be terminated by HTBC at any time, without cause, upon fourteen (14) days
written notice sent by certified mail, addressed to CPNM's last-known
address. This Agreement may be terminated by CPNM at any time for cause,
upon fourteen (14) days written notice sent by certified mail, addressed to
HTBC's last known address.
ARTICLE V
EXCULPATION AND LIABILITY
5. l Limitation of Liability. CPNM shall not be liable, responsible or
accountable in damages or otherwise, to HTBC or any shareholder thereof for
any act or omission performed or omitted by it in good faith pursuant to the
express or implied authority granted to it by this Agreement and reasonably
believed by it to be within the scope of authority granted to it by this
Agreement and in the best interest of HTBC; provided that, in connection
with such act or omission, CPNM is not guilty of a breach of this Agreement,
a breach of fiduciary duty, fraud, bad faith, gross negligence or willful
misconduct.
5.2 Indemnification by HTBC. HTBC shall indemnify, defend and hold
harmless CPNM when acting as an agent for HTBC, from and against any claim,
damage or liability incurred by CPNM and against the costs and expenses
incurred by it in defending against such claim, damage or liability
(including, without limitation, the reasonable fees and expenses of legal
counsel), by reason of any acts or omissions performed or omitted by it on
behalf of HTBC pursuant to CPNM's express or implied authority under this
Agreement and in the best interest of HTBC. Provided, however, HTBC shall
not be required to indemnify and defend CPNM from and against any claim,
damage or liability which CPNM may incur by reason of the breach of this
Agreement, breach of fiduciary duty, fraud, bad faith, gross negligence or
willful misconduct by CPNM. The obligations of HTBC, under this Section
5.2, shall survive the termination of the Agreement.
5.3 Indemnification by CPNM. CPNM shall indemnify, defend and hold
harmless HTBC (its officers, directors or employees and agents) from and
against any claim, damage or liability incurred by them, and against the
costs and expenses incurred by them in defending against any such claim,
damage or liability (including, without limitation, the reasonable fees and
expenses of legal counsel), by reason of any breach of this Agreement,
breach of fiduciary duty, fraud, bad faith, gross negligence or willful
misconduct by CPNM. The obligations of CPNM, under this Section 5.3, shall
survive the termination of this Agreement.
ARTICLE VI
COPYRIGHTS, PATENTS AND TRADEMARKS
Any and all patents, trademarks or copyrights, relating to HTBC's
Business, or Red Oak Hereford Farms, Inc. shall remain the property of HTBC
and Red Oak Hereford Farms, Inc., respectively.
ARTICLE VII
CUSTOMERS LISTS
All preexisting customer lists disclosed by HTBC or Red Oak Hereford Farms,
Inc. to CPNM shall remain the property of HTBC and Red Oak Hereford Farms,
Inc., respectively and shall be returned to HTBC or Red Oak Hereford Farms,
Inc. upon their request. All customer lists developed by the CPNM during
the term of this Agreement will be the property of the HTBC. CPNM will use
its expertise and be responsible for promotion and marketing to customers on
the lists on behalf of the HTBC.
ARTICLE VIII
NONCOMPETITION
8.1 CPNM's Covenant Not to Compete. CPNM shall not, for a period of five
(5) years following the termination of this Agreement (the "Restricted
Period"), directly or indirectly, by or for itself or through others as its
agent, own, manage, operate, join, control or participate in the ownership,
management, operation, or control of, or be connected in any manner (such as
in a capacity as an owner, director, officer, shareholder, employee,
manager, advisor, independent contractor or similar capacity), with any
business whether now existing or hereafter created which is competitive with
HTBC's business of distributing food products ("HTBC's Business"), or Red
Oak Hereford Farms, Inc.'s business of manufacturing and distributing food
products ("HERF's Business") within a ten (10) mile radius of any location
in which HERF's Products are sold or HTBC's Business is conducted (the
"Restricted Territory").
8.2 CPNM's Covenant Not To Disclose and Not To Interfere. CPNM shall not,
at any time after the date hereof, directly or indirectly, by or for itself
or through others as his agent, or in a capacity as an owner, director,
officer, shareholder, employee, manager, advisor, independent contractor, or
similar capacity of any business now existing or hereafter created:
a. Divulge, communicate, use or disclose, or permit others to use or
disclose, any non-public information concerning HTBC's Business or HERF's
Business, whether past or present, including, but not limited to, corporate
structure or strategy, customers, customer lists, pricing schedules,
material contracts and/or financing arrangements (all of which non-public
information being deemed by Employee and by HTBC to be "Confidential
Information" and hereinafter referred to as such); and/or
b. In any way interfere with, or counsel or permit others to interfere
with, HTBC or HTBC's Business including HTBC's business relationships, or
disparage in any way the good name or reputation of HTBC.
c. In any way interfere with, or counsel or permit others to interfere
with, HERF or HERF's Business including HERF's business relationships, or
disparage in any way the good name or reputation of HERF.
8.3. CPNM's Covenant Not To Solicit. CPNM shall not at any time during the
Restricted Period, except as contemplated by this Agreement, directly or
indirectly, by or for itself or through others as its agent, or in a
capacity as an owner, director, officer, shareholder, employee, manager,
advisor, independent contractor or similar capacity of any business now
existing or hereafter created, engage in any of the following within the
Restricted Territory:
a. Call upon, solicit, divert, take away or accept business from any of
the customers or suppliers or former customers or suppliers of HTBC's
Business or HERF's Business(as such terms are defined above); or
b.. Solicit for employment, retain or employ, or become employed by, any
past or present employee or sales representative of HTBC's Business or
HERF's Business(as such terms are defined above); or
c. Request, induce or advise any employee of HTBC or HERF to leave the
employ of or cease affiliation with HTBC or HERF.
8.4 Equitable Enforcement. The CPNM acknowledges and agrees that the terms
and conditions set forth in this Article X are reasonable and necessary for
the protection of HTBC's Business and HERF's Business and are necessary to
prevent damage or loss to HTBC and HERF, and that any breach by CPNM of the
foregoing provisions may cause HTBC and HERF irreparable injury for which
there may be no adequate remedy at law. CPNM further agrees that the
services to be rendered by it is of a special and unique character, which
gives it a special value in the successful operation of HTBC's Business and
HERF's Business. By reason thereof, CPNM agrees that HTBC and HERF shall be
entitled to injunctive and equitable relief to prevent or curtail any breach
of the provisions of this Article X by him, in addition to any other
remedies HTBC and HERF may have under this Agreement. It is further agreed
that the provisions of this Article X, shall survive the termination of this
Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Entire Agreement. This Agreement embodies the entire understanding
between the parties with respect to the subject matters covered hereby and
supersedes any prior agreement or understanding between the parties with
respect to such matters.
9.2 Modification and Waiver. This Agreement may not be amended nor may any
rights hereunder be waived except by an instrument in writing signed by the
party sought to be charged with such amendment or waiver. The failure of a
party to insist upon adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right
thereafter to insist upon adherence to that term or any other term of this
Agreement.
9.3 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Iowa, without giving effect to the
provisions, policies or principles thereof relating to choice or conflict of
laws.
9.4 Assignability and Successors. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Except as provided
otherwise herein, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
9.5 Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, HTBC and CPNM have each caused this instrument to be
executed as of the day of , 1998.
CABLE/PRINT NETWORK HERE'S THE BEEF CORP.
MARKETING, INC.
By: Beryl J. Wolk, President By:
<PAGE>
EXHIBIT "A"
MARKETING SERVICES
CPNM will provide Multi Media marketing for the Joint Venture as mutually
agrees to by the Board of Directors of the Joint Venture:
* TV -- Production and airing to 20,000,000 households, minimum of 3 times.
Infomercial and/or commercials.
* Licensing of products, services and of independent sales representatives
* CartCade-- test on cart in one of Sales Dynamics licensed sites in 150
regional shopping malls
* Fairs, Festivals and Flea Markets -- via American Vendors Association
* Magazine advertising and tune ads -- 33 potential magazines/20 million +
exposure
* Loyalty marketing via club/association with selected CPNM membership
benefits
* Multi-level marketing opportunities
* College Marketing via National Association of College Marketers
* Advertisements in catalogs
* Sales as a premium
* Sweepstakes, as applicable
* Fax Broadcasting tests (up to 1,000 faxes weekly for five weeks, via Fax
Owners & Users Association)
* Radio -- 180 Radio Stations
* TV Home Shopping Network introductions
* Data Base Marketing
* Internet Test Site
* Family Guide Seal of Approval
* Package Inserts -- based on availability
* "Family Guide" Free Fall Newspaper Inserts, via co-op or sponsor dollars,
when available
* Out bound telemarketing -- 7,000 operators
* Access to our Databases
* E-mail -- 80 million addresses
* ArabNet -- 27 Middle East Countries/40 million Households
* Franchising via Franchise America
EXHIBIT 10.2
PROMISSORY NOTES
<PAGE>
PROMISSORY NOTE
$ 100,000 June 25, 1998
FOR VALUE RECEIVED, the undersigned, RED OAK HEREFORD FARMS, INC., a
Nevada corporation, (herein referred to as the "Maker") promises to pay to
the order of JOHN DERNER of Milford, Iowa (herein referred to as the "Payee")
at Red Oak, Iowa, the principal sum of One Hundred Thousand DOLLARS
($100,000), in lawful money of the United States of America, payable on
demand, with interest thereon from the date of this Note at the rate of nine
percent (9%) per annum on the unpaid principal balance, in lawful money of
the United States of America.
The Maker expressly reserves the right to prepay the entire unpaid
principal balance of this Promissory Note, plus any accrued interest, at any
time and without notice to the Payee hereunder.
No delay on the part of the Payee in the exercise of any right, power
or remedy shall operate as a waiver thereof, and no single or partial exercise
by the Payee of any right, power or remedy shall preclude other or further
exercise thereof or the exercise of any other right, power or remedy. The
acceptance by the Payee hereof of any payment hereunder which is less than
payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of any right, power or remedy without the
express consent of the Payee hereof, except as and to the extent otherwise
provided by law.
Except as otherwise required herein, the Maker, sureties, guarantors
and endorsers expressly waive diligence, presentment, protest, demand,
notice of dishonor or default and notice of any kind with respect to this
Note or the performance of the obligations under this Note. No renewal or
extension of this Note, no acceptance of security for this Note, and no
delay in the enforcement of payment of this Note shall affect the liability
of the Maker, or of any sureties, guarantors and endorsers. The Maker agrees
to pay all costs of collection when incurred, including reasonable attorneys'
fees, in such suit or action.
The Maker hereby grants a security interest to the Payee in all of the
common stock the Maker owns in Here's The Beef Corporation, a Nevada
corporation, for and during the period that there remains an unpaid balance
due upon this Note and, in order to perfect said security interest, Maker
shall endorse, pledge and deliver to the Payee the Here's The Beef
Corporation common stock certificate(s) that the Maker receives in return for
its capital contribution to said corporation
RED OAK HEREFORD FARMS, INC.
By:
Its:
<PAGE>
PROMISSORY NOTE
$ 50,000 June 25, 1998
FOR VALUE RECEIVED, the undersigned, RED OAK HEREFORD FARMS, INC.,
a Nevada corporation, (herein referred to as the "Maker") promises to pay
to the order of JOHN DERNER of Milford, Iowa (herein referred to as the
"Payee") at Red Oak, Iowa, the principal sum of Fiffy Thousand DOLLARS
($50,000), in lawful money of the United States of America, payable on
demand, with interest thereon from the date of this Note at the rate of
nine percent (9%) per annum on the unpaid principal balance, in lawful
money of the United States of America.
The Maker expressly reserves the right to prepay the entire unpaid
principal balance of this Promissory Note, plus any accrued interest, at
any time and without notice to the Payee hereunder.
No delay on the part of the Payee in the exercise of any right,
power or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Payee of any right, power or remedy shall preclude other
or further exercise thereof or the exercise of any other right, power or
remedy. The acceptance by the Payee hereof of any payment hereunder which
is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of any right, power or remedy
without the express consent of the Payee hereof, except as and to the
extent otherwise provided by law.
Except as otherwise required herein, the Maker, sureties,
guarantors and endorsers expressly waive diligence, presentment, protest,
demand, notice of dishonor or default and notice of any kind with respect
to this Note or the performance of the obligations under this Note. No
renewal or extension of this Note, no acceptance of security for this Note,
and no delay in the enforcement of payment of this Note shall affect the
liability of the Maker, or of any sureties, guarantors and endorsers. The
Maker agrees to pay all costs of collection when incurred, including
reasonable attorneys' fees, in such suit or action.
The Maker hereby grants a security interest to the Payee in all of
the common stock the Maker owns in Here's The Beef Corporation, a Nevada
corporation, for and during the period that there remains an unpaid balance
due upon this Note and, in order to perfect said security interest, Maker
shall endorse, pledge and deliver to the Payee the Here's The Beef
Corporation common stock certificate(s) that the Maker receives in return
for its capital contribution to said corporation
RED OAK HEREFORD FARMS, INC.
By:
Its:
EXHIBIT 10.3
KBK LOAN AGREEMENTS
<PAGE>
CERTIFICATE OF SECRETARY
(Guaranty)
The undersigned certifies that I am the Secretary of
RED OAK HEREFORD FARMS, INC., a Nevada corporation (the
"Corporation"), and that as such, I am authorized to execute this
Certificate on behalf of the Corporation.
1. Attached hereto as Exhibit A is a full, true and
correct copy of the Articles of Incorporation of the Corporation,
as amended. There have been no amendments to the Articles of
Incorporation of the Corporation as filed in the office of the
Secretary of State of Nevada since March 17, 1997.
2. Attached hereto as Exhibit B is a true and correct
copy of the Bylaws of the Corporation as in effect on the date
hereof.
IN WITNESS WHEREOF, I executed this Certificate on
April 21, 1998.
___________________________________
Name:
Secretary,
Red Oak Hereford Farms, Inc.
<PAGE>
Exhibit A
Articles of Incorporation
Exhibit B
Bylaws
<PAGE>
CERTIFICATE OF CORPORATE RESOLUTIONS
(AUTHORITY TO OBTAIN FINANCING)
I, the undersigned, hereby certify that I am the Secretary of
RED OAK FARMS INC., a corporation duly organized and existing
under the laws of the State of Iowa (the "Corporation").
I further certify that the following resolutions were duly
adopted by the Board of Directors of the Corporation at a
meeting of the Board of Directors of the Corporation, duly and
legally called and held in accordance with the Articles or
Certificate of Incorporation, as the case may be, and Bylaws of
the Corporation on the ______ day of April, 1998, at which
meeting a quorum was present and voting throughout, or (if the
foregoing date was not completed) pursuant to a written consent
signed by all of the members of the Board of Directors of the
Corporation in accordance with the Articles or Certificate of
Incorporation, as the case may be, and Bylaws of the
Corporation, and that such resolutions are now in full force and
effect and have not been amended, modified or revoked:
"RESOLVED, that each of the following officers and
representatives of this Corporation, acting alone:
SSN Name Title Signature
###-##-#### Gordon Reisinger President
###-##-#### Harley Dillard Vice President
acting alone without the joinder of any other officer or
representative, is hereby authorized in the name and on
behalf of this Corporation (i) to sell and discount with
KBK Financial, Inc. ("KBK") commercial or other business
paper, accounts receivable, contract rights, chattel
paper and general intangibles (collectively, known herein
as "Accounts") owned by this Corporation which are owing
by, made or drawn by or upon third parties, without
limits as to amounts on both a recourse and non-recourse
basis under such terms and conditions as any one of such
officers or representatives may deem necessary or proper,
(ii) to borrow from and to otherwise incur liabilities to
KBK from time to time, in such amounts, for such periods
of time, at such rates of interest and payable in such
manner as such officers may deem necessary or proper, and
(iii) as evidence of the sale of Accounts or any such
indebtedness so incurred, to execute and deliver to KBK
such account transfer and purchase agreements, promissory
notes, loan agreements and other instruments, documents
and agreements, containing such terms and provisions as
may be acceptable or agreeable to any one of such
officers or representatives, such acceptance and
agreement to be conclusively evidenced by the execution
and delivery thereof by any one of such officers or
representatives;
FURTHER RESOLVED, that this Corporation grant to KBK a
lien and/or security interest upon such assets of this
Corporation as may be agreed upon between any one of the
above named officers or representatives and KBK, as
security for all present and future indebtedness,
obligations and liabilities of this Corporation to KBK
and that each of said officers or representatives, acting
alone without the joinder of any other officer or
representative, is hereby authorized in the name and on
behalf of this Corporation to execute and deliver such
security agreements, deeds of trust, mortgages and other
instruments, documents and agreements as may be required
by KBK in connection with each such grant of a lien
and/or security interest and containing such terms and
provisions as may be acceptable or agreeable to any one
of such officers or representatives, such acceptance and
agreement to be conclusively evidenced by the execution
and delivery thereof by any one of such officers or
representatives;
FURTHER RESOLVED, that any one of the above named
officers or representatives, acting alone without the
joinder of any other officer or representative, is hereby
authorized in the name and on behalf of this Corporation
to take such further action and to do all things that any
one of such officers or representatives deems necessary
in connection with any (i) increases, renewals,
extensions, rearrangements, retirements or compromises of
any account transfer and purchase agreement or any
indebtedness, obligations and liabilities owing to KBK
from time to time by this Corporation, (ii) amendments to
any of the provisions contained in any instruments,
documents or agreements evidencing, securing, governing
and/or pertaining to any account transfer and purchase
agreement or any indebtedness, obligations and
liabilities owing to KBK by this Corporation from time to
time, (iii) to sell and assign Accounts to KBK and in
connection therewith to execute any assignments, bills of
sale, schedules, certificates and similar documents, and
(iv) make any requests for advances under any credit
facility that the Corporation may have from time to time
with KBK;
FURTHER RESOLVED, that all acts, transactions or
agreements with KBK undertaken prior to the adoption of
the foregoing resolutions by any one or more of the
officers and/or representatives of this Corporation in
its name and on its behalf in connection with the
foregoing matters are hereby ratified, confirmed and
adopted by this Corporation; and
FURTHER RESOLVED, that each of the officers of this
Corporation is hereby authorized and directed to certify
these resolutions to KBK;
FURTHER RESOLVED, the foregoing resolutions shall
continue in full force and effect, and KBK is authorized
to rely upon the foregoing resolutions unless and until
(i) countermanded by resolution of the Board of Directors
of this Corporation, and (ii) a copy of such resolution,
properly certified by an officer of this Corporation, has
actually been received by KBK."
I further certify that the foregoing resolutions do not conflict
with the Articles or Certificate of Incorporation, as the case
may be, or Bylaws of the Corporation, or any amendments thereto.
I further certify that neither the seal of the Corporation, nor
the attestation by the Secretary, Assistant Secretary or any
other officer of the Corporation, is necessary to make any
instruments, documents or agreements executed by the officers or
representatives of this Corporation pursuant to the foregoing
resolutions, enforceable against the Corporation, unless such
seal is affixed to, or such attestation is provided on, such
instruments, documents or agreements.
I further certify that the officers of the Corporation set forth
above have been duly elected and qualified and as of the date
hereof hold the specified offices with the Corporation, that the
signature set forth beside each officer's name is the true
signature of such officer and that the signature set forth
beside the name of each of the representatives specified in the
foregoing resolutions is the true signature of such
representative.
IN WITNESS WHEREOF, I hereunto subscribe my name this _____ day
of April, 1998.
________________________________________
Secretary
<PAGE>
April 12, 1998
Freezer Services - Fremont
950 S. Schneider Street
PO Box 350
Fremont, Nebraska 68026
Gentlemen:
Pursuant to our financing agreements (the "Agreements")
with KBK Financial, Inc. ("KBK"), we have granted to KBK a
security interest in, among other things: (a) all of our present
and future inventory and farm products, wherever located, and
the proceeds thereof, including without limitation all of our
inventory and farm products which we have heretofore delivered
to you for storage and is now in your possession and any of our
inventory and farm products which we may in the future deliver
to you for storage; and (b) all documents of title representing
any of the foregoing and the proceeds thereof. Such inventory
and farm products includes, without limitation, certain
livestock, livestock products, meat and meat products.
Pursuant to KBK's rights under the Agreements, KBK has
requested and we have agreed to issue to you the following
instructions regarding our inventory and farm products, all of
which instructions may not hereafter be modified or rescinded by
us except with the express written consent of KBK.
With respect to any of our inventory and farm products
hereafter delivered by us to you for storage, you shall issue
therefor only non-negotiable warehouse receipts and such non-
negotiable warehouse receipts shall be issued only in KBK's
name. You shall at no time issue negotiable warehouse receipts
to any party with respect to any of our inventory or farm
products.
Please sign this letter below where provided to indicate
your consent and agreement to all of the foregoing and your
affirmation that:
(a) you have not heretofore issued negotiable warehouse
receipts with respect to any of our inventory or farm products
now in your possession; and
(b) with respect to any of our inventory or farm products
now or hereafter coming into your possession, you shall honor
any subsequent instructions issued to you by KBK as to the
disposition thereof, notwithstanding any instructions to the
contrary which you may receive from us or any third party, and
notwithstanding the fact that non-negotiable warehouse receipts
representing any such inventory or farm products have been
issued by you to us and are in our possession; and
Freezer Services - Fremont
August 12, 1998
Page 2
(c) any security interest, lien, right of distraint or
levy or other encumbrance or claim in your favor, whether for
unpaid slaughter, fabrication, and processing services, or
storage charges or otherwise, that you may now or hereafter have
in any of our inventory or farm products, shall be subject and
subordinate in all respects to any security interest which KBK
may now or hereafter have in any such inventory and farm
products; and
(d) these instructions shall not be modified, amended, or
supplemented without the prior written consent of KBK; and
(e) KBK shall be provided with reasonable access to the
inventory and farm products described above for purposes of
auditing or appraising such inventory and farm products or
exercising its rights and remedies from time to time.
Very truly yours,
RED OAK FARMS, INC.
By:
Title:
AGREED:
FREEZER SERVICES - FREMONT
By:
Title:
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned certifies that I am the Secretary of
RED OAK FARMS, INC., an Iowa corporation (the "Corporation"), and
that as such, I am authorized to execute this Certificate on
behalf of the Corporation.
1. Attached hereto as Exhibit A is a full, true and
correct copy of the Articles of Incorporation of the Corporation.
There have been no amendments to the Articles of Incorporation of
the Corporation.
2. Attached hereto as Exhibit B is a true and correct
copy of the Bylaws of the Corporation as in effect on the date
hereof.
IN WITNESS WHEREOF, I executed this Certificate on
April 21, 1998.
___________________________________
Name:
Secretary,
Red Oak Farms, Inc.
<PAGE>
Exhibit A
Articles of Incorporation
<PAGE>
Exhibit B
Bylaws
<PAGE>
SPECIFIC GUARANTY
THIS SPECIFIC GUARANTY (this "Guaranty") dated the 20th day of
April, 1998, is executed by the undersigned, GORDON M. REISINGER,
an individual, whose address for notice hereunder is 1985 203rd
Street, Red Oak, Iowa 51566 ("Guarantor") in favor of KBK
FINANCIAL, INC., a Delaware corporation, authorized to do
business in Texas, whose address for notice hereunder is 2200
City Center II, 301 Commerce Street, Fort Worth, Texas 76102
("KBK").
1. Obligations. As an inducement to KBK to extend or
continue to extend credit and other financial
accommodations to RED OAK FARMS, INC., an Iowa corporation
("Borrower"), Guarantor, for value received, does hereby
unconditionally and absolutely guarantee the prompt and
full payment and performance of the Guaranteed
Indebtedness when due or declared to be due and at all
times thereafter. The term "Guaranteed Indebtedness"
shall mean (i) all amounts owing by Borrower under that
certain promissory note of even date herewith payable by
Borrower to the order of KBK in the stated principal
amount of $1,500,000 (the "Note"), (ii) all obligations
of Borrower to KBK under any documents evidencing,
securing, governing and/or pertaining to the Note
(collectively, the "Financing Documents"), (iii) all costs
and expenses incurred by KBK in connection with the
collection of all or any part of the indebtedness and
obligations owing by Borrower under the Note and/or any of
the other Financing Documents, or the protection of, or
realization upon, the collateral securing all or any part
of such indebtedness and obligations, and (iv) all
renewals, extensions, modifications and rearrangements of
the indebtedness and obligations owing by Borrower under
the Note and/or the other Financing Documents. This is an
absolute, continuing and unconditional guarantee of
payment and not of collection and if at any time or from
time to time there is no outstanding Guaranteed
Indebtedness, the obligations of Guarantor with respect to
any and all Guaranteed Indebtedness incurred thereafter
shall not be affected. This Guaranty and the Guarantor's
obligations hereunder are irrevocable and, in the event of
Guarantor's death, shall be binding upon Guarantor's
estate pursuant to paragraph 8 herein. All of the
Guaranteed Indebtedness shall be conclusively presumed to
have been made or acquired in acceptance hereof.
Guarantor shall be liable, jointly and severally, with
Borrower and any other guarantor of all or any part of the
Guaranteed Indebtedness.
2. Representations and Warranties. Guarantor hereby
represents and warrants the following to KBK:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and (i) if
Guarantor is a corporation, the Board of Directors
of Guarantor has determined that this Guaranty may
reasonably be expected to benefit, directly or
indirectly, Guarantor, or (ii) if Guarantor is a
partnership, the requisite number of its partners
have determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly,
Guarantor; and
(b) Guarantor has adequate means to obtain from Borrower
on a continuing basis information concerning the
financial condition of Borrower and Guarantor is not
relying on KBK to provide such information to
Guarantor either now or in the future; and
(c) Guarantor has the power and authority to execute,
deliver and perform this Guaranty and any other
agreements executed by Guarantor contemporaneously
herewith, and the execution, delivery and
performance of this Guaranty and any other
agreements executed by Guarantor contemporaneously
herewith do not and will not violate (i) any
agreement or instrument to which Guarantor is a
party, (ii) any law, rule, regulation or order of
any governmental authority to which Guarantor is
subject, or (iii) its articles or certificate of
incorporation or bylaws, if Guarantor is a
corporation, or its partnership agreement, if
Guarantor is a partnership; and
(d) Neither KBK nor any other party has made any
representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this
Guaranty; and
(e) The financial statements and other financial
information regarding Guarantor heretofore and
hereafter delivered to KBK are and shall be true and
correct in all material respects and fairly present
the financial position of Guarantor as of the dates
thereof, and no material adverse change has occurred
in the financial condition of Guarantor reflected in
the financial statements and other financial
information regarding Guarantor heretofore delivered
to KBK since the date of the last statement thereof;
and
(f) As of the date hereof, and after giving effect to
this Guaranty and the obligations evidenced hereby,
(i) Guarantor is and will be solvent, (ii) the fair
saleable value of Guarantor's assets exceeds and
will continue to exceed its liabilities (both fixed
and contingent), (iii) Guarantor is and will
continue to be able to pay its debts as they mature,
and (iv) if Guarantor is not an individual,
Guarantor has and will continue to have sufficient
capital to carry on its business and all businesses
in which it is about to engage; and
(g) Guarantor acknowledges that, in consideration for
its execution, delivery and performance of this
Guaranty, Guarantor has received "reasonably
equivalent in value" within the meaning of the
Uniform Fraudulent Transfer Act set forth in Chapter
24 of the Texas Business and Commerce Code, and
Section 548 of the United States Bankruptcy Code, as
amended; and
(h) Except as may be set out on any exhibit attached
hereto, (i) there are no legal proceedings, material
claims or demands pending or, to the knowledge of
Guarantor, threatened against Guarantor or any of
Guarantor's assets, (ii) Guarantor is not in
material breach or material default of any legal
requirement; and (iii) no event has occurred which,
with a lapse of time or action by a third party,
could result in Guarantor's material breach or
material default under any legal requirement.
3. Covenants. Guarantor hereby covenants and agrees with KBK
as follows:
(a) Guarantor shall not, so long as its obligations
under this Guaranty continue, transfer or pledge any
material portion of its assets for less than full
and adequate consideration; and
(b) Guarantor shall promptly furnish to KBK at any time
and from time to time such financial statements and
other financial information of Guarantor as the KBK
may require, in form and substance satisfactory to
KBK (including, without limitation, annual financial
statements within 45 days after the end of each
calendar year); and
(c) Guarantor shall promptly inform KBK of (i)_any
litigation or governmental investigation against
Guarantor or affecting any security for all or any
part of the Guaranteed Indebtedness or this Guaranty
which, if determined adversely, might have a
material adverse effect upon the financial condition
of Guarantor or upon such security or might cause a
default under any of the Loan Documents, (ii)_any
claim or controversy which might become the subject
of such litigation or governmental investigation,
and (iii)_any material adverse change in the
financial condition of Guarantor; and
(d) Guarantor hereby subordinates all indebtedness now
or hereafter owing by Borrower to Guarantor to the
Guaranteed Indebtedness.
4. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and
notice of acceptance of this Guaranty and notice of
the incurring of any obligation, indebtedness or
liability to which this Guaranty applies or may
apply and waives presentment for payment, notice of
nonpayment, protest, demand, notice of protest,
notice of intent to accelerate, notice of
acceleration, notice of dishonor, diligence in
enforcement and indulgences of every kind, and (ii)
the taking of any other action by KBK, including
without limitation giving any notice of default or
any other notice to, or making any demand on,
Borrower, any other guarantor of all or any part of
the Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or
any requirements imposed by, Chapter 34 of the Texas
Business and Commerce Code, as in effect on the date
of this Guaranty or as it may be amended from time
to time and waives all other notices to which
Guarantor may be entitled.
(c) KBK may at any time, without the consent of or
notice to Guarantor, without incurring
responsibility to Guarantor and without impairing,
releasing, reducing or affecting the obligations of
Guarantor hereunder: (i) change the manner, place or
terms of payment of all or any part of the
Guaranteed Indebtedness, or renew, extend, modify,
rearrange or alter all or any part of the Guaranteed
Indebtedness; (ii) change the interest rate accruing
on any of the Guaranteed Indebtedness (including,
without limitation, any periodic change in such
interest rate that occurs because such Guaranteed
Indebtedness accrues interest at a variable rate
which may fluctuate from time to time); (iii) sell,
exchange, release, surrender, subordinate, realize
upon or otherwise deal with in any manner and in any
order any collateral for all or any part of the
Guaranteed Indebtedness or this Guaranty or setoff
against all or any part of the Guaranteed
Indebtedness; (iv) neglect, delay, omit, fail or
refuse to take or prosecute any action for the
collection of all or any part of the Guaranteed
Indebtedness or this Guaranty or to take or
prosecute any action in connection with any of the
Loan Documents; (v) exercise or refrain from
exercising any rights against Borrower or others, or
otherwise act or refrain from acting; (vi) settle or
compromise all or any part of the Guaranteed
Indebtedness and subordinate the payment of all or
any part of the Guaranteed Indebtedness to the
payment of any obligations, indebtedness or
liabilities which may be due or become due to KBK or
others; (vii) apply any payment, collections through
process of law or otherwise or other collateral of
Borrower to the satisfaction and liquidation of the
indebtedness or obligations of Borrower to KBK not
guaranteed under this Guaranty; and (viii) apply any
sums paid to KBK by Guarantor, Borrower or others to
the Guaranteed Indebtedness in such order and manner
as KBK, in its sole discretion, may determine.
(d) Should KBK seek to enforce the obligations of
Guarantor hereunder by action in any court or
otherwise, Guarantor waives any requirement,
substantive or procedural, that (i) KBK first
enforce any rights or remedies against Borrower or
any other person or entity liable to KBK for all or
any part of the Guaranteed Indebtedness, including
without limitation that a judgment first be rendered
against Borrower or any other person or entity, or
that Borrower or any other person or entity should
be joined in such cause, or (ii) KBK first enforce
rights against any collateral which shall ever have
been given to secure all or any part of the
Guaranteed Indebtedness or this Guaranty. Such
waiver shall be without prejudice to KBK's right, at
its option, to proceed against Borrower or any other
person or entity, whether by separate action or by
joinder.
(e) In addition to any other waivers, agreements and
covenants of Guarantor set forth herein, Guarantor
hereby further waives and releases all claims,
causes of action, defenses and offsets for any act
or omission of KBK, its directors, officers,
employees, representatives or agents in connection
with KBK's administration of the Guaranteed
Indebtedness, except for KBK's willful misconduct
and gross negligence.
5. Obligations Not Impaired.
(a) Guarantor agrees that its obligations hereunder
shall not be released, diminished, impaired, reduced
or affected by the occurrence of any one or more of
the following events: (i) the death, disability or
lack of corporate power of Borrower, Guarantor
(except as provided in paragraph 8 herein) or any
other guarantor of all or any part of the Guaranteed
Indebtedness, (ii) any receivership, insolvency,
bankruptcy or other proceedings affecting Borrower,
Guarantor or any other guarantor of all or any part
of the Guaranteed Indebtedness, or any of their
respective property; (iii) the partial or total
release or discharge of Borrower or any other
guarantor of all or any part of the Guaranteed
Indebtedness, or any other person or entity from the
performance of any obligation contained in any
instrument or agreement evidencing, governing or
securing all or any part of the Guaranteed
Indebtedness, whether occurring by reason of law or
otherwise; (iv) the taking or accepting of any
collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty; (v) the taking or
accepting of any other guaranty for all or any part
of the Guaranteed Indebtedness; (vi) any failure by
KBK to acquire, perfect or continue any lien or
security interest on collateral securing all or any
part of the Guaranteed Indebtedness or this
Guaranty; (vii) the impairment of any collateral
securing all or any part of the Guaranteed
Indebtedness or this Guaranty; (viii) any failure by
KBK to sell any collateral securing all or any part
of the Guaranteed Indebtedness or this Guaranty in a
commercially reasonable manner or as otherwise
required by law; (ix) any invalidity or
unenforceability of or defect or deficiency in any
of the Loan Documents; or (x) any other circumstance
which might otherwise constitute a defense available
to, or discharge of, Borrower or any other guarantor
of all or any part of the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any
payment of all or any part of the Guaranteed
Indebtedness is rescinded or must otherwise be
returned by KBK upon the insolvency, bankruptcy or
reorganization of Borrower, Guarantor, any other
guarantor of all or any part of the Guaranteed
Indebtedness, or otherwise, all as though such
payment had not been made.
(c) Guarantor agrees that its obligations hereunder
shall not be released, diminished, impaired, reduced
or affected by the existence of any other guaranty
or the payment by any other guarantor of all or any
part of the Guaranteed Indebtedness.
(d) Guarantor's obligations hereunder shall not be
released, diminished, impaired, reduced or affected
by, nor shall any provision contained herein be
deemed to be a limitation upon, the amount of credit
which KBK may extend to Borrower, the number of
transactions between KBK and Borrower, payments by
Borrower to KBK or KBK's allocation of payments by
Borrower.
(e) In the event Borrower is a corporation or
partnership, none of the following shall affect
Guarantor's liability hereunder: (i) the
unenforceability of all or any part of the
Guaranteed Indebtedness against Borrower by reason
of the fact that the Guaranteed Indebtedness exceeds
the amount permitted by law; (ii) the act of
creating all or any part of the Guaranteed
Indebtedness is ultra vires; or (iii) the officers
or partners creating all or any part of the
Guaranteed Indebtedness acted in excess of their
authority. Guarantor hereby acknowledges that
withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held
by Guarantor shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
6. Actions against Guarantor. In the event of a default in
the payment or performance of all or any part of the
Guaranteed Indebtedness when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall pay the amount due thereon to
KBK, in lawful money of the United States, at KBK's
address set forth above within 5 days after demand thereof
by KBK. One or more successive or concurrent actions may
be brought against Guarantor, either in the same action in
which Borrower is sued or in separate actions, as often as
KBK deems advisable. The exercise by KBK of any right or
remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not
preclude concurrent or subsequent exercise of any other
right or remedy. The books and records of KBK shall be
admissible in evidence in any action or proceeding
involving this Guaranty and shall be prima facie evidence
of the payments made on, and the outstanding balance of,
the Guaranteed Indebtedness.
7. Payment by Guarantor. Whenever Guarantor pays any sum
which is or may become due under this Guaranty, written
notice must be delivered to KBK contemporaneously with
such payment. In the absence of such notice to KBK by
Guarantor in compliance with the provisions hereof, any
sums received by KBK on account of the Guaranteed
Indebtedness shall be conclusively deemed paid by
Borrower.
8. Death of Guarantor. In the event of the death of
Guarantor, the obligations of the deceased Guarantor under
this Guaranty shall continue as an obligation against
Guarantor's estate as to (a) all of the Guaranteed
Indebtedness that is outstanding on the date of
Guarantor's death, and any renewals or extensions thereof,
and (b) all loans, advances and other extensions of credit
made to or for the account of Borrower on or after the
date of Guarantor's death pursuant to an obligation of KBK
under a commitment or agreement described in paragraph 1
above and made to or with Borrower prior to the date of
Guarantor's death. The terms and conditions of this
Guaranty, including without limitation the consents and
waivers set forth in paragraph 4 hereof, shall remain in
effect with respect to the Guaranteed Indebtedness
described in the preceding sentence in the same manner as
if Guarantor had not died.
9. Notice of Sale. In the event that Guarantor is entitled
to receive any notice under the Uniform Commercial Code,
as it exists in the state governing any such notice, of
the sale or other disposition of any collateral securing
all or any part of the Guaranteed Indebtedness or this
Guaranty, reasonable notice shall be deemed given when
such notice is deposited in the United States mail,
postage prepaid, at the address for Guarantor set forth on
the first page of this Guaranty, five (5) days prior to
the date any public sale, or after which any private sale,
of any such collateral is to be held; provided, however,
that notice given in any other reasonable manner or at any
other reasonable time shall be sufficient.
10. Waiver by KBK. No delay on the part of KBK in exercising
any right hereunder or failure to exercise the same shall
operate as a waiver of such right. In no event shall any
waiver of the provisions of this Guaranty be effective
unless the same be in writing and signed by an officer of
KBK, and then only in the specific instance and for the
purpose given.
11. Successors and Assigns. This Guaranty is for the benefit
of KBK, its successors and assigns, and in the event of an
assignment by KBK of the Guaranteed Indebtedness, or any
part thereof, the rights and benefits hereunder shall be
transferred with such indebtedness. This Guaranty is
binding upon Guarantor and Guarantor's heirs, executors,
administrators, personal representatives and successors,
including without limitation any person or entity
obligated by operation of law upon the reorganization,
merger, consolidation or other change in the
organizational structure of Guarantor.
12. Costs and Expenses. Guarantor shall pay on demand by KBK
all costs and expenses, including without limitation all
reasonable attorneys' fees, incurred by KBK in connection
with the enforcement and/or collection of this Guaranty.
This covenant shall survive the payment of the Guaranteed
Indebtedness.
13. Severability. If any provision of this Guaranty is held
by a court of competent jurisdiction to be illegal,
invalid or unenforceable under present or future laws,
such provision shall be fully severable, shall not impair
or invalidate the remainder of this Guaranty and the
effect thereof shall be confined to the provision held to
be illegal, invalid or unenforceable.
14. No Obligation. Nothing contained herein shall be
construed as an obligation on the part of KBK to extend or
continue to extend credit to Borrower.
15. Amendment. No modification or amendment of any provision
of this Guaranty, nor consent to any departure by
Guarantor therefrom, shall be effective unless the same
shall be in writing and signed by an officer of KBK, and
then shall be effective only in the specific instance and
for the purpose for which given.
16. Cumulative Rights. All rights and remedies of KBK
hereunder are cumulative of each other and of every other
right or remedy which KBK may otherwise have at law or in
equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall
not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
17. Governing Law; Venue; Submission to Jurisdiction. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS
GUARANTY IS PERFORMABLE IN TARRANT COUNTY, TEXAS.
GUARANTOR AGREES THAT TARRANT COUNTY, TEXAS SHALL BE THE
EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH
COUNTY IS A CONVENEINT FORUM IN WHICH TO DECIDE ANY SUCH
DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH
DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
18. Compliance with Applicable Usury Laws. Notwithstanding
any other provision of this Guaranty or of any instrument
or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness, Guarantor and KBK by
its acceptance hereof agree that Guarantor shall never be
required or obligated to pay interest in excess of the
maximum nonusurious interest rate as may be authorized by
applicable law for the written contracts which constitute
the Guaranteed Indebtedness. It is the intention of
Guarantor and KBK to conform strictly to the applicable
laws which limit interest rates, and any of the aforesaid
contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the
maximum nonusurious interest rate allowed under said law.
19. Descriptive Headings. The headings in this Guaranty are
for convenience only and shall not define or limit the
provisions hereof.
20. Gender. Within this Guaranty, words of any gender shall
be held and construed to include the other gender.
21. Notices. All notices hereunder shall be in writing and
shall be personally delivered or sent by registered or
certified mail, return receipt requested, to the address
for KBK and Guarantor set forth on the first page of this
Guaranty. KBK and Guarantor may, by proper written notice
hereunder, change the address to which notices may be sent
thereafter to such party.
22. Entire Agreement. This Guaranty contains the entire
agreement between Guarantor and KBK regarding the subject
matter hereof and supersedes all prior written and oral
agreements and understandings, if any, regarding same;
provided, however, this Guaranty is in addition to and
does not replace, cancel, modify or affect any other
guaranty of Guarantor now or hereafter held by KBK that
relates to Borrower or any other person or entity.
23. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT
GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY
TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
24. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY
NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED AND EFFECTIVE as of the date first set forth above.
GUARANTOR:
GORDON M. REISINGER
<PAGE>
SPECIFIC GUARANTY
THIS SPECIFIC GUARANTY (this "Guaranty") dated the 20th day of
April, 1998, is executed by the undersigned, RED OAK HEREFORD
FARMS, INC., a Nevada corporation, whose address for notice
hereunder is 2010 Commerce Drive, Red Oak, Iowa 51566 ("Guarantor")
in favor of KBK FINANCIAL, INC., a Delaware corporation, authorized
to do business in Texas, whose address for notice hereunder is 2200
City Center II, 301 Commerce Street, Fort Worth, Texas 76102
("KBK").
1. Obligations. As an inducement to KBK to extend or continue
to extend credit and other financial accommodations to RED
OAK FARMS, INC., an Iowa corporation ("Borrower"),
Guarantor, for value received, does hereby unconditionally
and absolutely guarantee the prompt and full payment and
performance of the Guaranteed Indebtedness when due or
declared to be due and at all times thereafter. The term
"Guaranteed Indebtedness" shall mean (i) all amounts owing
by Borrower under that certain promissory note of even date
herewith payable by Borrower to the order of KBK in the
stated principal amount of $1,500,000 (the "Note"), (ii)
all obligations of Borrower to KBK under any documents
evidencing, securing, governing and/or pertaining to the
Note (collectively, the "Financing Documents"), (iii) all
costs and expenses incurred by KBK in connection with the
collection of all or any part of the indebtedness and
obligations owing by Borrower under the Note and/or any of
the other Financing Documents, or the protection of, or
realization upon, the collateral securing all or any part
of such indebtedness and obligations, and (iv) all
renewals, extensions, modifications and rearrangements of
the indebtedness and obligations owing by Borrower under
the Note and/or the other Financing Documents. This is an
absolute, continuing and unconditional guarantee of payment
and not of collection and if at any time or from time to
time there is no outstanding Guaranteed Indebtedness, the
obligations of Guarantor with respect to any and all
Guaranteed Indebtedness incurred thereafter shall not be
affected. This Guaranty and the Guarantor's obligations
hereunder are irrevocable and, in the event of Guarantor's
death, shall be binding upon Guarantor's estate pursuant to
paragraph 8 herein. All of the Guaranteed Indebtedness
shall be conclusively presumed to have been made or
acquired in acceptance hereof. Guarantor shall be liable,
jointly and severally, with Borrower and any other
guarantor of all or any part of the Guaranteed
Indebtedness.
2. Representations and Warranties. Guarantor hereby
represents and warrants the following to KBK:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and (i) if
Guarantor is a corporation, the Board of Directors of
Guarantor has determined that this Guaranty may
reasonably be expected to benefit, directly or
indirectly, Guarantor, or (ii) if Guarantor is a
partnership, the requisite number of its partners have
determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly,
Guarantor; and
(b) Guarantor has adequate means to obtain from Borrower
on a continuing basis information concerning the
financial condition of Borrower and Guarantor is not
relying on KBK to provide such information to
Guarantor either now or in the future; and
(c) Guarantor has the power and authority to execute,
deliver and perform this Guaranty and any other
agreements executed by Guarantor contemporaneously
herewith, and the execution, delivery and performance
of this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith do not and will
not violate (i) any agreement or instrument to which
Guarantor is a party, (ii) any law, rule, regulation
or order of any governmental authority to which
Guarantor is subject, or (iii) its articles or
certificate of incorporation or bylaws, if Guarantor
is a corporation, or its partnership agreement, if
Guarantor is a partnership; and
(d) Neither KBK nor any other party has made any
representation, warranty or statement to Guarantor in
order to induce Guarantor to execute this Guaranty;
and
(e) The financial statements and other financial
information regarding Guarantor heretofore and
hereafter delivered to KBK are and shall be true and
correct in all material respects and fairly present
the financial position of Guarantor as of the dates
thereof, and no material adverse change has occurred
in the financial condition of Guarantor reflected in
the financial statements and other financial
information regarding Guarantor heretofore delivered
to KBK since the date of the last statement thereof;
and
(f) As of the date hereof, and after giving effect to this
Guaranty and the obligations evidenced hereby, (i)
Guarantor is and will be solvent, (ii) the fair
saleable value of Guarantor's assets exceeds and will
continue to exceed its liabilities (both fixed and
contingent), (iii) Guarantor is and will continue to
be able to pay its debts as they mature, and (iv) if
Guarantor is not an individual, Guarantor has and will
continue to have sufficient capital to carry on its
business and all businesses in which it is about to
engage; and
(g) Guarantor acknowledges that, in consideration for its
execution, delivery and performance of this Guaranty,
Guarantor has received "reasonably equivalent in
value" within the meaning of the Uniform Fraudulent
Transfer Act set forth in Chapter 24 of the Texas
Business and Commerce Code, and Section 548 of the
United States Bankruptcy Code, as amended; and
(h) Except as may be set out on any exhibit attached
hereto, (i) there are no legal proceedings, material
claims or demands pending or, to the knowledge of
Guarantor, threatened against Guarantor or any of
Guarantor's assets, (ii) Guarantor is not in material
breach or material default of any legal requirement;
and (iii) no event has occurred which, with a lapse of
time or action by a third party, could result in
Guarantor's material breach or material default under
any legal requirement.
3. Covenants. Guarantor hereby covenants and agrees with KBK
as follows:
(a) Guarantor shall not, so long as its obligations under
this Guaranty continue, transfer or pledge any
material portion of its assets for less than full and
adequate consideration; and
(b) Guarantor shall promptly furnish to KBK at any time
and from time to time such financial statements and
other financial information of Guarantor as the KBK
may require, in form and substance satisfactory to KBK
(including, without limitation, annual financial
statements within 45 days after the end of each
calendar year); and
(c) Guarantor shall promptly inform KBK of (i) any
litigation or governmental investigation against
Guarantor or affecting any security for all or any
part of the Guaranteed Indebtedness or this Guaranty
which, if determined adversely, might have a material
adverse effect upon the financial condition of
Guarantor or upon such security or might cause a
default under any of the Loan Documents, (ii) any
claim or controversy which might become the subject of
such litigation or governmental investigation, and
(iii) any material adverse change in the financial
condition of Guarantor; and
(d) Guarantor hereby subordinates all indebtedness now or
hereafter owing by Borrower to Guarantor to the
Guaranteed Indebtedness.
4. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and notice
of acceptance of this Guaranty and notice of the
incurring of any obligation, indebtedness or liability
to which this Guaranty applies or may apply and waives
presentment for payment, notice of nonpayment,
protest, demand, notice of protest, notice of intent
to accelerate, notice of acceleration, notice of
dishonor, diligence in enforcement and indulgences of
every kind, and (ii) the taking of any other action by
KBK, including without limitation giving any notice of
default or any other notice to, or making any demand
on, Borrower, any other guarantor of all or any part
of the Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or
any requirements imposed by, Chapter 34 of the Texas
Business and Commerce Code, as in effect on the date
of this Guaranty or as it may be amended from time to
time and waives all other notices to which Guarantor
may be entitled.
(c) KBK may at any time, without the consent of or notice
to Guarantor, without incurring responsibility to
Guarantor and without impairing, releasing, reducing
or affecting the obligations of Guarantor hereunder:
(i) change the manner, place or terms of payment of
all or any part of the Guaranteed Indebtedness, or
renew, extend, modify, rearrange or alter all or any
part of the Guaranteed Indebtedness; (ii) change the
interest rate accruing on any of the Guaranteed
Indebtedness (including, without limitation, any
periodic change in such interest rate that occurs
because such Guaranteed Indebtedness accrues interest
at a variable rate which may fluctuate from time to
time); (iii) sell, exchange, release, surrender,
subordinate, realize upon or otherwise deal with in
any manner and in any order any collateral for all or
any part of the Guaranteed Indebtedness or this
Guaranty or setoff against all or any part of the
Guaranteed Indebtedness; (iv) neglect, delay, omit,
fail or refuse to take or prosecute any action for the
collection of all or any part of the Guaranteed
Indebtedness or this Guaranty or to take or prosecute
any action in connection with any of the Loan
Documents; (v) exercise or refrain from exercising any
rights against Borrower or others, or otherwise act or
refrain from acting; (vi) settle or compromise all or
any part of the Guaranteed Indebtedness and
subordinate the payment of all or any part of the
Guaranteed Indebtedness to the payment of any
obligations, indebtedness or liabilities which may be
due or become due to KBK or others; (vii) apply any
payment, collections through process of law or
otherwise or other collateral of Borrower to the
satisfaction and liquidation of the indebtedness or
obligations of Borrower to KBK not guaranteed under
this Guaranty; and (viii) apply any sums paid to KBK
by Guarantor, Borrower or others to the Guaranteed
Indebtedness in such order and manner as KBK, in its
sole discretion, may determine.
(d) Should KBK seek to enforce the obligations of
Guarantor hereunder by action in any court or
otherwise, Guarantor waives any requirement,
substantive or procedural, that (i) KBK first enforce
any rights or remedies against Borrower or any other
person or entity liable to KBK for all or any part of
the Guaranteed Indebtedness, including without
limitation that a judgment first be rendered against
Borrower or any other person or entity, or that
Borrower or any other person or entity should be
joined in such cause, or (ii) KBK first enforce rights
against any collateral which shall ever have been
given to secure all or any part of the Guaranteed
Indebtedness or this Guaranty. Such waiver shall be
without prejudice to KBK's right, at its option, to
proceed against Borrower or any other person or
entity, whether by separate action or by joinder.
(e) In addition to any other waivers, agreements and
covenants of Guarantor set forth herein, Guarantor
hereby further waives and releases all claims, causes
of action, defenses and offsets for any act or
omission of KBK, its directors, officers, employees,
representatives or agents in connection with KBK's
administration of the Guaranteed Indebtedness, except
for KBK's willful misconduct and gross negligence.
5. Obligations Not Impaired.
(a) Guarantor agrees that its obligations hereunder shall
not be released, diminished, impaired, reduced or
affected by the occurrence of any one or more of the
following events: (i) the death, disability or lack of
corporate power of Borrower, Guarantor (except as
provided in paragraph 8 herein) or any other guarantor
of all or any part of the Guaranteed Indebtedness,
(ii) any receivership, insolvency, bankruptcy or other
proceedings affecting Borrower, Guarantor or any other
guarantor of all or any part of the Guaranteed
Indebtedness, or any of their respective property;
(iii) the partial or total release or discharge of
Borrower or any other guarantor of all or any part of
the Guaranteed Indebtedness, or any other person or
entity from the performance of any obligation
contained in any instrument or agreement evidencing,
governing or securing all or any part of the
Guaranteed Indebtedness, whether occurring by reason
of law or otherwise; (iv) the taking or accepting of
any collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty; (v) the taking or
accepting of any other guaranty for all or any part of
the Guaranteed Indebtedness; (vi) any failure by KBK
to acquire, perfect or continue any lien or security
interest on collateral securing all or any part of the
Guaranteed Indebtedness or this Guaranty; (vii) the
impairment of any collateral securing all or any part
of the Guaranteed Indebtedness or this Guaranty;
(viii) any failure by KBK to sell any collateral
securing all or any part of the Guaranteed
Indebtedness or this Guaranty in a commercially
reasonable manner or as otherwise required by law;
(ix) any invalidity or unenforceability of or defect
or deficiency in any of the Loan Documents; or (x) any
other circumstance which might otherwise constitute a
defense available to, or discharge of, Borrower or any
other guarantor of all or any part of the Guaranteed
Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any
payment of all or any part of the Guaranteed
Indebtedness is rescinded or must otherwise be
returned by KBK upon the insolvency, bankruptcy or
reorganization of Borrower, Guarantor, any other
guarantor of all or any part of the Guaranteed
Indebtedness, or otherwise, all as though such payment
had not been made.
(c) Guarantor agrees that its obligations hereunder shall
not be released, diminished, impaired, reduced or
affected by the existence of any other guaranty or the
payment by any other guarantor of all or any part of
the Guaranteed Indebtedness.
(d) Guarantor's obligations hereunder shall not be
released, diminished, impaired, reduced or affected
by, nor shall any provision contained herein be deemed
to be a limitation upon, the amount of credit which
KBK may extend to Borrower, the number of transactions
between KBK and Borrower, payments by Borrower to KBK
or KBK's allocation of payments by Borrower.
(e) In the event Borrower is a corporation or partnership,
none of the following shall affect Guarantor's
liability hereunder: (i) the unenforceability of all
or any part of the Guaranteed Indebtedness against
Borrower by reason of the fact that the Guaranteed
Indebtedness exceeds the amount permitted by law; (ii)
the act of creating all or any part of the Guaranteed
Indebtedness is ultra vires; or (iii) the officers or
partners creating all or any part of the Guaranteed
Indebtedness acted in excess of their authority.
Guarantor hereby acknowledges that withdrawal from, or
termination of, any ownership interest in Borrower now
or hereafter owned or held by Guarantor shall not
alter, affect or in any way limit the obligations of
Guarantor hereunder.
6. Actions against Guarantor. In the event of a default in
the payment or performance of all or any part of the
Guaranteed Indebtedness when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall pay the amount due thereon to
KBK, in lawful money of the United States, at KBK's address
set forth above within 5 days after demand thereof by KBK.
One or more successive or concurrent actions may be brought
against Guarantor, either in the same action in which
Borrower is sued or in separate actions, as often as KBK
deems advisable. The exercise by KBK of any right or
remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not
preclude concurrent or subsequent exercise of any other
right or remedy. The books and records of KBK shall be
admissible in evidence in any action or proceeding
involving this Guaranty and shall be prima facie evidence
of the payments made on, and the outstanding balance of,
the Guaranteed Indebtedness.
7. Payment by Guarantor. Whenever Guarantor pays any sum
which is or may become due under this Guaranty, written
notice must be delivered to KBK contemporaneously with such
payment. In the absence of such notice to KBK by Guarantor
in compliance with the provisions hereof, any sums received
by KBK on account of the Guaranteed Indebtedness shall be
conclusively deemed paid by Borrower.
8. Death of Guarantor. In the event of the death of
Guarantor, the obligations of the deceased Guarantor under
this Guaranty shall continue as an obligation against
Guarantor's estate as to (a) all of the Guaranteed
Indebtedness that is outstanding on the date of Guarantor's
death, and any renewals or extensions thereof, and (b) all
loans, advances and other extensions of credit made to or
for the account of Borrower on or after the date of
Guarantor's death pursuant to an obligation of KBK under a
commitment or agreement described in paragraph 1 above and
made to or with Borrower prior to the date of Guarantor's
death. The terms and conditions of this Guaranty,
including without limitation the consents and waivers set
forth in paragraph 4 hereof, shall remain in effect with
respect to the Guaranteed Indebtedness described in the
preceding sentence in the same manner as if Guarantor had
not died.
9. Notice of Sale. In the event that Guarantor is entitled to
receive any notice under the Uniform Commercial Code, as it
exists in the state governing any such notice, of the sale
or other disposition of any collateral securing all or any
part of the Guaranteed Indebtedness or this Guaranty,
reasonable notice shall be deemed given when such notice is
deposited in the United States mail, postage prepaid, at
the address for Guarantor set forth on the first page of
this Guaranty, five (5) days prior to the date any public
sale, or after which any private sale, of any such
collateral is to be held; provided, however, that notice
given in any other reasonable manner or at any other
reasonable time shall be sufficient.
10. Waiver by KBK. No delay on the part of KBK in exercising
any right hereunder or failure to exercise the same shall
operate as a waiver of such right. In no event shall any
waiver of the provisions of this Guaranty be effective
unless the same be in writing and signed by an officer of
KBK, and then only in the specific instance and for the
purpose given.
11. Successors and Assigns. This Guaranty is for the benefit
of KBK, its successors and assigns, and in the event of an
assignment by KBK of the Guaranteed Indebtedness, or any
part thereof, the rights and benefits hereunder shall be
transferred with such indebtedness. This Guaranty is
binding upon Guarantor and Guarantor's heirs, executors,
administrators, personal representatives and successors,
including without limitation any person or entity obligated
by operation of law upon the reorganization, merger,
consolidation or other change in the organizational
structure of Guarantor.
12. Costs and Expenses. Guarantor shall pay on demand by KBK
all costs and expenses, including without limitation all
reasonable attorneys' fees, incurred by KBK in connection
with the enforcement and/or collection of this Guaranty.
This covenant shall survive the payment of the Guaranteed
Indebtedness.
13. Severability. If any provision of this Guaranty is held by
a court of competent jurisdiction to be illegal, invalid or
unenforceable under present or future laws, such provision
shall be fully severable, shall not impair or invalidate
the remainder of this Guaranty and the effect thereof shall
be confined to the provision held to be illegal, invalid or
unenforceable.
14. No Obligation. Nothing contained herein shall be construed
as an obligation on the part of KBK to extend or continue
to extend credit to Borrower.
15. Amendment. No modification or amendment of any provision
of this Guaranty, nor consent to any departure by Guarantor
therefrom, shall be effective unless the same shall be in
writing and signed by an officer of KBK, and then shall be
effective only in the specific instance and for the purpose
for which given.
16. Cumulative Rights. All rights and remedies of KBK
hereunder are cumulative of each other and of every other
right or remedy which KBK may otherwise have at law or in
equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall
not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
17. Governing Law; Venue; Submission to Jurisdiction. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS
GUARANTY IS PERFORMABLE IN TARRANT COUNTY, TEXAS.
GUARANTOR AGREES THAT TARRANT COUNTY, TEXAS SHALL BE THE
EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH
COUNTY IS A CONVENEINT FORUM IN WHICH TO DECIDE ANY SUCH
DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH
DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
18. Compliance with Applicable Usury Laws. Notwithstanding any
other provision of this Guaranty or of any instrument or
agreement evidencing, governing or securing all or any part
of the Guaranteed Indebtedness, Guarantor and KBK by its
acceptance hereof agree that Guarantor shall never be
required or obligated to pay interest in excess of the
maximum nonusurious interest rate as may be authorized by
applicable law for the written contracts which constitute
the Guaranteed Indebtedness. It is the intention of
Guarantor and KBK to conform strictly to the applicable
laws which limit interest rates, and any of the aforesaid
contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the
maximum nonusurious interest rate allowed under said law.
19. Descriptive Headings. The headings in this Guaranty are
for convenience only and shall not define or limit the
provisions hereof.
20. Gender. Within this Guaranty, words of any gender shall be
held and construed to include the other gender.
21. Notices. All notices hereunder shall be in writing and
shall be personally delivered or sent by registered or
certified mail, return receipt requested, to the address
for KBK and Guarantor set forth on the first page of this
Guaranty. KBK and Guarantor may, by proper written notice
hereunder, change the address to which notices may be sent
thereafter to such party.
22. Entire Agreement. This Guaranty contains the entire
agreement between Guarantor and KBK regarding the subject
matter hereof and supersedes all prior written and oral
agreements and understandings, if any, regarding same;
provided, however, this Guaranty is in addition to and does
not replace, cancel, modify or affect any other guaranty of
Guarantor now or hereafter held by KBK that relates to
Borrower or any other person or entity.
23. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT GUARANTOR
MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
24. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO
THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED AND EFFECTIVE as of the date first set forth above.
GUARANTOR:
RED OAK HEREFORD FARMS, INC.,
a Nevada corporation
By:
Print Name:
Title:
<PAGE>
RELEASE OF SECURITY INTEREST AND SUBORDINATION AGREEMENT
(Debt and Liens)
This Release of Security Interest and Subordination Agreement
is made and entered into as of the 21st day of April, 1998, by and
between KBK FINANCIAL, INC. ("KBK") and Department of Economic
Development of the State of Iowa ("Creditor") and is to witness the
following:
A. KBK and Red Oak Farms, Inc., an Iowa corporation ("Client"),
have entered into that certain Account Transfer and Purchase
Agreement, dated to be effective as of April 20, 1998,
("Purchase Agreement"), pursuant to which Purchase Agreement
the parties have provided for the terms and conditions under
which KBK may, from time to time, purchase from Client
certain accounts receivable of Client and related rights
(hereinafter collectively referred to as the "Purchased
Accounts"), and Client has made certain covenants,
representatives, and warranties to KBK with respect to each
Purchased Account. KBK has or will provide certain financing
to Client as evidenced by that certain Revolving Credit
Promissory Note dated April 20, 1998 payable by Client to the
order of KBK in the stated principal amount of $1,500,000
(such promissory note, together with all renewals, amendments
and modifications thereof, the "KBK Note").
B. To secure Client's obligations to KBK under the Purchase
Agreement and the KBK Note, Client has granted to KBK a first
priority security interest in and to all present and future
accounts, general intangibles, equipment, inventory,
livestock, documents, instruments, chattel paper, and
contract rights, and any and all proceeds thereof, and such
other and additional collateral as may be described in the
Purchase Agreement and that certain Security Agreement of
even date with the KBK Note, executed by Client for the
benefit of KBK (all of the foregoing are hereinafter
collectively referred to as the "Collateral").
C. Client has executed that certain promissory note dated July
1, 1996, payable by Mid Ag, L.C. to the order of Creditor in
the stated principal amount of $500,000.00, a copy of which
is attached hereto as Schedule A (the "Subordinated Note").
Client assumed all obligations of Mid Ag., L.C. under the
Subordinated Note
D. To secure the indebtedness and obligations owing by Client to
Creditor under the Subordinated Note, Client has granted or
will grant a security interest in all of Client's Accounts
and inventory.
E. KBK and Creditor intend, by this Agreement, to establish,
between themselves, and their respective successors and
assigns, the rights and interests of the parties with respect
to the Collateral and for the subordination by Creditor of
all indebtedness and other obligations of Client now and
hereafter owing to Creditor (including, without limitation,
all indebtedness owing under the Subordinated Note, and any
and all renewals, modifications, and extensions thereof) to
the obligations of Client to KBK, however contingent.
NOW, THEREFORE, for and in consideration of the foregoing, the
mutual benefits to be received by the parties hereto, and the
covenants and agreements contained herein, KBK and Creditor agree
to the following:
1. Release of Creditor's Security Interests. In
consideration of the increased liquidity provided to Client by the
KBK purchase of Purchased Accounts, which Creditor acknowledges is
for a full, fair and valuable consideration to Client, and which
liquidity may be instrumental in a reduction of the indebtedness
or obligations by Client to Creditor, Creditor hereby releases and
discharges any security interest in all Purchased Accounts and
hereby waives any and all claims or interest it has or might have
in and with respect to the Purchased Accounts, regardless of (a)
when its interest became perfected, (b) when the Purchased Accounts
were purchased, (c) the value of the Purchased Accounts, (d) the
consideration given or promised therefore, or (e) the amount
Creditor is owed by Client.
Creditor waives, releases and discharges any interest it has
or might have in any Purchased Accounts as representative of the
proceeds of any of Client's inventory or any payments received by
KBK on the Purchased Accounts as well as all goods returned under
the Purchased Accounts. Creditor further acknowledges and
understands that it has no interest of any kind or character,
security or otherwise, in the Purchased Accounts or the proceeds
therefrom. Creditor further waives any right it might have, by law
or otherwise, to receive notice, or any obligation on the part of
KBK to give notice, of any kind, at any time, of the purchase by
KBK of any or all of the Accounts. Upon such purchase, any
interest, security or otherwise, that Creditor has in such
Purchased Accounts, is automatically waived and released in and to
such Purchased Accounts without further action of any kind on the
part of KBK or Client.
2. Subordination of Creditor's Security Interests. Without
limiting or altering the validity and effectiveness of the
provisions in Section 1 herein pertaining to the release and waiver
of security interests in Purchased Accounts, Creditor hereby
subordinates its security interest in the Collateral to the
security interest of KBK in the Collateral and Creditor agrees that
its security interest, whenever granted and/or perfected in the
Collateral, will be inferior, junior and secondary to the security
interests held by KBK in the Collateral. Creditor agrees that if
Creditor from time to time comes into possession of any payment on
Accounts owing by any account debtors, all of such payments shall
be held in trust for the benefit of KBK and shall be paid
immediately to KBK.
3. Subordination of Obligations.
3.1 The term "Obligations" is used and shall be
construed in this Agreement in its broadest and most comprehensive
sense and shall mean all present and future indebtedness of Client
which may be, from time to time, directly or indirectly, incurred
by Client, and any and all extensions, renewals, renewals, and
modifications thereof, including, but not limited to, any invoices,
contracts, agreements, or other instruments evidencing the same,
and all promissory notes, guarantees, debts, demands, monies,
indebtedness, liabilities and obligations owed, or to become owing,
including interest, principal, costs, and other charges, and all
claims, rights, causes of actions, judgments, decrees, remedies,
liens, security interests, or other obligations, and all security
therefor, of any kind whatsoever and howsoever arising, whether
voluntary, involuntary, absolute, contingent, or by operation of
law, specifically excluding herefrom all obligations due to
Creditor by Client for goods purchased by Client from Creditor in
the ordinary course of and used in the business of Client.
3.2 Any and all Obligations now owing and hereafter owed
by Client to Creditor, including without limitation, all
indebtedness evidenced by the Subordinated Note (the "Creditor
Obligations") are hereby unconditionally and irrevocably
subordinated and made subject to any and all Obligations now owing
and hereafter owed by Client to KBK under the KBK Note (hereinafter
collectively the "KBK Obligations"), for so long as any of the KBK
Obligations shall remain unpaid and not fully and finally
discharged and satisfied.
3.3 Until termination of this Agreement, Creditor
agrees: (a) not to collect, or to receive payment upon, by setoff
or in any other manner, all or any portion of the Creditor
Obligation (other than as provided in Section 3.8); (b) not to
sell, assign, transfer, pledge, or grant a security interest in the
Creditor Obligations (except subject expressly to this Agreement);
(c) not to accelerate the maturity of the Creditor Obligations; (d)
not to commence, prosecute or participate in any administrative,
legal, or equitable action that might adversely affect Client or
KBK's interests; (e) not to join in any petition for bankruptcy or
assignment for the benefit of creditors agreement affecting Client
or any of its assets, or seek to appoint a receiver for all or any
portion of Client's assets; (f) not to take any lien or security
on Client's assets or property, real or personal, except as
described herein; (g) not to take any action to foreclose,
repossess, marshall, control or exercise any remedies with respect
to any property included within the Collateral;, (h) not to
contact, communicate with or notify any account debtor or obligor
with respect to any Accounts, general intangibles, instruments or
chattel paper; (i) not to incur any obligation to or receive any
loans advances, or payments of any kind or gifts from Client; (j)
not to take any other action, directly or indirectly, which would
in any manner interfere with or impair the rights of KBK with
respect to any Collateral for the KBK Obligations, without KBK's
prior written consent; and (k) not to amend or modify the terms of
the Subordinated Note without prompt written notice to KBK.
3.4 Except as otherwise hereinafter expressly provided,
all of the KBK Obligations now or hereafter existing shall be first
paid, satisfied, discharged or satisfactory provisions made
therefore by Client before any payment shall be made by Client on
the Creditor Obligations. This priority of payment shall apply at
all times until all of the KBK Obligations have been fully and
finally repaid, satisfied, and discharged in full.
3.5 In the event of any liquidation or dissolution of
Client, whether partial or complete, voluntary or involuntary, by
operation of law or otherwise, or in the event of any receivership,
insolvency or bankruptcy proceedings by or against Client under any
bankruptcy or insolvency laws (a) any and all payments or
distributions of any kind or character, whether in cash,
securities, or other property, which thereafter shall be payable
or deliverable to Creditor upon or with respect to any portion of
the Creditor Obligations, shall immediately be paid or delivered
by Creditor directly to KBK for application in reduction of the KBK
Obligations, whether or not then due or mature, in such manner as
KBK shall determine in its sole discretion, and (b) KBK shall have
the right to file a claim on behalf of Creditor respecting the
Creditor Obligations in any such proceedings and to collect and
receive all payments that may be declared or become payable on the
claim of Creditor thereunder, or interest thereon (up until full
payment and performance of the KBK Obligations at which time, upon
request by Creditor, such claim shall be assigned or otherwise
conveyed to Creditor without recourse), and KBK hereby is
irrevocably appointed as attorney-in-fact for Creditor for such
purpose in all such proceedings.
3.6 Creditor further agrees that should Creditor take
or receive any security interest in, or lien by way of attachment,
execution or otherwise on any of the Collateral or should Creditor
take or join in any other action or proceeding contrary to this
Agreement, at any time prior to the termination of this Agreement,
KBK shall be entitled to have the same vacated, dissolved and set
aside by such proceedings at law, or otherwise, as KBK may deem
proper. This Agreement shall be and constitutes full and
sufficient grounds for such action and shall entitle KBK to become
a party to any proceedings at law, or otherwise, initiated by KBK
or by any other party, in or by which KBK may deem it proper to
protect KBK's interests hereunder.
3.7 If Creditor shall receive any payments, security
interest, or other rights in any property of Client in violation
of this Agreement, such payment or property shall be deemed to be
received and held by Creditor in trust for KBK and shall forthwith
be delivered and transferred to KBK for application in reduction
of the KBK Obligations, whether or not then due or mature, in such
manner as KBK shall determine in its sole discretion.
3.8 Notwithstanding any provision to the contrary
contained herein, Creditor shall be entitled to receive quarterly
interest and principal payments from Client in an amount not to
exceed $14,602.43 and a balloon payment of the remaining balance
of the Subordinated Note on July 15, 2001; provided, however,
Creditor's right to receive any such payments under the
Subordinated Note shall be automatically and immediately revoked
in the event (a) Client is in breach or default of any documents,
instruments or agreements evidencing, guaranteeing, securing or
pertaining to the KBK Obligation and written notice of such breach
or default has been given to Creditor, or (b) the terms and
provisions of this Agreement are breached. Any amounts received
by Creditor after the time Creditor's right to receive payments
under the Subordinated Note have been revoked shall be held in
trust by Creditor for the benefit of KBK and shall be delivered
immediately to KBK. It is understood and agreed that Creditor
shall not be entitled receive any prepayments of all or any part
of the Creditor Obligations.
4. Representations, Warranties and Covenants of Creditor.
4.1 Creditor hereby represents and warrants to KBK that
Creditor is the sole holder and beneficial owner of the
Subordinated Note and all interests and rights created thereby with
respect to said instruments relating thereto, and have not
assigned, transferred, pledged, or granted a security interest in
the Subordinated Note, or any right or interest therein or
thereunder, and has not entered into any agreement, option, or
other Agreement for the sale, assignment, pledge or grant of a
security interest in any of the foregoing, including, without
limitation, any grant of any option, right of first refusal, or
other pre-emptive right to purchase or acquire any right or
interest therein.
4.2 Creditor agrees to deliver to KBK a duly executed
UCC amendment with respect to any UCC financing statement between
Creditor and Client in order to reference that Creditor's security
interest in the subject collateral is subject to the terms of this
Agreement.
5. Reliance by KBK. This Agreement is an irrevocable and
continuing agreement of subordination and KBK may continue to rely
upon same in providing financing and other financial accommodations
to or for the benefit of Client. In connection therewith, KBK may
without notice to or consent from Creditor and without impairing
the rights and obligations of the parties under this Agreement (a)
release any person or entity now or hereafter liable upon any of
the KBK Obligations, (b) renew, extend or modify the terms of any
document or instrument evidencing, governing, securing or
guaranteeing any of the KBK Obligations, and/or (c) provide
additional financing to Client after the date hereof.
6. No Commitment. It is understood and agreed that this
Agreement shall in no way be construed as a commitment or agreement
by KBK to continue financing arrangements with Client and that KBK
may terminate such arrangements at any time, in accordance with
KBK's agreements with Client.
7. Financial Condition of Client. Creditor has adequate
means to obtain from Client on a continuing basis information
concerning the financial condition of Client and Creditor is not
relying on KBK to provide such information now or in the future.
Creditor acknowledges and agrees that KBK is not obligated to keep
Creditor informed of Client's financial condition.
8. Affect on Client's Actions. The Client shall not be
entitled for any purpose or under any circumstances to rely upon
the failure of KBK or Creditor to comply with the terms hereof.
Nothing herein contained shall be deemed to authorize Client to
take any action not permitted under any agreement between Client
and KBK or Creditor. Client shall not be deemed to be a third
party beneficiary to this Agreement or to have any rights hereunder
whatsoever.
9. No Challenge to Validity. Both KBK and Creditor covenant
and agree not to take any action to seek to avoid or set aside the
perfected security interest in the Purchased Accounts or the
Collateral or to seek to rescind, modify, or circumvent the
provisions of this Agreement.
10. Termination. This Agreement shall terminate when both
of the following events have occurred and exist simultaneously: (a)
full and final payment in cash of all amounts owing to KBK by
Client, and (b) termination or expiration of the Purchase Agreement
and of all obligations and commitments of KBK to provide financing
to Client.
11. Amendment. This Agreement may not be amended except by
written agreement executed by both KBK and Creditor.
12. Captions. Captions as used in this Agreement are for
convenience only, and shall not affect the construction of this
Agreement.
13. Governing Law; Jury Waiver. This Agreement shall be governed
by and construed in accordance with the laws of the State of Iowa. the
parties hereto waive the right to a trail by jury in any action or
proceeding of any kind arising out of or relating to this agreement.
14. Successors and Assigns. Unless otherwise herein
provided, this Agreement shall be binding upon and inure to the
benefit of all successors and assigns, including, without
limitation, such transferee of any of the obligations of Client to
KBK or to Creditor under any agreement or by law. Any transferee
of the obligations or indebtedness owed by Client to Creditor or
any part thereof, shall take such obligations or indebtedness or
any part thereof subject to the provisions of this Agreement.
15. Entire Agreement. This Agreement constitutes the
complete and integrated agreement of both KBK and Creditor with
respect to the subject matter hereof, supersedes all prior or
contemporaneous oral agreements, discussions or negotiations, and
may not be orally modified or supplemented by parol or extrinsic
evidence.
16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but all of
which constitute but one agreement. Delivery of an executed
counterpart of this Agreement by telefacsimilie shall be equally
effective as delivery of a manually executed counterpart of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date first above written.
DEPARTMENT OF ECONOMIC DEVELOPMENT,
STATE OF IOWA
By:
Printed Name:
Title:
KBK FINANCIAL, INC.
By:
Printed Name:
Title:
ACKNOWLEDGMENT BY CLIENT
The undersigned, being the Client named in the foregoing
Agreement, hereby (i) accepts and consents to such Agreement, (ii)
agrees to be bound by all of the provisions thereof, (iii) agrees
to recognize all priorities and other rights granted thereby, (iv)
agrees to pay Creditor in accordance therewith, and (v)
acknowledges and agrees that such Agreement may be altered,
modified or amended by KBK and Creditor without notice to or
consent of Client.
RED OAK FARMS, INC.
By:
Name:
Title:
Date: April _____, 1998
<PAGE>
RED OAK FARMS, INC.
INVENTORY MAINTENANCE CERTIFICATE
Report #_____________ Financial Statement
Date:_____________
1. INVENTORY
a. Raw Materials __________
b. Work in Progress __________
c. Finished Goods __________
2. TOTAL GROSS INVENTORY per this report(Sum of all lines in Section 1 above)
3. INELIGIBLE INVENTORY
a. Raw Material __________
b. Work in Progress __________
c. Damaged, defective and obsolete inventory __________
d. Returned or rejected inventory __________
e. Consigned Inventory __________
f. Inventory in Transit __________
g. Inventory not Financed by KBK __________
h. Other (non-package; non-USDA
stamped) _________
i. Other _________
4. TOTAL INELIGIBLE INVENTORY Per this Report(Sum of all linesin Section 3
above)
5. NET ELIGIBLE INVENTORY (Line 2 minus Line 4)
6. INVENTORY ADVANCE RATE 50%
7. GROSS INVENTORY AVAILABILITY (Line 5 multiplied by line 6)
8. Maximum Availability:
Lesser of: a: Line of Credit amount, or 1,500,000.00
b: Line 7 ___________
ADVANCES
9. Outstanding Balance per last Report(Line 13 from prior report)
10. LESS: Payments applies since last Report
11. Balance Prior to New Activity
12. ADD: Advance Request Per this Report
13. NEW OUTSTANDING BALANCE (Not to exceed Line 8)
14. EXCESS AVAILABILITY (Line 8 minus Line 13)
The undersigned, _________________________________ does hereby
certify that he/she has made a thorough inquiry into all matters
certified herein and based upon such inquiry does hereby certify
that :
He/She is duly elected, qualified and acting
__________________________ of the Company.
This Maintenance Certificate is being submitted to KBK
Financial, Inc. pursuant to that certain Loan
Agreement dated April 20, 1998 between Company and
KBK (as from time to time as supplemented or
amended, the "Agreement"). Terms used or not
otherwise defined herein shall have the meanings
assigned to them in the Agreement.
All representations and warranties made in the Agreement
or in any other instrument, document, certificate or
other agreement executed in connection therewith
(collectively, the "Transaction Documents")
delivered on or before the date hereof (except to
the extent that the facts upon which such
representations are based have changed by the
transaction contemplated in this Agreement) as if
such representations and warranties had been made as
of the date hereof.
No Event off Default exists on the date hereof.
The Company has performed and complied with all
agreements and conditions required in the
Transaction Documents to be performed or complied
with by it on the date hereof.
After KBK makes the advance(s) requested by this
Maintenance Certificate, the aggregate amount of all
outstanding advances does not exceed the lesser of
(i) the Facility Amount of (ii) the Maximum
Availability.
All information contained in this Maintenance Certificate
is true, correct and completed.
IN WITNESS HEREOF, this instrument is executed by the
undersigned as of ______________, 199_____.
RED OAK FARMS, INC.
By:
Name:
Title:
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of this 20th day
of April, 1998, by and between RED OAK FARMS, INC., an Iowa
corporation ("Borrower"), and KBK FINANCIAL, INC., a Delaware
corporation doing business as ROF/KBK Acceptance Corporation
("KBK"). In connection with the mutual covenants and agreements
contained herein, the parties hereto agrees as follows:
1. Definitions. All terms and phrases used herein which are
defined in the Uniform Commercial Code in the State of Texas,
as amended from time to time (the "UCC"), and otherwise not
defined herein shall have the meanings given them in the UCC.
The following definitions shall apply throughout this
Agreement:
"Affiliate" means with respect to any Person in question, any
other Person owned or controlled by, or which owns or
controls or is under common control or is otherwise
affiliated with such Person in question. A Person shall be
deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the
direction of the management and policies of such other
Person, whether through the ownership of voting securities,
by contract or otherwise.
"Business Day" means any day other than Saturday, Sunday, or
any other day on which KBK's office in Fort Worth, Texas is
closed.
"Collateral" has the meaning given it in Section 4.
"Credit Facilities" has the meaning given it in Section 2.
"Debit Account" means Account No. 268684 that Borrower has
with First National Bank of Red Oak, Iowa over which KBK has
express written authority to debit pursuant to this
Agreement.
"Eligible Inventory" means as of any date, the aggregate
value of all inventory of finished goods (excluding raw
materials, work in progress, any unpackaged meat or meat
products, any packaged meat or meat products that has not
been inspected and stamped by the USDA, any meat or meat
products that is not Certified Hereford Beef, packaging
materials, supplies and any advertising costs capitalized
into inventory) then owned by Borrower and held for sale,
lease or other disposition in the ordinary course of its
business, in which KBK has a first priority perfected lien,
excluding (i) inventory which is damaged, defective, obsolete
or otherwise unsaleable in the ordinary course of Borrower's
business, (ii) inventory which has been returned or rejected,
(iii) inventory subject to any consignment arrangement
between Borrower and any other person or entity, (iv)
inventory which is in transit, (v) inventory located outside
the United States, and (vi) inventory which KBK in KBK's sole
and absolute discretion deems ineligible. For purposes of
this definition, Eligible Inventory shall be valued at the
lower of cost (excluding the cost of labor) or market value.
"Environmental Laws" means any and all federal, state and
local laws, regulations, rules, orders, licenses, agreements
or other governmental restrictions relating to the protection
of human health or the environment or to emissions,
discharges or releases of pollutants or industrial, toxic or
hazardous substances into the environment, or otherwise
relating to the manufacture, processing, treatment, transport
or handling of pollutants or industrial, toxic or hazardous
substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, together with all rules
and regulations promulgated with respect thereto.
"ERISA Affiliate" means with respect to any Person in
question, any Person that would be treated as a single
employer with Borrower.
"ERISA Plan" means any pension benefit plan subject to Title
IV of ERISA maintained by Borrower or any ERISA Affiliate
thereof with respect to which Borrower or any ERISA Affiliate
has a fixed or contingent liability.
"Event of Default" has the meaning given it in Section 13.
"GAAP" means those generally accepted accounting principles
and practices which are recognized as such by the Financial
Accounting Standards Board (or any generally recognized
successor), consistently applied throughout the period
involved.
"Guarantors" means Gordon Reisinger, individually, John
Derner, individually, and Red Oak Hereford Farms Inc.
(whether one or more).
"Indemnified Claims" means any and all claims, demands,
actions, causes of action, judgments, suits, liabilities,
obligations, losses, damages and consequential damages,
penalties, fines, costs, fees, expenses and disbursements
(including without limitation, fees and expenses of attorneys
and other professional consultants and experts in connection
with any investigation or defense) of every kind or nature,
known or unknown, existing or hereafter arising, foreseeable
or unforeseeable, which may be imposed upon, threatened or
asserted against or incurred or paid by any Indemnified
Person at any time and from time to time, because of or
resulting from, in connection with or in any way relating to
or arising out of any of the Credit Facilities, the
Collateral or any other transaction, act, omission, event or
circumstance in any way connected with or contemplated by
this Agreement or the other Loan Documents or any action
taken or omitted by any such Indemnified Person under or in
connection with any of the foregoing (including but not
limited to any investigation, litigation, proceeding,
enforcement of KBK's rights or defense of KBK's actions
related to or arising out of this Agreement or the other Loan
Documents), whether or not any Indemnified Person is a party
hereto.
"Indemnified Person" shall collectively mean KBK and its
officers, directors, shareholders, employees, attorneys,
representatives, agents, Affiliates, successors and assigns.
"Inv Borrowing Base" means an amount equal to 50% of Eligible
Inventory.
"Inv Line of Credit" has the meaning given it in Section 2.
"Inv Line of Credit Amount" has the meaning given it in
Section 2.
"Lien" means any mortgage, lien, pledge, assignment, adverse
claim, charge, security interest or other encumbrance.
"Loan Documents" means this Agreement, the Notes and all
other documents, agreements and instruments now or hereafter
required by KBK to be executed and delivered in connection
herewith (including, without limitation, all documents,
agreements and instruments evidencing, securing, governing,
guaranteeing and/or pertaining to the Notes and the Credit
Facilities).
"Notes" has the meaning given it in Section 3.
"Obligors" means Borrower and Guarantors.
"Person" means a corporation, association, partnership,
limited liability company, organization, business,
individual, governmental or political subdivision thereof or
governmental agency.
"Purchase Agreement" means that certain Account Transfer and
Purchase Agreement of even date herewith, between Borrower
and KBK, as may be amended from time to time.
"Subordinated Debt" means indebtedness owing by Borrower to
a creditor other than KBK which has been subordinated and
subject in right of payment to the prior payment of all
indebtedness and obligations now or hereafter owing by
Borrower to KBK, such subordination to be evidenced by a
written agreement between KBK and the subordinated creditor
which is in form and substance satisfactory to KBK.
"Tangible Net Worth" means, as of any date, the amount by
which Borrower's total assets exceeds its total liabilities,
plus Subordinated Debt, less any intangible assets (as
defined by GAAP), less deferred charges.
"Termination Event" means (a) the occurrence with respect to
any ERISA Plan of (i) a reportable event described in
Sections 4043(b)(5) of ERISA or (ii) any other reportable
event described in Section 4043 of ERISA other than a
reportable event not subject to the provision for 30-day
notice to the Pension Benefit Guaranty Corporation pursuant
to a waiver by such corporation under Section 4043(a) of
ERISA, (b) the withdrawal of Borrower or any Affiliate of
Borrower from any ERISA Plan during a plan year in which it
was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA, or (c) any event or condition which might
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to
administer, any ERISA Plan.
2. Credit Facilities. Subject to the terms and conditions set
forth in this Agreement and the other Loan Documents, KBK
hereby agrees to provide to Borrower the following Credit
Facility or Facilities (whether one or more, the "Credit
Facilities"):
Inv Line of Credit. Subject to the terms and conditions set
forth herein, KBK agrees to provide to Borrower a revolving
line of credit (the "Inv Line of Credit") during the period
commencing on the date hereof and continuing through the
thirty-first (31st) day prior to the maturity date of the
Note evidencing the Inv Line of Credit from time to time.
Borrower may request advances under the Inv Line of Credit
from time to time; provided, however, the total principal
amount outstanding at any time under the Inv Line of Credit
shall not exceed the lesser of (i) an amount equal to the Inv
Borrowing Base, or (ii) $1,500,000.00 (the "Inv Line of Credit
Amount"). If at any time the aggregate principal amount
outstanding under the Inv Line of Credit shall exceed an
amount equal to the lesser of the Inv Borrowing Base or the
Inv Line of Credit Amount, Borrower agrees to immediately
repay to KBK such excess amount, plus all accrued but unpaid
interest thereon. Borrower may request advances under the Inv
Line of Credit no more often than once each calendar month.
Subject to the terms and conditions set forth in this
Agreement and in the Note evidencing the Inv Line of Credit
from time to time, Borrower may borrow, repay and reborrow
under the Inv Line of Credit. The sums advanced under the Inv
Line of Credit shall be used for working capital purposes.
3. Promissory Notes. Borrower agrees to execute,
contemporaneously herewith, a promissory note payable to the
order of KBK, in form and substance acceptable to KBK in
KBK's sole and absolute discretion, for each Credit Facility
provided hereunder to evidence the indebtedness owing by
Borrower to KBK under each such facility (whether one or
more, together with any renewals, extensions and increases
thereof, the "Notes"). Interest on the Notes shall accrue at
the rate set forth therein. The principal of and interest on
the Notes shall be due and payable and may be prepaid in
accordance with the terms and conditions set forth in the
Notes and in this Agreement.
4. Collateral. As security for the indebtedness evidenced by
the Notes and any and all other indebtedness or obligations
owing from time to time by Borrower to KBK under this
Agreement, KBK shall receive a Lien in and to the collateral
described in the other Loan Documents (the "Collateral").
5. Guarantors. As a condition precedent to KBK's obligation to
provide the Credit Facilities to Borrower, Borrower agrees to
cause the Guarantors to each execute and deliver to KBK
contemporaneously herewith a guaranty agreement, in form and
substance acceptable to KBK in KBK's sole and absolute
discretion.
6. Fees.
(a) Commitment Fee. Borrower shall pay to KBK, concurrently
with the execution hereof, a commitment fee in the amount of
one percent (1.0%) of the INV Line of Credit Amount.
Borrower hereby authorizes KBK, in KBK's sole discretion, to
collect any such commitment fees (i) by deducting such fees
from the first advance under the subject Credit Facilities,
(ii) by debiting the Debit Account, (iii) by applying that
portion of any up-front deposit delivered to KBK by Borrower
which is in excess of KBK's costs and expenses (including,
without limitation, attorneys' fees), or (iv) by using any
combination of the foregoing. This authorization does not
affect Borrower's obligation to pay such sums to KBK.
Borrower and KBK acknowledge and agree that the commitment
fee is reasonable compensation to KBK for making the subject
Credit Facilities available to Borrower and for no other
purpose and is fully earned and non-refundable under any and
all circumstances.
7. Representations and Warranties. Borrower hereby represents
and warrants, and upon each request for an advance under the
Credit Facilities further represents and warrants, to KBK as
follows:
(a) Existence. Borrower is a corporation duly organized,
validly existing and in good standing under the laws of
the state of its incorporation and is duly licensed,
qualified to do business and is in good standing in all
other states in which such licensing, qualification and
good standing are necessary. Borrower has all requisite
power and authority (i) to own and operate its
properties, (ii) to carry on its business as now
conducted and as proposed to be conducted, and (iii) to
execute and deliver this Agreement and the other Loan
Documents to which Borrower is a party.
(b) Binding Obligations. The execution, delivery, and
performance of this Agreement and all of the other Loan
Documents by Borrower have been duly authorized by all
necessary action by Borrower, have been duly executed
and delivered by Borrower and constitute legal, valid
and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as
limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of
creditors' rights and except to the extent specific
remedies may generally be limited by equitable
principles.
(c) No Consent. The execution, delivery and performance of
this Agreement and the other Loan Documents, and the
consummation of the transactions contemplated hereby and
thereby, do not (i) conflict with, result in a violation
of, or constitute a default under (A) any provision of
Borrower's articles or certificate of incorporation or
bylaws, (B) any law, governmental regulation, court
decree or order applicable to Borrower, or (C ) any
other document or agreement to which Borrower is a
party, or (ii) require the consent, approval or
authorization of any third party.
(d) Financial Condition. Each financial statement of
Borrower supplied to KBK is true, correct and complete
in all material respects and fairly presents Borrower's
financial condition in all material respects as of the
date of each such statement. There has been no material
adverse change in such financial condition or results of
operations of Borrower subsequent to the date of the
most recent financial statement supplied to KBK.
(e) Litigation. There are no actions, suits or proceedings,
pending or, to the knowledge of Borrower, threatened
against or affecting Borrower or the properties of
Borrower, before any court or governmental department,
commission or board, which, if determined adversely to
Borrower, would have a material adverse effect on the
business, financial condition, properties, operations or
prospects of Borrower.
(f) Taxes; Governmental Charges. Borrower has filed all
federal, state and local tax reports and returns
required by any law or regulation to be filed by it and
has either duly paid all taxes, duties and charges
indicated due on the basis of such returns and reports,
or made adequate provision for the payment thereof, and
the assessment of any material amount of additional
taxes in excess of those paid and reported is not
reasonably expected. There is no tax Lien notice
against Borrower or its properties presently on file.
(g) ERISA Compliance. Borrower is in compliance with ERISA
concerning Borrower's ERISA Plan, if any, or is not
required to contribute to any "multi-employer plan" as
defined in Section 401 of ERISA.
(h) Compliance with Laws. Borrower is conducting its
business in material compliance with all statutes,
rules, regulations and/or ordinances imposed by any
governmental unit upon Borrower or upon its businesses,
operations and property (including, without limitation,
all Environmental Laws). Borrower has all permits and
licenses necessary for the operations of its business as
presently conducted and as proposed to be conducted.
(i) Tradenames. Borrower conducts business under no trade
or assumed name.
8. Conditions Precedent to Advances. KBK's obligation to make
any advance under this Agreement and the other Loan Documents
shall be subject to the conditions precedent that, as of the
date of such advance and after giving effect thereto (i) all
representations and warranties made to KBK in this Agreement
and the other Loan Documents shall be true and correct, as of
and as if made on such date, (ii) no material adverse change
in the financial condition of Borrower or its business since
the effective date of the most recent financial statements
furnished to KBK by Borrower shall have occurred, (iii) no
Event of Default shall have occurred and no event has
occurred and is continuing, or would result from the
requested advance, which with notice or lapse of time, or
both, would constitute an Event of Default, (iv) KBK shall
have received all Loan Documents appropriately executed by
Borrower and all other proper parties and all such Loan
Documents are in full force and effect, and (v) KBK shall
have received all fees and expenses owing to KBK under this
Agreement and the other Loan Documents.
9. Affirmative Covenants. Until (i) the Notes and all other
obligations and liabilities of Borrower under this Agreement
and the other Loan Documents are fully paid and satisfied,
and (ii) KBK has no further commitment to lend hereunder,
Borrower agrees and covenants that it will, unless KBK shall
otherwise consent in writing (which consent may be withheld
by KBK in KBK's sole and absolute discretion):
(a) Accounts and Records. Maintain its books and records in
accordance with GAAP.
(b) Right of Inspection. Permit KBK to visit its properties
and installations and to examine, audit and make and
take away copies or reproductions of Borrower's books
and records, at all reasonable times. Borrower agrees
to pay all costs associated with any such audits, at a
rate equal to $750.00 per day, per person, plus
out-of-pocket expenses.
(c) Right to Additional Information. Furnish KBK with such
additional information and statements, lists of assets
and liabilities, tax returns, and other reports with
respect to Borrower's financial condition and business
operations as KBK may request from time to time.
(d) Compliance with Laws. Conduct its business in an
orderly and efficient manner consistent with good
business practices, and perform and comply with all
statutes, rules, regulations and/or ordinances imposed
by any governmental unit upon Borrower its businesses,
operations and properties (including, without
limitation, all Environmental Laws).
(e) Taxes. Pay and discharge when due all assessments,
taxes, governmental charges and levies, of every kind
and nature, imposed upon Borrower or its properties,
income or profits, prior to the date on which penalties
would attach, and all lawful claims that, if unpaid,
might become a Lien upon any of Borrower's property,
income or profits; provided, however, Borrower will not
be required to pay and discharge any such assessment,
tax, charge, levy or claim so long as (i) same shall be
contested in good faith by appropriate judicial,
administrative or other legal proceedings timely
instituted, (ii) Borrower shall have established
adequate reserves with respect to such contested
assessment, tax, charge, levy or claim in accordance
with GAAP, and (iii) the perfection and priority of
KBK's security interest in the Collateral, or the value
of the Collateral, is not impaired.
(f) Insurance. Maintain, with financially sound and
reputable insurers, such insurance as deemed necessary
or otherwise required by KBK, including but not limited
to, fire insurance, comprehensive property damage,
public liability, worker's compensation and business
interruption insurance.
(g) Notice of Material Change/Litigation. Borrower shall
promptly notify KBK in writing (i) of any material
adverse change in Borrower's financial condition or its
businesses, and (ii) of any litigation or claims against
Borrower which could materially affect Borrower or its
business operations, financial condition or prospects.
(h) Corporate Existence. Maintain its corporate existence
and good standing in the state of its incorporation and
its qualification and good standing in all other states
where required by applicable law.
(i) ERISA. Borrower shall promptly notify KBK in writing of
the adoption or amendment of any plan that results in
the representations in Subsection 7(g) no longer being
true and correct.
(j) Additional Documentation. Execute and deliver, or cause
to be executed and delivered, any and all other
agreements, instruments or documents which KBK may
reasonably request in order to give effect to the
transactions contemplated under this Agreement and the
other Loan Documents.
10. Negative Covenants. Until (i) the Notes and all other
obligations and liabilities of Borrower under this Agreement and
the other Loan Documents are fully paid and satisfied, and (ii) KBK
has no further commitment to lend hereunder, Borrower will not,
without the prior written consent of KBK (which consent may be
withheld in KBK's sole and absolute discretion):
(a) Nature of Business. Make any material change in the
nature of its business as carried on as of the date
hereof.
(b) Liquidations; Mergers; Consolidations; Acquisitions;
Name Change. Liquidate, merge or consolidate with or
into any other Person, convert from one type of legal
entity to another type of legal entity, form or acquire
any new subsidiary or acquire by purchase or otherwise
all or substantially all of the assets of any other
Person, or change its name or operate under any new
trade or assumed name.
(c) Transactions with Affiliates. Enter into any
transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering
of any service, with any Affiliate of Borrower, except
in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business, upon fair and
reasonable terms no less favorable to Borrower than
would be obtained in a comparable arm's-length
transaction with a person or entity not an Affiliate of
Borrower and in accordance with the terms and provisions
of the Loan Documents.
(d) Sale of Assets. Sell, lease, transfer or otherwise
dispose of any of its assets or properties, other than
inventory sold in the ordinary course of business and as
necessary to replace obsolete equipment.
(e) Liens. Create or incur any Lien on any of its assets,
other than (i) Liens securing indebtedness owing to KBK,
(ii) pledges or deposits to secure the payment of
obligations under any worker's compensation laws or
similar laws, (iii) deposits to secure the payment of
public or statutory obligations, (iv) mechanic's,
carriers', workman's, repairman's or other Liens arising
by operation of law in the ordinary course of business
which secure obligations that are not overdue or are
being contested in good faith and for which Borrower has
established adequate reserves in accordance with
generally accepted accounting principles (and for which
KBK's security interest in the Collateral is not
impaired), and (v) Liens existing as of the date hereof
which have been disclosed to and approved by KBK in
writing.
(f) Indebtedness. Create, incur or assume any indebtedness
for borrowed money or issue or assume any other note,
debenture, bond or other evidences of indebtedness, or
guarantee any such indebtedness or such evidences of
indebtedness of others, other than (i) borrowings from
KBK, (ii) current accounts payable and other current
obligations (other than for borrowed money), and (iii)
borrowings outstanding on the date hereof which have
been disclosed and approved in writing by KBK.
(g) Transfer of Ownership. Permit the sale, pledge or other
transfer of any of the ownership interest in Borrower.
(h) Change in Management. Permit a change in the senior
management of Borrower.
(i) Loans. Make any loans to any person or entity.
(j) Dividends. Declare or pay any dividends on any shares
of Borrower's capital stock, make any other
distributions with respect to any payment on account of
the purchase, redemption, or other acquisition or
retirement of any shares of Borrower's capital stock, or
make any other distribution, sale, transfer or lease of
any of Borrower's assets other than in the ordinary
course of business.
11. Financial Covenants. Until (i) the Notes and all other
obligations and liabilities of Borrower under this Agreement
and the other Loan Documents are fully paid and satisfied,
and (ii) KBK has no further commitment to lend hereunder,
Borrower will maintain the following financial covenants:
Tangible Net Worth. At the end of each calendar month, its
Tangible Net Worth, measured at (and as of) the end of each
calendar month, of not less than $700,000.00.
Unless otherwise specified, all accounting and financial
terms and covenants set forth above are to be determined
according to GAAP.
12. Reporting Requirements. Until (i) the Notes and all other
obligations and liabilities of Borrower under this Agreement
and the other Loan Documents are fully paid and satisfied,
and (ii) KBK has no further commitment to lend hereunder,
Borrower will, unless KBK shall otherwise consent in writing,
furnish to KBK:
(a) Financial Statements. The following financial
statements: (i) within 90 days after the last day of
each fiscal year of Borrower a consolidated statement of
income and a consolidated statement of cash flows of
Borrower for such fiscal year, and a consolidated
balance sheet of Borrower as of the last day of such
fiscal year in each case reviewed by an independent
certified public accounting firm acceptable to KBK,
together with a copy of any report to management
delivered to Borrower by such accountants in connection
therewith; and (ii) within 45 days after the last day of
each calendar month of Borrower, an unaudited
consolidated statement of income and statement of cash
flows of Borrower for such month, and an unaudited
consolidated balance sheet of Borrower as of the last
day of such month. Borrower represents and warrants
that each such statement of income and statement of cash
flows will fairly present, in all material respects, the
results of operations and cash flows of Borrower for the
period set forth therein, and that each such balance
sheet will fairly present, in all material respects, the
financial condition of Borrower as of the date set forth
therein, all in accordance with GAAP, (or, with respect
to unaudited financial statements, in the notes thereto
and subject to year-end review adjustments).
(b) Inventory Maintenance Certificate. An Inventory
Maintenance Certificate, in the form attached hereto as
Schedule A, contemporaneously with each advance
requested under the Inv Line of Credit and within five
(5) Business Days after the end of each calendar month.
(e) Inventory Listing. A list of Borrower's inventory by
location and type (to include the following: raw
materials, work in process and finished goods) within
five (5) Business Days after the end of each month of
each fiscal year, in form and detail satisfactory to
KBK.
13. Events of Default. Each of the following shall constitute an
"Event of Default" under this Agreement and the other Loan
Documents:
(a) Failure to Pay Indebtedness. Borrower shall fail to pay
as and when due any part of the principal of, or
interest on, the Notes or any other indebtedness or
obligations now or hereafter owing to KBK by Borrower.
(b) Non-Performance of Covenants. Any of the Obligors shall
breach any covenant or agreement made herein, in any of
the other Loan Documents, in the Purchase Agreement or
in any other agreement now or hereafter entered into
between any of the Obligors and KBK.
(c) False Representation. Any warranty or representation
made herein, in any of the other Loan Documents, or in
the Purchase Agreement shall be false or misleading in
any material respect when made.
(d) Default Under Other Loan Documents. The occurrence of
an event of default under any of the other Loan
Documents, the Purchase Agreement, or any other
agreement now or hereafter entered into between any of
the Obligors and KBK.
(e) Untrue Financial Report. Any report, certificate,
schedule, financial statement, profit and loss statement
or other statement furnished by any Obligor, or by any
other person on behalf of any Obligor, to KBK is not
true and correct in any material respect.
(f) Default to Third Party. The occurrence of any event
which permits the acceleration of the maturity of any
indebtedness owing by any of the Obligors to any third
party under any agreement or undertaking.
(g) Bankruptcy. The filing of a voluntary or involuntary
case by or against any of the Obligors under the United
States Bankruptcy Code or other present or future
federal or state insolvency, bankruptcy or similar laws,
or the appointment of a receiver, trustee, conservator
or custodian for a substantial portion of the assets of
any of the Obligors.
(h) Insolvency. Any of the Obligors shall become insolvent,
make a transfer in fraud of creditors or make an
assignment for the benefit of creditors.
(i) Involuntary Lien. The filing or commencement of any
involuntary Lien, garnishment, attachment or the like
shall be issued against or with respect to the
Collateral.
(j) Material Adverse Change. A material adverse change
shall have occurred in the financial condition, business
prospects or operations of any of the Obligors.
(k) Tax Lien. Any of the Obligors shall have a federal or
state tax Lien filed against any of its properties.
(l) Execution on Collateral. The Collateral or any portion
thereof is taken on execution or other process of law.
(m) ERISA Plan. Either (i) any "accumulated funding
deficiency" (as defined in Section 412(a) of the
Internal Revenue Code of 1986, as amended) in excess of
$25,000 exists with respect to any ERISA Plan of
Borrower or its ERISA Affiliate, or (ii) any Termination
Event occurs with respect to any ERISA Plan of Borrower
or its ERISA Affiliate and the then current value of
such ERISA Plan's benefit liabilities exceeds the then
current value of such ERISA Plan's assets available for
the payment of such benefit liabilities by more than
$25,000.
(n) Guarantor's Obligations. If any of the obligations of
any Guarantor is limited or terminated by operation of
law or by such Guarantor, or any such Guarantor becomes
the subject of an insolvency proceeding.
(o) Judgment. The entry against any of the Obligors of a
final and nonappealable judgment for the payment of
money in excess of $25,000 (not covered by insurance
satisfactory to KBK in KBK's sole discretion).
(p) Termination of Purchase Agreement. The expiration or
termination of the Purchase Agreement by either party,
for whatever reason. Nothing contained in this Loan
Agreement shall be construed to limit the events of
default enumerated in any of the other Loan Documents
and all such events of default shall be cumulative.
(q) Packers and Stockyards Act. (i) Any notice has been
provided to the Borrower under the United States Packers
and Stockyards Act, as amended from time to time, or
(ii) Borrower has failed to comply, at any time, with
the provisions of such Act.
14. Remedies. Upon the occurrence of any one or more of the
foregoing Events of Default, (a) the entire unpaid balance of
principal of the Notes, together with all accrued but unpaid
interest thereon, and all other indebtedness owing to KBK by
Borrower at such time shall, at the option of KBK, become
immediately due and payable without further notice, demand,
presentation, notice of dishonor, notice of intent to
accelerate, notice of acceleration, protest or notice of
protest of any kind, all of which are expressly waived by
Borrower, and (b) KBK may, at its option, cease further
advances under the Credit Facilities or under any of the Loan
Documents; provided, however, concurrently and automatically
with the occurrence of an Event of Default under Subsections
(g), (h), or (n) in the Section entitled "Events of Default"
(i) further advances under the Credit Facilities and under
the Loan Documents shall cease, and (ii) the Notes and all
other indebtedness owing to KBK by Borrower at such time
shall, without any action by KBK, become immediately due and
payable, without further notice, demand, presentation, notice
of dishonor, notice of acceleration, notice of intent to
accelerate, protest or notice of protest of any kind, all of
which are expressly waived by Borrower. All rights and
remedies of KBK set forth in this Agreement and in any of the
other Loan Documents are cumulative and may also be exercised
by KBK, at its option and in its sole discretion, upon the
occurrence of an Event of Default.
15. Indemnification. Borrower hereby indemnifies and agrees to
hold harmless and defend all Indemnified Persons from and
against any and all Indemnified Claims. THE FOREGOING
INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED
CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN
PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY INDEMNIFIED PERSON, but shall exclude any of the
foregoing resulting from such Indemnified Person's gross
negligence or willful misconduct. If Borrower or any third
party ever alleges any gross negligence or willful misconduct
by any Indemnified Person, the indemnification provided for
in this Section shall nonetheless be paid upon demand,
subject to later adjustment or reimbursement, until such time
as a court of competent jurisdiction enters a final judgment
as to the extent and affect of the alleged gross negligence
or willful misconduct. Upon notification and demand,
Borrower agrees to provide defense of any Indemnified Claim
and to pay all costs and expenses of counsel selected by any
Indemnified Person in respect thereof. Any Indemnified
Person against whom any Indemnified Claim may be asserted
reserves the right to settle or compromise any such
Indemnified Claim as such Indemnified Person may determine in
its sole discretion, and the obligations of such Indemnified
Person, if any, pursuant to any such settlement or compromise
shall be deemed included within the Indemnified Claims.
Except as specifically provided in this Section, Borrower
waives all notices from any Indemnified Person. The
provisions of this Section shall survive the termination of
this Agreement.
16. Rights Cumulative. All rights of KBK under the terms of this
Agreement shall be cumulative of, and in addition to, the
rights of KBK under any and all other agreements between
Borrower and KBK (including, but not limited to, the other
Loan Documents), and not in substitution or diminution of any
rights now or hereafter held by KBK under the terms of any
other agreement.
17. Waiver and Agreement. Neither the failure nor any delay on
the part of KBK to exercise any right, power or privilege
herein or under any of the other Loan Documents shall operate
as a waiver thereof, nor shall any single or partial exercise
of such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege. No waiver of any provision in this Loan
Agreement or in any of the other Loan Documents and no
departure by Borrower therefrom shall be effective unless the
same shall be in writing and signed by KBK, and then shall be
effective only in the specific instance and for the purpose
for which given and to the extent specified in such writing.
Except as otherwise provided in any guaranty agreement
executed by the Guarantors, no modification or amendment to
this Loan Agreement or to any of the other Loan Documents
shall be valid or effective unless the same is signed by the
party against whom it is sought to be enforced.
18. Benefits. This Agreement shall be binding upon and inure to
the benefit of KBK and Borrower, and their respective
successors and assigns; provided, however, that Borrower may
not, without the prior written consent of KBK, assign any
rights, powers, duties or obligations under this Agreement or
any of the other Loan Documents.
19. Notices. All notices, requests, demands or other
communications required or permitted to be given pursuant to
this Agreement shall be in writing and given by (i) personal
delivery, (ii) expedited delivery service with proof of
delivery, (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, or
(iv) telecopy (with receipt thereof confirmed by telecopier)
sent to the intended addressee at the address set forth on
the signature page hereof and shall be deemed to have been
received either, in the case of personal delivery, as of the
time of personal delivery, in the case of expedited delivery
service, as of the date of first attempted delivery at the
address and in the manner provided herein, in the case of
mail, upon deposit in a depository receptacle under the care
and custody of the United States Postal Service, or in the
case of telecopy, upon receipt. Either party shall have the
right to change its address for notice hereunder to any other
location within the continental United States by notice to
the other party of such new address at least thirty (30) days
prior to the effective date of such new address.
20. Governing Law; Venue; Submission to Jurisdiction. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT
OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST
GRANTED HEREUNDER OR THEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF TEXAS. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ARE PERFORMABLE BY THE PARTIES IN TARRANT COUNTY,
TEXAS. BORROWER AND KBK EACH AGREE THAT TARRANT COUNTY,
TEXAS, SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY
DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS, AND THAT SUCH COUNTY IS A
CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR
CLAIM. BORROWER AND KBK EACH CONSENT TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE
OR CLAIM. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
21. Waiver of Jury Trial. BORROWER AND KBK EACH HEREBY
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
22. Invalid Provisions. If any provision of this Agreement or
any of the other Loan Documents is held to be illegal,
invalid or unenforceable under present or future laws, such
provision shall be fully severable and the remaining
provisions of this Agreement or any of the other Loan
Documents shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable
provision or by its severance.
23. Expenses. Borrower shall pay all costs and expenses
(including, without limitation, reasonable attorneys' fees)
in connection with (i) the preparation of the Loan Documents,
(ii) any action required in the course of administration of
the indebtedness and obligations evidenced by the Loan
Documents, and (iii) any action in the enforcement of KBK's
rights upon the occurrence of Event of Default.
24. Participation of the Credit Facilities. Borrower agrees that
KBK may, at its option, sell interests in any of the Credit
Facilities and its rights under this Agreement and the other
Loan Documents and, in connection with each such sale, KBK
may disclose any financial and other information available to
KBK concerning Borrower to each prospective purchaser and
assignee.
25. Conflicts. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the
other Loan Documents, the terms and provisions contained in
this Agreement shall be controlling.
26. Counterparts. This Agreement may be separately executed in
any number of counterparts, each of which shall be an
original, but all of which, taken together, shall be deemed
to constitute one and the same instrument.
27. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. THIS AGREEMENT ALSO AMENDS AND SUPERSEDES ANY OF
THE TERMS OF ANY PRIOR WRITTEN AGREEMENTS WITH RESPECT TO THE
MATTERS SET FORTH IN THIS AGREEMENT.
EXECUTED as of the date first above written.
BORROWER: KBK FINANCIAL, INC.
RED OAK FARMS, INC.
By:________________________ By:__________________________
Print Name: Print Name:
Title: Title:
Borrower's Address: KBK's Address:
2010 Commerce Drive 301 Commerce Street
Box 495 Suite 2200
Red Oak, Iowa 51566 Fort Worth, Texas 76102
Attn: Legal Department
Telecopy No. (712) 623-4533 Telecopy No. (817) 258-6114
<PAGE>
SCHEDULE A
TO LOAN AGREEMENT
Dated April 20, 1998
BY AND BETWEEN
KBK FINANCIAL, INC. (d/b/a ROF/KBK ACCEPTANCE CORPORATION)
AND
RED OAK FARMS, INC.
RED OAK FARMS, INC.
INVENTORY MAINTENANCE CERTIFICATE
Report #_____________ Financial Statement
Date:_____________
1. INVENTORY
a. Raw Materials __________
b. Work in Progress __________
c. Finished Goods __________
2. TOTAL GROSS INVENTORY per this report(Sum of all lines in Section 1 above)
3. INELIGIBLE INVENTORY
a. Raw Material __________
b. Work in Progress __________
c. Damaged, defective and obsolete inventory __________
d. Returned or rejected inventory __________
e. Consigned Inventory __________
f. Inventory in Transit __________
g. Inventory not Financed by KBK __________
h. Other (non-package; non-USDA
stamped) _________
i. Other _________
4. TOTAL INELIGIBLE INVENTORY Per this Report(Sum of all linesin Section 3
above)
5. NET ELIGIBLE INVENTORY (Line 2 minus Line 4)
6. INVENTORY ADVANCE RATE 50%
7. GROSS INVENTORY AVAILABILITY(Line 5 multiplied by line 6)
8. Maximum Availability:
Lesser of: a: Line of Credit amount, or 1,500,000.00
b: Line 7 ___________
ADVANCES
9. Outstanding Balance per last Report(Line 13 from prior report)
10. LESS: Payments applies since last Report
11. Balance Prior to New Activity
12. ADD: Advance Request Per this Report
13. NEW OUTSTANDING BALANCE (Not to exceed Line 8)
14. EXCESS AVAILABILITY (Line 8 minus Line 13)
The undersigned, _________________________________ does
hereby certify that he/she has made a thorough inquiry into
all matters certified herein and based upon such inquiry
does hereby certify that :
He/She is duly elected, qualified and acting
__________________________ of the Company.
This Maintenance Certificate is being submitted to
KBK Financial, Inc. pursuant to that certain Loan
Agreement dated April 20, 1998 between Company and
KBK (as from time to time as supplemented or
amended, the "Agreement"). Terms used or not
otherwise defined herein shall have the meanings
assigned to them in the Agreement.
All representations and warranties made in the
Agreement or in any other instrument, document,
certificate or other agreement executed in
connection therewith (collectively, the
"Transaction Documents") delivered on or before the
date hereof (except to the extent that the facts
upon which such representations are based have
changed by the transaction contemplated in this
Agreement) as if such representations and
warranties had been made as of the date hereof.
No Event off Default exists on the date hereof.
The Company has performed and complied with all
agreements and conditions required in the
Transaction Documents to be performed or complied
with by it on the date hereof.
After KBK makes the advance(s) requested by this
Maintenance Certificate, the aggregate amount of
all outstanding advances does not exceed the lesser
of (i) the Facility Amount of (ii) the Maximum
Availability.
All information contained in this Maintenance
Certificate is true, correct and completed.
IN WITNESS HEREOF, this instrument is executed by the
undersigned as of ______________, 199_____.
RED OAK FARMS, INC.
By:
Name:
Title:_____________
<PAGE>
LIMITED GUARANTY
This Limited Guaranty ("Guaranty") is made this 20th day of
April, 1998, by the following individuals and corporation with
residences and mailing addresses as set forth below (referred to
herein collectively as the "Guarantors")
Gordon Reisinger John Derner Red Oak Hereford Farms, Inc.
1985 203rd Street 2351 213th Avenue 2010 Commerce Drive
Red Oak, Iowa 51566 Milford, Iowa 51351 Red Oak, Iowa 51566
to and for the benefit of KBK FINANCIAL, INC. d/b/a ROF/KBK
Acceptance Corporation ("KBK"), a Delaware corporation authorized
to transact business in Texas.
A. KBK has contemporaneously herewith entered into that
certain account transfer and purchase agreement of even
date herewith (such agreement, and all amendments and
modifications thereof, collectively, the "Purchase
Agreement"), to which reference is made for all purposes,
with RED OAK FARMS, INC., an Iowa corporation (referred to
herein as the "Seller"), pursuant to which KBK has
purchased or will purchase all right, title and interest
in certain accounts receivable of the Seller (the
"Accounts"), on those terms and conditions set forth in
the Purchase Agreement.
B. KBK is willing to enter into the Purchase Agreement only
if the Guarantors execute and deliver this Guaranty to
KBK.
NOW, THEREFORE, in consideration of the aforesaid premises and
other good and valuable consideration, and for the purpose of
inducing KBK to enter into the Purchase Agreement and to purchase
accounts receivables from the Seller pursuant to the terms
thereof, the sufficiency of which is hereby acknowledged, the
Guarantors hereby covenant and agree as follows:
1. The Guarantors hereby unconditionally and irrevocably
guarantee the payment in full of any losses incurred by
KBK under the Purchase Agreement (collectively the
"Obligations") to the extent that such losses are related
to or attributable to any of the following limited
circumstances only:
(a) In the event any of the representations and
warranties set forth in Section 9 of the Purchase
Agreement was not true when made or ceases to be
true for any reason.
(b) In the event that the Seller, any Guarantor, or any
other person, without receiving prior written
consent from KBK, shall cash, deposit, or retain,
any checks, drafts, monies or proceeds of the
Accounts purchased by KBK, and the Seller shall fail
to immediately tender the entire amount of the same
to KBK.
2. KBK shall not be required, as a condition precedent to
making a demand upon the Guarantors or to bringing an
action against the Guarantors under this Guaranty, to make
demand upon, or to institute any action or proceeding, at
law or in equity against the Seller or anyone else, or to
exhaust its remedies against the Seller, or anyone else,
or against any collateral security. All remedies afforded
to KBK by reason of this Guaranty are separate and
cumulative remedies and it is agreed that not one of such
remedies, whether exercised by KBK or not, shall be deemed
to be exclusive of any of the other remedies available to
KBK and shall not limit or prejudice any other remedy
which KBK may have against any party, including the
Guarantors.
3. The Guarantors shall remain liable on this Guaranty
notwithstanding any change or changes in the terms,
covenants or conditions of the Purchase Agreement, or any
amendment thereto, hereafter made or granted, or any delay
on the part of KBK in exercising its rights hereunder or
thereunder, it being the intention hereof that each of the
Guarantors shall remain liable as principals until the
full amount of the Obligations guaranteed hereby, with
interest and any sums which may be due thereon, shall have
been fully paid, notwithstanding any act or omission which
might otherwise operate as a legal or equitable discharge
of the Guarantors.
4. The Guarantors hereby waive (a) notice of acceptance of
this Guaranty; (b) presentment and demand for payment of
the Obligations or any portion thereof; (c) protest and
notice of dishonor or default to the Guarantors or to any
other person or party with respect to the Obligations or
any portion thereof; (d) all other notices to which the
Guarantors might otherwise be entitled; (e) any demand for
payment or performance of this Guaranty; and (f) all
Guaranty and suretyship defenses or other defenses in the
nature thereof (including, without limitation, all rights
Guarantor has under, or the requirements imposed by,
Chapter 34 of the Texas Business and Commerce Code, as may
be amended from time to time).
5. Each Guarantor shall promptly furnish to KBK at any time
and from time to time such financial statements and other
financial information of Guarantor as KBK may require, in
form and detail satisfactory to KBK (including, without
limitation, annual financial statements within 45 days
after the end of each calendar year).
6. This Guaranty shall inure to the benefit of, and may be
enforced by KBK, and its respective successors and
assigns, and shall be binding upon and enforceable against
the Guarantors and their respective heirs, executors,
legal representatives, administrators, or successors and
assigns thereof. All obligations of the Guarantors
hereunder shall be joint and several.
7. The Guarantors agree that in the event this Guaranty is
placed in the hands of an attorney for enforcement, the
Guarantors will reimburse KBK for all expenses incurred,
including reasonable attorneys' fees.
8. This Guaranty cannot be modified or amended except in a
writing, duly executed by the Guarantors and KBK.
9. Each Guarantor has received, and will receive, direct
and/or indirect benefits by and from the making of this
Guaranty and the execution of the Purchase Agreement by
KBK.
10. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF. THIS GUARANTY IS PERFORMABLE IN TARRANT COUNTY,
TEXAS. EACH GUARANTOR AGREES THAT TARRANT COUNTY, TEXAS
SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE
OR CLAIM ARISING UNDER OR RELATING TO THIS GUARANTY, AND
THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO DECIDE
ANY SUCH DISPUTE OR CLAIM. EACH GUARANTOR CONSENTS TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY
SUCH DISPUTE OR CLAIM. EACH GUARANTOR IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND
ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT PERMITTED BY LAW, ANY RIGHT EACH GUARANTOR MAY HAVE
TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY
OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
12. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have executed this Guaranty
the day and year above first written.
GUARANTORS:
GORDON REISINGER JOHN DERNER
SSN ###-##-#### SSN ###-##-####
RED OAK HEREFORD FARMS, INC.
By:
Print Name:
Title:
STATE OF
COUNTY OF
The foregoing instrument was acknowledged before me this
_________ day of April, 1998, by John Derner.
Witness my hand and official seal.
My Commission expires:
(Notary Public)
<PAGE>
April __, 1998
Millard Refrigerated Services
2523 Gomez Avenue
Omaha, Nebraska 68107
Gentlemen:
Pursuant to our financing agreements (the "Agreements")
with KBK Financial, Inc. ("KBK"), we have granted to KBK a
security interest in, among other things: (a) all of our
present and future inventory and farm products, wherever
located, and the proceeds thereof, including without limitation
all of our inventory and farm products which we have heretofore
delivered to you for storage and is now in your possession and
any of our inventory and farm products which we may in the
future deliver to you for storage; and (b) all documents of
title representing any of the foregoing and the proceeds
thereof. Such inventory and farm products includes, without
limitation, certain livestock, livestock products, meat and
meat products.
Pursuant to KBK's rights under the Agreements, KBK has
requested and we have agreed to issue to you the following
instructions regarding our inventory and farm products, all of
which instructions may not hereafter be modified or rescinded
by us except with the express written consent of KBK.
With respect to any of our inventory and farm products
hereafter delivered by us to you for storage, you shall issue
therefor only non-negotiable warehouse receipts and such non-
negotiable warehouse receipts shall be issued only in KBK's
name. You shall at no time issue negotiable warehouse receipts
to any party with respect to any of our inventory and farm
products.
Please sign this letter below where provided to indicate
your consent and agreement to all of the foregoing and your
affirmation that:
(a) you have not heretofore issued negotiable warehouse
receipts with respect to any of our inventory and farm products
now in your possession; and
(b) with respect to any of our inventory and farm
products now or hereafter coming into your possession, you
shall honor any subsequent instructions issued to you by KBK as
to the disposition thereof, notwithstanding any instructions to
the contrary which you may receive from us or any third party,
and notwithstanding the fact that non-negotiable warehouse
receipts representing any such inventory and farm products have
been issued by you to us and are in our possession; and
(c) any security interest, lien, right of distraint or
levy or other encumbrance or claim in your favor, whether for
unpaid slaughter, fabrication, and processing services, or
storage charges or otherwise, that you may now or hereafter
have in any of our inventory and farm products, shall be
subject and subordinate in all respects to any security
interest which KBK may now or hereafter have in any such
inventory and farm products; and
(d) these instructions shall not be modified, amended,
or supplemented without the prior written consent of KBK; and
(e) KBK shall be provided with reasonable access to the
inventory and farm products described above for purposes of
auditing or appraising such inventory and farm products or
exercising its rights and remedies from time to time.
Very truly yours,
RED OAK FARMS, INC.
By:_______________________
Title:____________________
AGREED:
MILLARD REFRIGERATED SERVICES
By:_________________________________
Title:________________________________
<PAGE>
April __, 1998
Nebraska Beef, Inc.
4501 S. 36th Street
Omaha, Nebraska 68107
Gentlemen:
Pursuant to our financing agreements (the "Agreements")
with KBK Financial, Inc. ("KBK"), we have granted to KBK a
security interest in, among other things: (a) all of our
present and future inventory and farm products, wherever
located, and the proceeds thereof, including without limitation
all of our inventory and livestock which we have heretofore
delivered to you for storage and is now in your possession and
any of our inventory and livestock which we may in the future
deliver to you for storage and/or slaughter and fabrication;
and (b) all documents of title representing any of the
foregoing and the proceeds thereof. Such inventory and farm
products includes, without limitation, certain livestock,
livestock products, meat and meat products.
Pursuant to KBK's rights under the Agreements, KBK has
requested and we have agreed to issue to you the following
instructions regarding our inventory and farm products, all of
which instructions may not hereafter be modified or rescinded
by us except with the express written consent of KBK.
With respect to any of our inventory and farm products
hereafter delivered by us to you for storage or processing, you
shall issue therefor only non-negotiable warehouse receipts and
such non-negotiable warehouse receipts shall be issued only in
KBK's name. You shall at no time issue negotiable warehouse
receipts to any party with respect to any of our inventory.
Please sign this letter below where provided to indicate
your consent and agreement to all of the foregoing and your
affirmation that:
(a) you have not heretofore issued negotiable warehouse
receipts with respect to any of our inventory or farm products
now in your possession; and
(b) with respect to any of our inventory and farm
products now or hereafter coming into your possession, you
shall honor any subsequent instructions issued to you by KBK as
to the disposition thereof, notwithstanding any instructions to
the contrary which you may receive from us or any third party,
and notwithstanding the fact that non-negotiable warehouse
receipts representing any such inventory have been issued by
you to us and are in our possession; and
(c) any security interest, lien, right of distraint or
levy or other encumbrance or claim in your favor, whether for
unpaid slaughter, fabrication, and processing services, or
storage charges or otherwise, that you may now or hereafter
have in any of our inventory or farm products, shall be subject
and subordinate in all respects to any security interest which
KBK may now or hereafter have in any such inventory and farm
products; and
(d) these instructions shall not be modified, amended,
or supplemented without the prior written consent of KBK; and
(e) KBK shall be provided with reasonable access to the
inventory and farm products described above for purposes of
auditing or appraising such inventory and farm products or
exercising its rights and remedies from time to time; and
(f) Without any obligation to do so, KBK (1) has the
right (exercised in KBK's sole and absolute discretion) to
perform any or all of our obligations under that certain
agreement dated March 13, 1998, between Nebraska Beef and us
(the "Nebraska Beef Agreement") pertaining to, among other
things, certain slaughter and fabrication services provided by
Nebraska Beef from time to time, and (ii) may exercise any or
all of our rights under the Nebraska Beef Agreement. We hereby
grant to KBK a power of attorney to exercise such rights on our
behalf, it being agreed that such power is coupled with an
interest and is irrevocable. In particular, and without
limitation of the foregoing, KBK may tender livestock (in
which we have granted to KBK a security interest) to Nebraska
Beef for slaughter and fabrication in accordance with the terms
and conditions of the Nebraska Beef Agreement.
Very truly yours,
RED OAK FARMS, INC.
By:_______________________
Title:____________________
AGREED:
NEBRASKA BEEF, INC.
By:_________________________________
Title:________________________________
<PAGE>
REVOLVING CREDIT PROMISSORY NOTE
(Inventory)
$1,500,000 April 20, 1998
FOR VALUE RECEIVED, on or before April 19, 1999 ("Maturity
Date"), the undersigned and if more than one, each of them,
jointly and severally (hereinafter referred to as "Borrower"),
promises to pay to the order of KBK FINANCIAL, INC. ("KBK") at
its offices in Tarrant County, Texas, at 301 Commerce Street,
Suite 2200, Fort Worth, Texas 76102, the principal amount of
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,500,000.00) ("Total Principal Amount"), or such amount less
than the Total Principal Amount which is outstanding from time
to time if the total amount outstanding under this Revolving
Credit Promissory Note ("Note") is less than the Total
Principal Amount, together with interest at the rate set forth
below on such portion of the Total Principal Amount which has
been advanced to Borrower from the date advanced until paid.
Interest Rate. The unpaid principal amount of this Note shall
bear interest at a fluctuating rate per annum which shall from
day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("Contract Rate"),
calculated on the basis of the actual days elapsed but computed
as if each year consisted of 360 days, equal to the sum of (i)
the Base Rate of interest ("Base Rate") as established from
time to time by KBK (which may not be the lowest, best or most
favorable rate of interest which KBK may charge on loans to its
customers) plus (ii) five percent (5.0%), each change in the
rate to be charged on this Note to become effective without
notice to Borrower on the effective date of each change in the
Maximum Rate or the Base Rate, as the case may be; provided,
however, in no event shall the Contract Rate be less than seven
percent (7.0%) per annum; provided, further that if at any time
the Contract Rate shall exceed the Maximum Rate, thereby
causing the interest on this Note to be limited to the Maximum
Rate, then any subsequent reduction in the Base Rate shall not
reduce the rate of interest on this Note below the Maximum Rate
until the total amount of interest accrued on this Note equals
the amount of interest which would have accrued on this Note if
the Contract Rate had at all times been in effect. The term
"Maximum Rate", as used herein, shall mean at the particular
time in question the maximum rate of interest which, under
applicable law, may then be charged on this Note. If such
maximum rate of interest changes after the date hereof, the
Maximum Rate shall be automatically increased or decreased, as
the case may be, without notice to Borrower from time to time
as of the effective date of each change in such maximum rate.
If applicable law ceases to provide for such a maximum rate of
interest, the Maximum Rate shall be equal to eighteen percent
(18%) per annum.
Repayment Terms. The principal of and all accrued but unpaid
interest on this Note shall be due and payable as follows:
(a) interest shall be due and payable monthly as it
accrues, commencing on the 15th day of May, 1998, and
continuing on the 15th day of each successive month
thereafter during the term of this Note; and
(b) the outstanding principal balance of this Note,
together with all accrued but unpaid interest, shall be
due and payable on the Maturity Date.
Borrower authorizes KBK to effect all payments due under this
Note and to collect all sums due hereunder (whether by
acceleration or otherwise) by debiting Borrower's account
number 268684 at First National Bank of Red Oak, Iowa (the
"Debit Account") through the Automated Clearing House system
("ACH"). Such authorization shall not affect the obligations
of Borrower to make all payments when due hereunder. If on any
payment date there are insufficient funds in the Debit Account
to make such payments in full, Borrower agrees to pay KBK on
demand a $100.00 manual processing fee. All payments of
principal or interest on this Note shall be made in lawful
money of the United States of America in immediately available
funds, and, if such payments are not made via ACH, shall be
made at KBK's address indicated above, or such other place as
the holder of this Note shall designate in writing to Borrower.
If any payment of principal of or interest on this Note shall
become due on a day which is not a Business Day (as hereinafter
defined), such payment shall be made on the next succeeding
Business Day and any such extension of time shall be included
in computing interest in connection with such payment. As used
herein, the term "Business Day" shall mean any day other than a
Saturday, Sunday or any other day on which KBK's office in Fort
Worth, Texas is closed. All regularly scheduled payments of
the indebtedness evidenced by this Note shall be applied first
to any accrued but unpaid interest then due and payable
hereunder and then to the principal amount then due and
payable. The books and records of KBK shall be prima facie
evidence of all outstanding principal of and accrued and unpaid
interest on this Note. To the extent that any interest is not
paid on or before the fifth day after it becomes due and
payable, KBK may, at its option, add such accrued interest to
the principal of this Note. Notwithstanding anything herein to
the contrary, upon an Event of Default (as hereinafter defined)
or at maturity, whether by acceleration or otherwise, all
principal of this Note shall, at the option of KBK, bear
interest at a fixed rate equal to 18% per annum until paid.
Prepayment Penalty. Borrower may from time to time prepay all
or any portion of the outstanding principal balance of this
Note without premium or penalty; provided, however, if (a) the
outstanding principal balance hereof is prepaid in full, and
(b) Borrower notifies KBK of Borrower's intention to terminate
the credit facility (described in the Loan Agreement, defined
below) prior to the Maturity Date, then, in addition to such
principal prepayment, there shall be due and owing by Borrower
at such time a prepayment penalty equal to one percent (1.0%)
of the Total Principal Amount. Furthermore, should Borrower
notify KBK of Borrower's intention to voluntarily terminate the
Purchase Agreement (as hereinafter defined), it shall be deemed
notification by Borrower to KBK of Borrower's intention to
voluntarily terminate financing under this Note and to prepay
this Note in full on the same day of the effective date of
termination of the Purchase Agreement, such prepayment to be
subject to the terms and conditions of the foregoing prepayment
penalty.
Loan Documents. This Note is subject to the terms and
conditions set forth in that certain Loan Agreement of even
date herewith, by and between Borrower and KBK, as may be
amended from time to time (the "Loan Agreement). This Note,
the Loan Agreement and all other documents evidencing,
securing, governing, guaranteeing and/or pertaining to this
Note are hereinafter collectively referred to as the "Loan
Documents". The holder of this Note is entitled to the
benefits and security provided in the Loan Documents.
Advances. Subject to the terms of the Loan Agreement, Borrower
may request advances and make payments hereunder from time to
time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time
hereunder shall not at any time exceed the Total Principal
Amount. The unpaid balance of this Note shall increase and
decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or
canceled prior to the Maturity Date, although the entire
principal balance hereof may from time to time be paid in full.
Subject to the terms of this Note and the other Loan Documents,
Borrower may borrow, repay and reborrow hereunder.
Purpose. Borrower agrees that no advances under this Note
shall be used for personal, family or household purposes, and
that all advances hereunder shall be used solely for business,
commercial, investment or other similar purposes.
Event of Default. Borrower agrees that upon the occurrence of
any one or more of the following events of default ("Event of
Default"):
(a) failure of Borrower to pay when due any installment of
principal of or interest on this Note or on any other
indebtedness now or hereafter owing by Borrower to KBK; or
(b) the occurrence of any event of default specified in any of
the other Loan Documents; or
(c) the occurrence of an event of default or the breach of any
term or covenant under that certain Account Transfer and
Purchase Agreement of even date herewith, between KBK and
Borrower, as may be amended from time to time (the "Purchase
Agreement") or if the Purchase Agreement terminates or is
terminated by either party for any reason; or
(d) the bankruptcy or insolvency of, the assignment for the
benefit of creditors by, or the appointment of a receiver for
any of the property of, or the liquidation, termination,
dissolution or death or legal incapacity of Borrower;
the holder of this Note may, at its option, without further
notice or demand, (i) declare the outstanding principal balance
of and accrued but unpaid interest on this Note at once due and
payable, (ii) refuse to advance any additional amounts under
the Note, (iii) foreclose all liens securing payment hereof,
(iv) pursue any and all other rights, remedies and recourses
available to the holder hereof, including but not limited to
any such rights, remedies or recourses under the other Loan
Documents, at law or in equity, or (v) pursue any combination
of the foregoing. The failure to exercise the option to
accelerate the maturity of this Note or any other right remedy
or recourse available to the holder hereof upon the occurrence
of an Event of Default hereunder shall not constitute a waiver
of the right of the holder of this Note to exercise the same at
that time or at any subsequent time with respect to such Event
of Default or any other Event of Default. The rights, remedies
and recourses of the holder hereof, as provided in this Note
and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or
together as often as occasion therefore shall arise, at the
sole discretion of the holder hereof. The acceptance by the
holder hereof of any payment under this Note which is less than
the payment in full of all amounts due and payable at the time
of such payment shall not (i) constitute a waiver of or impair,
reduce, release or extinguish any right, remedy or recourse of
the holder hereof, or nullify any prior exercise of any such
right, remedy or recourse, or (ii) impair, reduce, release or
extinguish the obligations of any party liable under any of the
other Loan Documents as originally provided herein or therein.
Compliance With Usury Laws. This Note and the other Loan
Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable usury laws.
Accordingly, notwithstanding any provision to the contrary in
this Note or any of the other Loan Documents, in no event
whatsoever shall this Note or any of the other Loan Documents
require the payment or permit the payment, taking, reserving,
receiving, collection or charging of any sums constituting
interest under applicable laws which exceed the maximum amount
permitted by such laws. If any such excess interest is called
for, contracted for, charged, taken, reserved, or received in
connection with this Note or any of the other Loan Documents,
or in any communication by KBK or any other person to Borrower
or any other person, or in the event all or part of the
principal or interest shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance
whatsoever the amount of interest contracted for, charged,
taken, reserved, or received on the amount of principal
actually outstanding from time to time under this Note or any
of the other Loan Documents shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such
event it is agreed as follows: (i) the provisions of this
Section shall govern and control; (ii) neither Borrower nor any
other person or entity now or hereafter liable for payments
under this Note or any of the other Loan Documents shall be
obligated to pay the amount of such interest to the extent such
interest is in excess of the maximum amount of interest
permitted by applicable usury laws; (iii) any such excess which
is or has been received notwithstanding this Section shall be
credited against the then unpaid principal balance of this Note
and the other Loan Documents or, if this Note or any of the
other Loan Documents has been or would be paid in full by such
credit, refunded to Borrower, and (iv) the provisions of this
Note or any of the other Loan Documents, and any commuication
to Borrower, shall immediately be deemed reformed and such
excess interest reduced, without the necessity of executing any
other document, to the maximum lawful rate allowed under
applicable laws as now or hereafter construed by courts having
jurisdiction hereof or thereof. Without limiting the
foregoing, all calculations of the rate of interest contracted
for, charged, taken, reserved, or received in connection
herewith which are made for the purpose of determining whether
such rate exceeds the maximum lawful rate shall be made to the
extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of
this Note or any of the other Loan Documents, including all
prior and subsequent renewals and extensions, all interest at
any time contracted for, charged, taken, reserved, or received.
The terms of this Section shall be deemed to be incorporated
into every other Loan Document.
Borrower and KBK agree that Chapter 346 of the Texas Finance
Code, formerly Chapter 15 of the Texas Revised Civil Statutes
(which regulates certain revolving loan accounts and revolving
tri-party accounts) shall not apply to any revolving loan
accounts created under this Note or maintained in connection
therewith.
To the extent that the interest rate laws of the State of Texas
are applicable to this Note, the applicable interest rate
ceiling is the indicated (weekly) ceiling determined in
accordance with Article 5069-1D.002 of the Texas Revised Civil
Statutes, as amended, and, to the extent that this Note is
deemed an open end account as such term is defined in Article
5069-1B.002 (14) of the Texas Revised Civil Statutes, as
amended, KBK retains the right to modify the interest rate in
accordance with applicable law. As used in this Note, the term
"applicable law" means the laws of the State of Texas laws or
the United States of America, whichever laws allow the greater
interest, as such laws now exist or may be changed or amended
or come into effect in the future.
Costs of Collection; Waivers. If this Note is placed in the
hands of an attorney for collection, or is collected in whole
or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in
addition to all other sums payable hereunder, all costs and
expenses of collection, including but not limited to reasonable
attorneys' fees. Borrower and any and all endorsers and
guarantors of this Note severally waive presentment for
payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration
and dishonor, diligence in enforcement and indulgences of every
kind and without further notice hereby agree to renewals,
extensions, exchanges or releases of collateral, taking of
additional collateral indulgences or partial payments, either
before or after maturity.
Governing Law; Venue; Submission to Jurisdiction; Waiver of
Jury Trial. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS
NOTE IS PERFORMABLE IN TARRANT COUNTY, TEXAS. BORROWER AGREES
THAT TARRANT COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR
LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO
THIS NOTE, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH
TO DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER CONSENTS TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
IN TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE
OR CLAIM. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT
IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT
IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SELLER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Waiver of Jury Trial. BORROWER HEREBY IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR
ASSOCIATED HEREWITH.
FINAL AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN KBK AND BORROWER WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
RED OAK FARMS, INC.
By:______________________
Print Name:
Title:
<PAGE>
April __, 1998
Quality Refrigerated Services
6029 N. 16th Street
Omaha, Nebraska 68110
Gentlemen:
Pursuant to our financing agreements (the "Agreements")
with KBK Financial, Inc. ("KBK"), we have granted to KBK a
security interest in, among other things: (a) all of our
present and future inventory and farm products, wherever
located, and the proceeds thereof, including without limitation
all of our inventory and farm products which we have heretofore
delivered to you for storage and is now in your possession and
any of our inventory and farm products which we may in the
future deliver to you for storage; and (b) all documents of
title representing any of the foregoing and the proceeds
thereof. Such inventory and farm products includes, without
limitation, certain livestock, livestock products, meat and
meat products.
Pursuant to KBK's rights under the Agreements, KBK has
requested and we have agreed to issue to you the following
instructions regarding our inventory and farm products, all of
which instructions may not hereafter be modified or rescinded
by us except with the express written consent of KBK.
With respect to any of our inventory and farm products
hereafter delivered by us to you for storage, you shall issue
therefor only non-negotiable warehouse receipts and such non-
negotiable warehouse receipts shall be issued only in KBK's
name. You shall at no time issue negotiable warehouse receipts
to any party with respect to any of our inventory and farm
products.
Please sign this letter below where provided to indicate
your consent and agreement to all of the foregoing and your
affirmation that:
(a) you have not heretofore issued negotiable warehouse
receipts with respect to any of our inventory and farm products
now in your possession; and
(b) with respect to any of our inventory and farm
products now or hereafter coming into your possession, you
shall honor any subsequent instructions issued to you by KBK as
to the disposition thereof, notwithstanding any instructions to
the contrary which you may receive from us or any third party,
and notwithstanding the fact that non-negotiable warehouse
receipts representing any such inventory and farm products have
been issued by you to us and are in our possession; and
(c) any security interest, lien, right of distraint or
levy or other encumbrance or claim in your favor, whether for
unpaid slaughter, fabrication, and processing services, or
storage charges or otherwise, that you may now or hereafter
have in any of our inventory and farm products, shall be
subject and subordinate in all respects to any security
interest which KBK may now or hereafter have in any such
inventory and farm products; and
(d) these instructions shall not be modified, amended,
or supplemented without the prior written consent of KBK; and
(e) KBK shall be provided with reasonable access to the
inventory and farm products described above for purposes of
auditing or appraising such inventory and farm products or
exercising its rights and remedies from time to time.
Very truly yours,
RED OAK FARMS, INC.
By:_______________________
Title:____________________
AGREED:
QUALITY REFRIGERATED SERVICES
By:_________________________________
Title:________________________________
<PAGE>
SUBORDINATION AGREEMENT
(Debt)
This Subordination Agreement ("Agreement") is made and
entered into as of the ____ day of April, 1998, by and between
KBK Financial, Inc., a Delaware corporation ("KBK") and
MoorMan's, Inc., an Illinois corporation ("Creditor"), with
respect to the following facts:
A. KBK and Red Oak Farms, Inc., an Iowa corporation ("Client"),
have entered into that certain Account Transfer and Purchase
Agreement, dated to be effective as of April _____, 1998,
("Purchase Agreement"), pursuant to which Purchase Agreement
the parties have provided for the terms and conditions under
which KBK may, from time to time, purchase from Client
certain accounts receivable of Client and related rights
(hereinafter collectively referred to as the "Purchased
Accounts"), and Client has made certain covenants,
representatives, and warranties to KBK with respect to each
Purchased Account. KBK has or will provide certain
financing to Client as evidenced by that certain Revolving
Credit Promissory Note dated as of April _____, 1998,
payable by Client to the order of KBK in the stated
principal amount of $1,500,000 (such promissory note,
together with all renewals, amendments and modifications
thereof, the "KBK Note").
B. To secure Client's obligations to KBK under the Purchase
Agreement and the KBK Note, Client has granted to KBK a
first priority security interest in and to all present and
future accounts, general intangibles, equipment, inventory,
livestock, documents, instruments, chattel paper, and
contract rights, and any and all proceeds thereof, and such
other and additional collateral as may be described in the
Purchase Agreement and that certain Security Agreement of
even date with the KBK Note, executed by Client for the
benefit of KBK (all of the foregoing are hereinafter
collectively referred to as the "Collateral").
C. Client has executed that certain promissory note dated
______________, payable by Client to the order of Creditor
in the stated principal amount of $__________, a copy of
which is attached hereto as Exhibit A (the "Subordinated
Note").
D. KBK and Creditor intend, by this Agreement, to establish,
between themselves, and their respective successors and
assigns, for the subordination by Creditor of all
indebtedness and other obligations of Client now and
hereafter owing to Creditor (including, without limitation,
all indebtedness owing under the Subordinated Note, and any
and all renewals, modifications, and extensions thereof) to
the obligations of Client to KBK, however contingent.
NOW, THEREFORE, FOR VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Subordination of Obligations.
1.1 The term "Obligations" is used and shall be
construed in this Agreement in its broadest and
most comprehensive sense and shall mean all
present and future indebtedness of Client which
may be, from time to time, directly or
indirectly, incurred by Client, and any and all
extensions, renewals, renewals, and modifications
thereof, including, but not limited to, any
invoices, contracts, agreements, or other
instruments evidencing the same, and all
promissory notes, guarantees, debts, demands,
monies, indebtedness, liabilities and obligations
owed, or to become owing, including interest,
principal, costs, and other charges, and all
claims, rights, causes of actions, judgments,
decrees, remedies, liens, security interests, or
other obligations, and all security therefor, of
any kind whatsoever and howsoever arising,
whether voluntary, involuntary, absolute,
contingent, or by operation of law, specifically
excluding herefrom all obligations due to
Creditor by Client for goods purchased by Client
from Creditor in the ordinary course of and used
in the business of Client.
1.2 Any and all Obligations now owing and hereafter
owed by Client to Creditor, including, without
limitation, all indebtedness evidenced by the
Subordinated Note (the "Creditor Obligations")
are hereby unconditionally and irrevocably
subordinated and made subject to any and all
Obligations now owing and hereafter owed by
Client to KBK, including, without limitation, all
amounts owing by Client under the KBK Note
(hereinafter collectively the "KBK Obligations"),
for so long as any of the KBK Obligations shall
remain unpaid and not fully and finally
discharged and satisfied.
1.3 Until termination of this Agreement, Creditor
agrees: (a) not to collect, or to receive payment
upon, by setoff or in any other manner, all or
any portion of the Creditor Obligation; (b) not
to sell, assign, transfer, pledge, or grant a
security interest in the Creditor Obligations
(except subject expressly to this Agreement); (c)
not to accelerate the maturity of the Creditor
Obligations; (d) not to commence, prosecute or
participate in any administrative, legal, or
equitable action that might adversely affect
Client or KBK's interests; (e) not to join in any
petition for bankruptcy or assignment for the
benefit of creditors agreement affecting Client
or any of its assets, or seek to appoint a
receiver for all or any portion of Client's
assets; (f) not to take any lien or security on
Client's assets or property, real or personal;
(g) not to incur any obligation to or receive any
loans advances, or payments of any kind or gifts
from Client; (h) not to take any other action,
directly or indirectly, which would in any manner
interfere with or impair the rights of KBK with
respect to any collateral for the KBK
Obligations, without KBK's prior written consent;
and (i) not to amend or modify the terms of the
Subordinated Note without the prior written
consent of KBK.
1.4 Except as otherwise hereinafter expressly
provided, all of the KBK Obligations now or
hereafter existing shall be first paid,
satisfied, discharged or satisfactory provisions
made therefore by Client before any payment shall
be made by Client on the Creditor Obligations.
This priority of payment shall apply at all times
until all of the KBK Obligations have been fully
and finally repaid, satisfied, and discharged in
full.
1.5 In the event of any liquidation or dissolution of
Client, whether partial or complete, voluntary or
involuntary, by operation of law or otherwise, or
in the event of any receivership, insolvency or
bankruptcy proceedings by or against Client under
any bankruptcy or insolvency laws (a) any and all
payments or distributions of any kind or
character, whether in cash, securities, or other
property, which thereafter shall be payable or
deliverable to Creditor upon or with respect to
any portion of the Creditor Obligations, shall
immediately be paid or delivered by Creditor
directly to KBK for application in reduction of
the KBK Obligations, whether or not then due or
mature, in such manner as KBK shall determine in
its sole discretion, and (b) KBK shall have the
right (but not the obligation) to file a claim on
behalf of Creditor respecting the Creditor
Obligations in any such proceedings and to
collect and receive all payments that may be
declared or become payable on the claim of
Creditor thereunder, or interest thereon (up
until full payment and performance of the KBK
Obligations at which time, upon request by
Creditor, such claim shall be assigned or
otherwise conveyed to Creditor without recourse),
and KBK hereby is irrevocably appointed as
attorney-in-fact for Creditor for such purpose in
all such proceedings.
1.6 Creditor further agrees that should Creditor take
or receive any security interest in, or lien by
way of attachment, execution or otherwise on any
of the assets or property, real or personal, of
Client, or should Creditor take or join in any
other action or proceeding contrary to this
Agreement, at any time prior to the termination
of this Agreement, KBK shall be entitled to have
the same vacated, dissolved and set aside by such
proceedings at law, or otherwise, as KBK may deem
proper. This Agreement shall be and constitutes
full and sufficient grounds for such action and
shall entitle KBK to become a party to any
proceedings at law, or otherwise, initiated by
KBK or by any other party, in or by which KBK may
deem it proper to protect KBK's interests
hereunder. Creditor shall be liable to KBK for
all losses, expenses, and other damages sustained
by KBK by reason of such breach, including
attorneys' fees and related costs in any such
legal action or proceeding.
1.7 If Creditor shall receive any payments, security
interest, or other rights in any property of
Client in violation of this Agreement, such
payment or property shall be deemed to be
received and held by Creditor in trust for KBK
and shall forthwith be delivered and transferred
to KBK for application in reduction of the KBK
Obligations, whether or not then due or mature,
in such manner as KBK shall determine in its sole
discretion.
1.8 Notwithstanding any provision to the contrary
contained herein, Creditor shall be entitled to
receive regularly scheduled interest and
principal payments from Client in an amount set
forth in the schedule attached hereto as Exhibit
"A"; provided, however, Creditor's right to
receive any such payments under the Subordinated
Note shall be automatically and immediately
revoked in the event (a) Client is in breach or
default of any documents, instruments or
agreements evidencing, guaranteeing, securing or
pertaining to the KBK Obligations, or (b) the
terms and provisions of this Agreement are
breached. Any amounts received by Creditor after
the time Creditor's right to receive payments
under the Subordinated Note have been revoked
shall be held in trust by Creditor for the
benefit of KBK and shall be delivered immediately
to KBK. It is understood and agreed that
Creditor shall not be entitled receive any
prepayments of all or any part of the Creditor
Obligations.
2. Representations and Warranties of Creditor. Creditor
hereby represents and warrants to KBK that Creditor is
the sole holder and beneficial owner of the
Subordinated Note and all interests and rights created
thereby with respect to said instruments relating
thereto, and have not assigned, transferred, pledged,
or granted a security interest in the Subordinated
Note, or any right or interest therein or thereunder,
and has not entered into any agreement, option, or
other Agreement for the sale, assignment, pledge or
grant of a security interest in any of the foregoing,
including, without limitation, any grant of any option,
right of first refusal, or other pre-emptive right to
purchase or acquire any right or interest therein.
3. Reliance by KBK. This Agreement is an irrevocable and
continuing agreement of subordination and KBK may
continue to rely upon same in providing financing and
other financial accommodations to or for the benefit of
Client. In connection therewith, KBK may without
notice to or consent from Creditor and without
impairing the rights and obligations of the parties
under this Agreement (a) release any person or entity
now or hereafter liable upon any of the KBK
Obligations, (b) permit substitutions of or release all
or any portion of the Collateral, (c) renew, extend or
modify the terms of the KBK Obligations or any document
or instrument evidencing, governing, securing or
guaranteeing any of the KBK Obligations, and/or (d)
provide additional financing to Client after the date
hereof.
4. No Commitment. It is understood and agreed that this
Agreement shall in no way be construed as a commitment
or agreement by KBK to continue financing arrangements
with Client and that KBK may terminate such
arrangements at any time, in accordance with KBK's
agreements with Client.
5. Financial Condition of Client. Creditor has adequate
means to obtain from Client on a continuing basis
information concerning the financial condition of
Client and Creditor is not relying on KBK to provide
such information now or in the future. Creditor
acknowledges and agrees that KBK is not obligated to
keep Creditor informed of Client's financial condition.
6. Affect on Client's Actions. Client shall not be
entitled for any purpose or under any circumstances to
rely upon the failure of KBK or Creditor to comply with
the terms hereof. Nothing herein contained shall be
deemed to authorize Client to take any action not
permitted under any agreement between Client and KBK or
Creditor. Client shall not be deemed to be a third
party beneficiary to this Agreement or to have any
rights hereunder whatsoever.
7. No Challenge to Validity. Creditor covenants and
agrees not to take any action to seek to avoid or set
aside the perfected security interest in the Purchased
Accounts or the Collateral or to seek to rescind,
modify, or circumvent the provisions of this Agreement.
8. Termination. This Agreement shall terminate on the
first date when both of the following events shall have
occurred and exist simultaneously: (a) full and final
payment in cash of all of the KBK Obligations; and (b)
termination or expiration of the Purchase Agreement and
all obligations or commitments of KBK to provide
financing to Client.
9. Amendment. This Agreement may not be amended except by
written agreement executed by both KBK and Creditor.
10. Captions. Captions as used in this Agreement are for
convenience only, and shall not affect the construction
of this Agreement.
11. Governing Law; Jury Waiver. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas.
The parties hereto agree that Tarrant County, Texas, will be the
exclusive venue for litigation of any dispute or claim arising under
or related to this Agreement. the parties hereto waive the right
to a trial by jury in any action or proceeding of any kind arising
out of or relating to this agreement.
12. Successors and Assigns. Unless otherwise herein
provided, this Agreement shall be binding upon and
inure to the benefit of all successors and assigns,
including, without limitation, such transferee of any
of the obligations of Client to KBK or to Creditor
under any agreement or by law. Any transferee of the
obligations or indebtedness owed by Client to Creditor
or any part thereof, shall take such obligations or
indebtedness or any part thereof subject to the
provisions of this Agreement.
13. Entire Agreement. This Agreement constitutes the
complete and integrated agreement of both KBK and
Creditor with respect to the subject matter hereof,
supersedes all prior or contemporaneous oral
agreements, assigns or negotiations, and may not be
orally modified or supplemented by parol or extrinsic
evidence.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be original, but
all of which constitute but one agreement. Delivery of
an executed counterpart of this Agreement by
telefacsimile shall be equally effective as delivery of
a manually executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"Creditor" "KBK"
MOORMAN'S, INC. KBK FINANCIAL, INC.
By: By:
Name: Name:
Title: Title:
ACKNOWLEDGMENT BY CLIENT
The undersigned, being the Client named in the foregoing
Agreement, hereby (i) accepts and consents to such Agreement,
(ii) agrees to be bound by all of the provisions thereof, (iii)
agrees to recognize all priorities and other rights granted
thereby, (iv) agrees to pay Creditor in accordance therewith, and
(v) acknowledges and agrees that such Agreement may be altered,
modified or amended by KBK and Creditor without notice to or
consent of Client.
RED OAK FARMS, INC.
By:
Name:
Title:
Date:
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the 20th
day of April, 1998, by RED OAK FARMS, INC., an Iowa corporation
(hereinafter called "Debtor", whether one or more), in favor of
KBK FINANCIAL, INC., a Delaware corporation authorized to do
business in Texas ("Secured Party"). Debtor hereby agrees with
Secured Party as follows:
1. Definitions. As used in this Agreement, the following
terms shall have the meanings indicated below:
(a) "Code" shall mean the Uniform Commercial Code as in
effect in the State of Texas, as it may hereafter be amended
from time to time.
(b) "Collateral" shall mean all of the property set forth
below:
Accounts. All present and future accounts, contract
rights, chattel paper, documents, instruments, warehouse
receipts, deposit accounts and general intangibles now or
hereafter owned by Debtor, all money and other funds of
Debtor which may now or hereafter come into the
possession, custody or control of Secured Party, all books
of account and customer lists, and in any case where an
account arises from the sale of goods, the interest of
Debtor in such goods.
Inventory. All present and hereafter acquired inventory
(including without limitation, all raw materials, work in
process and finished goods) owned by Debtor wherever
located, and all warehouse receipts pertaining to such
inventory.
Farm Products. All present and hereafter acquired
livestock, supplies used or produced in farming
operations, products of livestock (whether in their
manufactured state or unmanufactured state), including,
without limitation, all cattle now owned by Debtor
(including conceived but unborn livestock) or hereafter
acquired by Debtor (including unconceived livestock and
all additions to, substitutions for, and replacements of
any livestock) (collectively, the "Livestock").
The term Collateral, as used herein, shall also include
(i) all records relating in any way to the foregoing
(including, without limitation, any computer software,
whether on tape, disk, card, strip, cartridge or any other
form), and (ii) all PRODUCTS and PROCEEDS of all of the
foregoing (including without limitation, insurance payable
by reason of loss or damage to the foregoing property).
The designation of proceeds does not authorize Debtor to
sell, transfer or otherwise convey any of the foregoing
property except finished goods intended for sale in the
ordinary course of Debtor's business or as otherwise
provided herein.
(c) "Financing Documents" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or
pertaining to the Indebtedness.
(d) "Indebtedness" shall mean (i) indebtedness,
obligations and liabilities owing by Debtor to Secured Party
under the Note and Purchase Agreement and all other
indebtedness, obligations and liabilities of Debtor to Secured
Party of any kind or character, now existing or hereafter
arising, whether direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several or joint
and several, and regardless of whether such indebtedness,
obligations and liabilities may, prior to their acquisition by
Secured Party, be or have been payable to or in favor of a
third party and subsequently acquired by Secured Party (it
being contemplated that Secured Party may make such
acquisitions from third parties), including without limitation
all indebtedness, obligations and liabilities of Debtor to
Secured Party now existing or hereafter arising by note, draft,
acceptance, guaranty, endorsement, letter of credit,
assignment, purchase, overdraft, discount, indemnity agreement
or otherwise, (ii) all obligations of Debtor to Secured Party
under any documents evidencing, securing, governing and/or
pertaining to all or any part of the indebtedness, obligations
and liabilities described in (i) above, (iii) all costs and
expenses incurred by Secured Party in connection with the
collection and administration of all or any part of the
indebtedness, obligations and liabilities described in (i) and
(ii) above or the protection or preservation of, or realization
upon, the collateral securing all or any part of such
indebtedness, obligations and liabilities, including without
limitation all reasonable attorneys' fees, and (iv) all
renewals, extensions, modifications and rearrangements of the
indebtedness, obligations and liabilities described in (i),
(ii) and (iii) above.
(e) "Note" means that certain promissory note of even
date herewith payable by Debtor to the order of Secured Party
in the stated principal amount of $1,500,000.00, as may be
renewed, extended, amended and modified from time to time.
(f) "Purchase Agreement" means that certain account
transfer and purchase agreement of even date herewith, between
Debtor and Secured Party, as may be amended from time to time.
All words and phrases used herein which are expressly
defined in Section 1.201 or Chapter 9 of the Code shall have
the meaning provided for therein. Other words and phrases
defined elsewhere in the Code shall have the meaning specified
therein except to the extent such meaning is inconsistent with
a definition in Section 1.201 or Chapter 9 of the Code.
2. Security Interest. As security for the Indebtedness,
Debtor, for value received, hereby grants to Secured Party a
continuing security interest in the Collateral.
3. Representations and Warranties. Debtor hereby represents
and warrants the following to Secured Party:
(a) Due Authorization. The execution, delivery and
performance of this Agreement and all of the other Financing
Documents executed by Debtor have been duly authorized by all
necessary corporate action of Debtor, to the extent Debtor is a
corporation, or by all necessary partnership action, to the
extent Debtor is a partnership.
(b) Enforceability. This Agreement and the other
Financing Documents executed by Debtor constitute legal, valid
and binding obligations of Debtor, enforceable in accordance
with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to
the enforcement of creditors' rights and except to the extent
specific remedies may generally be limited by equitable
principles.
(c) Ownership and Liens. Debtor has good and marketable
title to the Collateral free and clear of all liens, security
interests, encumbrances or adverse claims, (other than those in
favor of Secured Party or otherwise disclosed to and consented
by Secured Party in writing). No dispute, right of setoff,
counterclaim or defense exists with respect to all or any part
of the Collateral. Debtor has not executed any other security
agreement currently affecting the Collateral and no effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office except as (i) may have been executed or filed
in favor of Secured Party, or (ii) consented to by Secured
Party in writing.
(d) No Conflicts or Consents. Neither the ownership, the
intended use of the Collateral by Debtor, the grant of the
security interest by Debtor to Secured Party herein nor the
exercise by Secured Party of its rights or remedies hereunder,
will (i) conflict with any provision of (A) any domestic or
foreign law, statute, rule or regulation, (B) the articles or
certificate of incorporation, charter, bylaws or partnership
agreement, as the case may be, of Debtor, or (C) any agreement,
judgment, license, order or permit applicable to or binding
upon Debtor, or (ii) result in or require the creation of any
lien, charge or encumbrance upon any assets or properties of
Debtor or of any person except as may be expressly contemplated
in the Financing Documents. Except as expressly contemplated
in the Financing Documents, no consent, approval, authorization
or order of, and no notice to or filing with, any court,
governmental authority or third party is required in connection
with the grant by Debtor of the security interest herein or the
exercise by Secured Party of its rights and remedies hereunder.
(e) Security Interest. Debtor has and will have at all
times full right, power and authority to grant a security
interest in the Collateral to Secured Party in the manner
provided herein, free and clear of any lien, security interest
or other charge or encumbrance (other than those in favor of
Secured Party or otherwise disclosed to and consented by
Secured Party in writing). This Agreement creates a legal,
valid and binding security interest in favor of Secured Party
in the Collateral securing the Indebtedness. Possession by
Secured Party of all instruments, chattel paper and cash
constituting Collateral from time to time and/or the filing of
the financing statements delivered prior hereto and/or
concurrently herewith by Debtor to Secured Party will perfect
and establish the first priority of Secured Party's security
interest hereunder in the Collateral.
(f) Location. Debtor's residence or chief executive
office, as the case may be, and the office where the records
concerning the Collateral are kept is located at its address
set forth on the signature page hereof. Except as specified
elsewhere herein, all Collateral shall be kept at such address
and such other addresses as may be listed in Schedule "A"
attached hereto and made a part hereof.
(g) Solvency of Debtor. As of the date hereof, and after
giving effect to this Agreement and the completion of all other
transactions contemplated by Debtor at the time of the
execution of this Agreement, (i) Debtor is and will be solvent,
(ii) the fair saleable value of Debtor's assets exceeds and
will continue to exceed Debtor's liabilities (both fixed and
contingent), (iii) Debtor is paying and will continue to be
able to pay its debts as they mature, and (iv) if Debtor is not
an individual, Debtor has and will have sufficient capital to
carry on Debtor's businesses and all businesses in which Debtor
is about to engage.
(h) Compliance with Environmental Laws. Except as
disclosed in writing to Secured Party, Debtor is conducting
Debtor's businesses in material compliance with all applicable
federal, state and local laws, statutes, ordinances, rules,
regulations, orders, determinations and court decisions,
including without limitation, those pertaining to health or
environmental matters.
(i) Inventory. The security interest in the inventory
granted hereunder shall continue through all stages of
manufacture and shall, without further action, attach to the
accounts or other proceeds resulting from the sale, lease or
other disposition thereof and to all such inventory as may be
returned to Debtor by its account debtors.
(j) Accounts. Each account pledged hereunder represents
the valid and legally binding indebtedness of a bona fide
account debtor arising from the sale or lease by Debtor of
goods or the rendition by Debtor of services and is not subject
to contra accounts, setoffs, defenses or counterclaims by or
available to account debtors obligated on the accounts except
as disclosed by Debtor to Secured Party from time to time in
writing. The amount shown as to each account on Debtor's books
is the true and undisputed amount owing and unpaid thereon,
subject only to discounts, allowances, rebates, credits and
adjustments to which the account debtor has a right and which
have been disclosed to Secured Party in writing.
(k) Chattel Paper, Documents and Instruments. The
chattel paper, documents and instruments of Debtor pledged
hereunder have only one original counterpart and no party other
than Debtor or Secured Party is in actual or constructive
possession of any such chattel paper, documents or instruments.
4. Affirmative Covenants. Debtor will comply with the
covenants contained in this Section at all times during the
period of time this Agreement is effective unless Secured Party
shall otherwise consent in writing.
(a) Ownership and Liens. Debtor will maintain good and
marketable title to all Collateral free and clear of all liens,
security interests, encumbrances or adverse claims, except
those in favor of Secured Party and the security interests and
other encumbrances expressly permitted herein or by the other
Financing Documents. Debtor will not permit any dispute, right
of setoff, counterclaim or defense to exist with respect to all
or any part of the Collateral. Debtor will cause any financing
statement or other security instrument with respect to the
Collateral to be terminated, except those liens (i) expressly
permitted herein or by the other Financing Documents or (ii)
that may exist or as may have been filed in favor of Secured
Party. Debtor will defend at its expense Secured Party's
right, title and security interest in and to the Collateral
against the claims of any third party.
(b) Further Assurances. Debtor will from time to time at
its expense promptly execute and deliver all further
instruments and documents and take all further action necessary
or appropriate or that Secured Party may request in order (i)
to perfect and protect the security interest created or
purported to be created hereby and the first priority of such
security interest, (ii) to enable Secured Party to exercise and
enforce its rights and remedies hereunder in respect of the
Collateral, and (iii) to otherwise effect the purposes of this
Agreement, including without limitation: (A) executing and
filing such financing or continuation statements, or amendments
thereto; and (B) furnishing to Secured Party from time to time
statements and schedules further identifying and describing the
Collateral and such other reports in connection with the
Collateral, all in reasonable detail satisfactory to KBK.
(c) Inspection of Collateral. Debtor will keep adequate
records concerning the Collateral and will permit Secured Party
and all representatives and agents appointed by Secured Party
to inspect any of the Collateral and the books and records of
or relating to the Collateral at any time during normal
business hours, to make and take away photocopies, photographs
and printouts thereof and to write down and record any such
information.
(d) Payment of Taxes. Debtor (i) will timely pay all
property and other taxes, assessments and governmental charges
or levies imposed upon the Collateral or any part thereof, (ii)
will timely pay all lawful claims which, if unpaid, might
become a lien or charge upon the Collateral or any part
thereof, and (iii) will maintain appropriate accruals and
reserves for all such liabilities in a timely fashion in
accordance with generally accepted accounting principles.
Debtor may, however, delay paying or discharging any such
taxes, assessments, charges, claims or liabilities so long as
the validity thereof is contested in good faith by proper
proceedings and it does not impair Secured Party's security
interest and provided Debtor has set aside on Debtor's books
adequate reserves therefor; provided, however, Debtor
understands and agrees that in the event of any such delay in
payment or discharge and upon Secured Party's written request,
Debtor will establish with Secured Party an escrow acceptable
to Secured Party adequate to cover the payment of such taxes,
assessments and governmental charges with interest, costs and
penalties and a reasonable additional sum to cover possible
costs, interest and penalties (which escrow shall be returned
to Debtor upon payment of such taxes, assessments, governmental
charges, interests, costs and penalties or disbursed in
accordance with the resolution of the contest to the claimant)
or furnish Secured Party with an indemnity bond secured by a
deposit in cash or other security acceptable to Secured Party.
Notwithstanding any other provision contained in this
Subsection, Secured Party may at its discretion exercise its
rights under Subsection 6(c) at any time to pay such taxes,
assessments, governmental charges, interest, costs and
penalties.
(e) Mortgagee's and Landlord's Waivers. Debtor shall
cause each mortgagee of real property owned by Debtor and each
landlord of real property leased by Debtor to execute and
deliver agreements satisfactory in form and substance to
Secured Party by which such mortgagee or landlord waives or
subordinates any rights it may have in the Collateral.
(f) Accounts and General Intangibles. Debtor will duly
perform and cause to be performed all of its obligations with
respect to the goods or services, the sale or lease or
rendition of which gave rise or will give rise to each account
pledged hereunder and all of its obligations to be performed
under or with respect to the general intangibles pledged
hereunder. Debtor also covenants and agrees to take any action
and/or execute any documents that Secured Party may request in
order to comply with the Federal Assignment of Claims Act, as
amended.
(g) Chattel Paper, Documents and Instruments. Debtor
will take such action as may be requested by Secured Party in
order to cause any Collateral which constitute chattel paper,
documents or instruments to be valid and enforceable and will
cause all chattel paper to have only one original counterpart.
Upon request by Secured Party, Debtor will deliver to Secured
Party all originals of chattel paper, documents or instruments
or will mark all originals of chattel paper with a legend
indicating that such chattel paper is subject to the security
interest granted hereunder.
(h) Condition of Goods. Debtor will maintain, preserve,
protect and keep all Collateral which constitutes goods in good
condition, repair and working order and will cause such
Collateral to be used and operated in good and workmanlike
manner, in accordance with applicable laws and in a manner
which will not make void or cancelable any insurance with
respect to such Collateral. Debtor will promptly make or cause
to be made all repairs, replacements and other improvements to
or in connection with the Collateral which Secured Party may
request from time to time.
(i) Insurance. Debtor will, at its own expense, maintain
insurance with respect to all Collateral which constitutes
goods in such amounts, against such risks, in such form and
with such insurers, as shall be satisfactory to Secured Party
from time to time. If requested by Secured Party, each policy
for property damage insurance shall provide for all losses to
be paid directly to Secured Party. If requested by Secured
Party, each policy of insurance maintained by Debtor shall (i)
name Debtor and Secured Party as insured parties thereunder
(without any representation or warranty by or obligation upon
Secured Party) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be
payable to Secured Party notwithstanding any action, inaction
or breach of representation or warranty by Debtor, (iii)
provide that there shall be no recourse against Secured Party
for payment of premiums or other amounts with respect thereto,
and (iv) provide that at least ten (10) days prior written
notice of cancellation or of lapse shall be given to Secured
Party by the insurer. Debtor will, if requested by Secured
Party, deliver to Secured Party original or duplicate policies
of such insurance and, as often as Secured Party may reasonably
request, a report of a reputable insurance broker with respect
to such insurance. Debtor will also, at the request of Secured
Party, duly execute and deliver instruments of assignment of
such insurance policies and cause the respective insurers to
acknowledge notice of such assignment. All insurance payments
in respect of loss of or damage to any Collateral shall be paid
to Secured Party and applied as Secured Party in its sole
discretion deems appropriate.
j. Care and Preservation of the Livestock. Debtor will:
i. Feed, care for, attend to, inoculate, water and
perform or cause to be performed any other act or acts
appropriate or necessary to care for, maintain, preserve and
protect the Livestock.
ii. Perform or cause to be performed such other acts
as are related to the Livestock or to the products of the
Livestock, including, but not limited to, processing,
preserving, protecting and storing such products.
iii. Not commit or suffer to be committed any damage
to or destruction of the Livestock.
iv. Permit Secured Party and any of its agents,
employees or representatives to enter upon the premises where
any of the Livestock are located at any reasonable time and
from time to time for the purpose of examining and inspecting
the Livestock.
5. Negative Covenants. Debtor will comply with the covenants
contained in this Section at all times during the period of
time this Agreement is effective, unless Secured Party shall
otherwise consent in writing.
(a) Transfer or Encumbrance. Debtor will not (i) sell,
assign (by operation of law or otherwise), transfer, exchange,
lease or otherwise dispose of any of the Collateral, (ii) grant
a lien or security interest in or execute, file or record any
financing statement or other security instrument with respect
to the Collateral to any party other than Secured Party, except
as expressly permitted herein or in the other Financing
Documents, or (iii) deliver actual or constructive possession
of any of the Collateral to any party other than Secured Party,
except for (A) sales and leases of inventory in the ordinary
course of business, and (B) the sale or other disposal of any
item of equipment which is worn out or obsolete and which has
been replaced by an item of equal suitability and value, owned
by Debtor and made subject to the security interest under this
Agreement, but which is otherwise free and clear of any lien,
security interest, encumbrance or adverse claim; provided,
however, the exceptions permitted in clauses (A) and (B) above
shall automatically terminate upon the occurrence of an Event
of Default.
(b) Impairment of Security Interest. Debtor will not
take or fail to take any action which would in any manner
impair the value or enforceability of Secured Party's security
interest in any Collateral.
(c) Possession of Collateral. Debtor will not cause or
permit the removal of any Collateral from its possession,
control and risk of loss, nor will Debtor cause or permit the
removal of any Collateral from the address on the signature
page hereof and the addresses specified on Schedule "A" to this
Agreement other than (i) as permitted by Subsection 5(a), or
(ii) in connection with the possession of any Collateral by
Secured Party or by its bailee.
(d) Goods. Debtor will not permit any Collateral which
constitutes goods to at any time (i) be covered by any document
except documents in the possession of the Secured Party, (ii)
become so related to, attached to or used in connection with
any particular real property so as to become a fixture upon
such real property, or (iii) be installed in or affixed to
other goods so as to become an accession to such other goods
unless such other goods are subject to a perfected first
priority security interest under this Agreement.
(e) Compromise of Collateral. Debtor will not adjust,
settle, compromise, amend or modify any Collateral, except an
adjustment, settlement, compromise, amendment or modification
in good faith and in the ordinary course of business; provided,
however, this exception shall automatically terminate upon the
occurrence of an Event of Default or upon Secured Party's
written request. Debtor shall provide to Secured Party such
information concerning (i) any adjustment, settlement,
compromise, amendment or modification of any Collateral, and
(ii) any claim asserted by any account debtor for credit,
allowance, adjustment, dispute, setoff or counterclaim, as
Secured Party may request from time to time.
(f) Financing Statement Filings. Debtor recognizes that
financing statements pertaining to the Collateral have been or
may be filed where Debtor maintains any Collateral, has its
records concerning any Collateral or has its residence or chief
executive office, as the case may be. Without limitation of
any other covenant herein, Debtor will not cause or permit any
change in the location of (i) any Collateral, (ii) any records
concerning any Collateral, or (iii) Debtor's residence or
chief executive office, as the case may be, to a jurisdiction
other than as represented in Subsection 3(f) unless Debtor
shall have notified Secured Party in writing of such change at
least thirty (30) days prior to the effective date of such
change, and shall have first taken all action required by
Secured Party for the purpose of further perfecting or
protecting the security interest in favor of Secured Party in
the Collateral. In any written notice furnished pursuant to
this Subsection, Debtor will expressly state that the notice is
required by this Agreement and contains facts that may require
additional filings of financing statements or other notices for
the purpose of continuing perfection of Secured Party's
security interest in the Collateral.
(g) Liquidations, Mergers. Debtor shall not merge or
consolidate with or into any other entity or liquidate,
dissolve or otherwise cease conducting business.
6. Rights of Secured Party. Secured Party shall have the
rights contained in this Section at all times during the period
of time this Agreement is effective.
(a) Additional Financing Statements Filings. Debtor
hereby authorizes Secured Party to file, without the signature
of Debtor, one or more financing or continuation statements,
and amendments thereto, relating to the Collateral. Debtor
further agrees that a carbon, photographic or other
reproduction of this Security Agreement or any financing
statement describing any Collateral is sufficient as a
financing statement and may be filed in any jurisdiction
Secured Party may deem appropriate.
(b) Power of Attorney. Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, such power
of attorney being coupled with an interest, with full authority
in the place and stead of Debtor and in the name of Debtor or
otherwise, from time to time in Secured Party's discretion, to
take any action and to execute any instrument which Secured
Party may deem necessary or appropriate to accomplish the
purposes of this Agreement, including without limitation: (i)
to obtain and adjust any insurance required by Secured Party
hereunder; (ii) to demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to
become due under or in respect of the Collateral; (iii) to
receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (i) or
(ii) above; and (iv) to file any claims or take any action or
institute any proceedings which Secured Party may deem
necessary or appropriate for the collection and/or preservation
of the Collateral or otherwise to enforce the rights of Secured
Party with respect to the Collateral.
(c) Performance by Secured Party. If Debtor fails to
perform any agreement or obligation provided herein, Secured
Party may itself perform, or cause performance of, such
agreement or obligation, and the expenses of Secured Party
incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor
on demand.
(d) Debtor's Receipt of Proceeds. All amounts and
proceeds (including instruments and writings) received by
Debtor in respect of accounts, general intangibles or chattel
paper shall be received in trust for the benefit of Secured
Party hereunder and, upon request of Secured Party, shall be
segregated from other property of Debtor and shall be forthwith
delivered to Secured Party in the same form as so received
(with any necessary endorsement) and applied to the
Indebtedness in such manner as Secured Party deems appropriate
in its sole discretion.
(e) Notification of Account Debtors. Secured Party may
at its discretion from time to time notify any or all obligors
under any accounts, general intangibles or chattel paper (i) of
Secured Party's security interest in such accounts or general
intangibles and direct such obligors to make payment of all
amounts due or to become due to Debtor thereunder directly to
Secured Party, and (ii) to verify the accounts, general
intangibles or chattel paper with such obligors. Secured Party
shall have the right, at the expense of Debtor, to enforce
collection of any such accounts, general intangibles or chattel
paper and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor.
7. Events of Default. Each of the following constitutes an
"Event of Default" under this Agreement:
(a) Failure to Pay Indebtedness. Debtor shall fail to
pay as and when due any Indebtedness.
(b) Non-Performance of Covenants. Debtor shall breach
any covenant or agreement made herein, in the Purchase
Agreement, in any of the Financing Documents or in any other
agreement now or hereafter entered into between Debtor and KBK.
(c) False Representation. Any warranty or representation
made herein, in the Purchase Agreement, or in any of the
Financing Documents shall be false or misleading in any
material respect when made.
(d) Default Under Other Financing Documents. The
occurrence of an event of default under the Purchase Agreement,
any of the Financing Documents or any other agreement now or
hereafter entered into between Debtor and KBK.
(e) Untrue Financial Report. Any report, certificate,
schedule, financial statement, profit and loss statement or
other statement furnished by Debtor, or by any other person on
behalf of Debtor, to KBK is not true and correct in any
material respect.
(f) Default to Third Party. The occurrence of any event
which permits the acceleration of the maturity of any
indebtedness owing by Debtor to any third party under any
agreement or undertaking.
(g) Bankruptcy. The filing of a voluntary or involuntary
case by or against Debtor under the United States Bankruptcy
Code or other present or future federal or state insolvency,
bankruptcy or similar laws, or the appointment of a receiver,
trustee, conservator or custodian for a substantial portion of
Debtor's assets.
(h) Insolvency. Debtor shall become insolvent, make a
transfer in fraud of creditors or make an assignment for the
benefit of creditors.
(i) Involuntary Lien. The filing or commencement of any
involuntary lien, garnishment, attachment or the like shall be
issued against or with respect to the Collateral.
(j) Material Adverse Change. A material adverse change
shall have occurred in the financial condition, business
prospects or operations of Debtor or any of its subsidiaries.
(k) Tax Lien. Debtor shall have a federal or state tax
lien filed against any of its properties.
(l) Execution on Collateral. The Collateral or any
portion thereof is taken on execution or other process of law.
(m) Guarantor's Obligations. If any of the obligations
of any guarantor under the Financing Documents is limited or
terminated by operation of law or by the guarantor, or any such
guarantor becomes the subject of an insolvency proceeding.
(n) Judgment. The entry against Debtor of a final and
nonappealable judgment for the payment of money in excess of
$25,000 (not covered by insurance satisfactory to KBK in its
sole discretion).
(o) Termination of Purchase Agreement. The expiration or
termination of the Purchase Agreement.
8. Remedies and Related Rights. If an Event of Default shall
have occurred, and without limiting any other rights and
remedies provided herein, under any of the other Financing
Documents or otherwise available to Secured Party, Secured
Party may exercise one or more of the rights and remedies
provided in this Section.
(a) Remedies. Secured Party may from time to time at its
discretion, without limitation and without notice except as
expressly provided in any of the Financing Documents:
(i) exercise in respect of the Collateral all the
rights and remedies of a secured party under the Code (whether
or not the Code applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that
it will at its expense and upon request of Secured Party,
assemble the Collateral as directed by Secured Party and make
it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties;
(iii) enter upon the premises where the Livestock
is located and: (a) feed, care for, attend to, inoculate,
water and perform any other act or acts necessary or
appropriate to care for, maintain, preserve and protect the
Livestock (using any water located in, on or adjacent to the
premises); (b) perform such other acts as are related to the
products of the Livestock (including but not limited to,
processing, preserving and protecting such products); (c)
remove the Livestock and the products thereof from the premises
upon which the Livestock and the products thereof are located;
and (c) appraise, store, prepare for public or private sale,
exhibit, market and sell the Livestock and the products
thereof. With respect to the above, Debtor hereby further
agrees that, if Debtor is the owner of record of the premises
upon which the Livestock and the products thereof are located,
Secured Party shall not be responsible or liable for returning
the premises to their condition immediately preceding the use
of the premises as provided herein or for doing such acts as
may be necessary to permit future livestock to be maintained on
the premises.
(iv) reduce its claim to judgment or foreclose or
otherwise enforce, in whole or in part, the security interest
granted hereunder by any available judicial procedure;
(v) sell or otherwise dispose of, at its office, on
the premises of Debtor or elsewhere, the Collateral, as a unit
or in parcels, by public or private proceedings, and by way of
one or more contracts (it being agreed that the sale or other
disposition of any part of the Collateral shall not exhaust
Secured Party's power of sale, but sales or other dispositions
may be made from time to time until all of the Collateral has
been sold or disposed of or until the Indebtedness has been
paid and performed in full), and at any such sale or other
disposition it shall not be necessary to exhibit any of the
Collateral;
(vi) buy the Collateral, or any portion thereof, at
any public sale;
(vii) buy the Collateral, or any portion thereof,
at any private sale if the Collateral is of a type customarily
sold in a recognized market or is of a type which is the
subject of widely distributed standard price quotations;
(viii) apply for the appointment of a receiver for
the Collateral, and Debtor hereby consents to any such
appointment; and
(ix) at its option, retain the Collateral in
satisfaction of the Indebtedness whenever the circumstances are
such that Secured Party is entitled to do so under the Code or
otherwise.
Debtor agrees that in the event Debtor is entitled to
receive any notice under the Uniform Commercial Code, as it
exists in the state governing any such notice, of the sale or
other disposition of any Collateral, reasonable notice shall be
deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States
Postal Service, postage prepaid, at Debtor's address set forth
on the signature page hereof, five (5) days prior to the date
of any public sale, or after which a private sale, of any of
such Collateral is to be held. Secured Party shall not be
obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any
public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was
so adjourned.
(b) Application of Proceeds. If any Event of Default
shall have occurred, Secured Party may at its discretion and
without notice to Debtor (any requirement of notice being
expressly waived) apply or use any cash held by Secured Party
as Collateral, and any cash proceeds received by Secured Party
in respect of any sale or other disposition of, collection
from, or other realization upon, all or any part of the
Collateral as follows in such order and manner as Secured Party
may elect:
(i) to the repayment or reimbursement of the
reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred by Secured
Party in connection with (A) the administration of the
Financing Documents, (B) the custody, preservation, use or
operation of, or the sale of, collection from, or other
realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any
liens and other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness
(without constituting a retention of collateral in satisfaction
of an obligation within the meaning of Section 9.505 of the
Code);
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by
applicable law (including without limitation, Section
9.504(a)(3) of the Code or any other applicable statutory
provision); and
(vi) by delivery to Debtor or any other party
lawfully entitled to receive such cash or proceeds whether by
direction of a court of competent jurisdiction or otherwise.
(c) Deficiency. In the event that the proceeds of any
sale of, collection from, or other realization upon, all or any
part of the Collateral by Secured Party are insufficient to pay
all amounts to which Secured Party is legally entitled, Debtor
and any party who guaranteed or is otherwise obligated to pay
all or any portion of the Indebtedness shall be liable for the
deficiency, together with interest thereon as provided in the
Financing Documents.
(d) Non-Judicial Remedies. In granting to Secured Party
the power to enforce its rights hereunder without prior
judicial process or judicial hearing, Debtor expressly waives,
renounces and knowingly relinquishes any legal right which
might otherwise require Secured Party to enforce its rights by
judicial process. Debtor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade,
are responsive to commercial necessity and are the result of a
bargain at arm's length. Nothing herein is intended to prevent
Secured Party or Debtor from resorting to judicial process at
either party's option.
(e) Other Recourse. Debtor waives any right to require
Secured Party to proceed against any third party, exhaust any
Collateral or other security for the Indebtedness, or to have
any third party joined with Debtor in any suit arising out of
the Indebtedness or any of the Financing Documents, or pursue
any other remedy available to Secured Party. Debtor further
waives any and all notice of acceptance of this Agreement and
of the creation, modification, rearrangement, renewal or
extension of the Indebtedness. Debtor further waives any
defense arising by reason of any disability or other defense of
any third party or by reason of the cessation from any cause
whatsoever of the liability of any third party. Until all of
the Indebtedness shall have been paid in full, Debtor shall
have no right of subrogation and Debtor waives the right to
enforce any remedy which Secured Party has or may hereafter
have against any third party, and waives any benefit of and any
right to participate in any other security whatsoever now or
hereafter held by Secured Party. Debtor authorizes Secured
Party, and without notice or demand and without any reservation
of rights against Debtor and without affecting Debtor's
liability hereunder or on the Indebtedness to (i) take or hold
any other property of any type from any third party as security
for the Indebtedness, and exchange, enforce, waive and release
any or all of such other property, (ii) apply such other
property and direct the order or manner of sale thereof as
Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any
of the Indebtedness or other security for the Indebtedness,
(iv) waive, enforce or modify any of the provisions of any of
the Financing Documents executed by any third party, and (v)
release or substitute any third party.
9. Indemnity. Debtor hereby indemnifies and agrees to hold
harmless Secured Party, and its officers, directors,
shareholders, employees, attorneys, representatives, agents and
affiliates (each an "Indemnified Person") from and against any
and all liabilities, obligations, claims, demands, losses,
damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature (collectively, the
"Claims") which may be imposed on, incurred by, or asserted
against, any Indemnified Person arising in connection with the
Financing Documents, the Indebtedness or the Collateral
(including without limitation, the enforcement of the Financing
Documents and the defense of any Indemnified Person's actions
and/or inactions in connection with the Financing Documents).
WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO ANY CLAIMS WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE
OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to the
limited extent the Claims against an Indemnified Person are
proximately caused by such Indemnified Person's gross
negligence or willful misconduct. If Debtor or any third party
ever alleges such gross negligence or willful misconduct by any
Indemnified Person, the indemnification provided for in this
Section shall nonetheless be paid upon demand, subject to later
adjustment or reimbursement, until such time as a court of
competent jurisdiction enters a final judgment as to the extent
and effect of the alleged gross negligence or willful
misconduct. The indemnification provided for in this Section
shall survive the termination of this Agreement and shall
extend and continue to benefit each individual or entity who is
or has at any time been an Indemnified Person hereunder.
10. Miscellaneous.
(a) Assignment of Debtor's Rights With Respect to
Livestock. If the Livestock or any portion or portions thereof
become infected by disease or are destroyed by order of any
local, state or federal authority, and, by reason thereof,
Debtor is entitled to be indemnified by such authority, Debtor
hereby assigns to Secured Party any and all such sums due from
such authority, and Secured Party is hereby authorized to
receive, collect and sue for the same, and Debtor hereby orders
and directs that any such sums be paid directly to Secured
Party. To the extent necessary to realize the benefits of the
foregoing, Debtor hereby grants a security interest to Secured
Party in such rights to receive such sums and the sums
themselves.
(b) Entire Agreement. This Agreement contains the entire
agreement of Secured Party and Debtor with respect to the
Collateral. If the parties hereto are parties to any prior
agreement, either written or oral, relating to the Collateral,
the terms of this Agreement shall amend and supersede the terms
of such prior agreements as to transactions on or after the
effective date of this Agreement, but all security agreements,
financing statements, guaranties, other contracts and notices
for the benefit of Secured Party shall continue in full force
and effect to secure the Indebtedness unless Secured Party
specifically releases its rights thereunder by separate
release.
(c) Amendment. No modification, consent or amendment of
any provision of this Agreement or any of the other Financing
Documents shall be valid or effective unless the same is in
writing and signed by the party against whom it is sought to be
enforced.
(d) Actions by Secured Party. The lien, security
interest and other security rights of Secured Party hereunder
shall not be impaired by (i) any renewal, extension, increase
or modification with respect to the Indebtedness, (ii) any
surrender, compromise, release, renewal, extension, exchange or
substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any
endorser, guarantor or surety of the Indebtedness. The taking
of additional security by Secured Party shall not release or
impair the lien, security interest or other security rights of
Secured Party hereunder or affect the obligations of Debtor
hereunder.
(e) Waiver by Secured Party. Secured Party may waive any
Event of Default without waiving any other prior or subsequent
Event of Default. Secured Party may remedy any default without
waiving the Event of Default remedied. Neither the failure by
Secured Party to exercise, nor the delay by Secured Party in
exercising, any right or remedy upon any Event of Default shall
be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a
later date. No single or partial exercise by Secured Party of
any right or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such
right or remedy hereunder may be exercised at any time. No
waiver of any provision hereof or consent to any departure by
Debtor therefrom shall be effective unless the same shall be in
writing and signed by Secured Party and then such waiver or
consent shall be effective only in the specific instances, for
the purpose for which given and to the extent therein
specified. No notice to or demand on Debtor in any case shall
of itself entitle Debtor to any other or further notice or
demand in similar or other circumstances.
(f) Costs and Expenses. Debtor will upon demand pay to
Secured Party the amount of any and all costs and expenses
(including without limitation, attorneys' fees and expenses),
which Secured Party may incur in connection with (i) the
transactions which give rise to the Financing Documents, (ii)
the preparation of this Agreement and the perfection and
preservation of the security interests granted under the
Financing Documents, (iii) the administration of the Financing
Documents, (iv) the custody, preservation, use or operation of,
or the sale of, collection from, or other realization upon, the
Collateral, (v) the exercise or enforcement of any of the
rights of Secured Party under the Financing Documents, or (vi)
the failure by Debtor to perform or observe any of the
provisions hereof.
(g) Governing Law; Venue; Submission to Jurisdiction.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, EXCEPT TO THE
EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS
OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. THIS
AGREEMENT IS PERFORMABLE BY THE PARTIES IN TARRANT COUNTY,
TEXAS. DEBTOR AND SECURED PARTY (BY ITS ACCEPTANCE HEREOF)
EACH AGREE THAT TARRANT COUNTY, TEXAS SHALL BE THE EXCLUSIVE
VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR
RELATING TO THIS AGREEMENT, AND THAT SUCH COUNTY IS A
CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM.
DEBTOR AND SECURED PARTY (BY ITS ACCEPTANCE HEREOF) EACH
CONSENT TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL
COURTS LOCATED IN TARRANT COUNTY, TEXAS FOR THE LITIGATION OF
ANY SUCH DISPUTE OR CLAIM. DEBTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(h) Waiver of Jury Trial. DEBTOR AND SECURED PARTY (BY
ITS ACCEPTANCE HEREOF) EACH HEREBY IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR
ASSOCIATED HEREWITH.
(i) Severability. If any provision of this Agreement is
held by a court of competent jurisdiction to be illegal,
invalid or unenforceable under present or future laws, such
provision shall be fully severable, shall not impair or
invalidate the remainder of this Agreement and the effect
thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(j) No Obligation. Nothing contained herein shall be
construed as an obligation on the part of Secured Party to
extend or continue to extend credit to Debtor.
(k) Notices. All notices, requests, demands or other
communications required or permitted to be given pursuant to
this Agreement shall be in writing and given by (i) personal
delivery, (ii) expedited delivery service with proof of
delivery, (iii) United States mail, postage prepaid, registered
or certified mail, return receipt requested, or (iv) telecopy
(with receipt thereof confirmed by telecopier) sent to the
intended addressee at the address set forth on the signature
page hereof or to such different address as the addressee shall
have designated by written notice sent pursuant to the terms
hereof and shall be deemed to have been received either, in the
case of personal delivery, at the time of personal delivery, in
the case of expedited delivery service, as of the date of first
attempted delivery at the address and in the manner provided
herein, in the case of mail, upon deposit in a depository
receptacle under the care and custody of the United States
Postal Service, or in the case of telecopy, upon receipt.
Either party shall have the right to change its address for
notice hereunder to any other location within the continental
United States by notice to the other party of such new address
at least thirty (30) days prior to the effective date of such
new address.
(l) Binding Effect and Assignment. This Agreement (i)
creates a continuing security interest in the Collateral, (ii)
shall be binding on Debtor and the heirs, executors,
administrators, personal representatives, successors and
assigns of Debtor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting
the generality of the foregoing, Secured Party may pledge,
assign or otherwise transfer the Indebtedness and its rights
under this Agreement and any of the other Financing Documents
to any other party. Debtor's rights and obligations hereunder
may not be assigned or otherwise transferred without the prior
written consent of Secured Party.
(m) Termination. It is contemplated by the parties
hereto that from time to time there may be no outstanding
Indebtedness, but notwithstanding such occurrences, this
Agreement shall remain valid and shall be in full force and
effect as to subsequent outstanding Indebtedness. Upon (i) the
satisfaction in full of the Indebtedness, (ii) the termination
or expiration of any commitment of Secured Party to extend
credit to Debtor, (iii) written request for the termination
hereof delivered by Debtor to Secured Party, and (iv) written
release or termination delivered by Secured Party to Debtor,
this Agreement and the security interests created hereby shall
terminate. Upon termination of this Agreement and Debtor's
written request, Secured Party will, at Debtor's sole cost and
expense, return to Debtor such of the Collateral as shall not
have been sold or otherwise disposed of or applied pursuant to
the terms hereof and execute and deliver to Debtor such
documents as Debtor shall reasonably request to evidence such
termination.
(n) Cumulative Rights. All rights and remedies of
Secured Party hereunder are cumulative of each other and of
every other right or remedy which Secured Party may otherwise
have at law or in equity or under any of the other Financing
Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or
subsequent exercise of any other rights or remedies.
(o) Gender and Number. Within this Agreement, words of
any gender shall be held and construed to include the other
gender, and words in the singular number shall be held and
construed to include the plural and words in the plural number
shall be held and construed to include the singular, unless in
each instance the context requires otherwise.
(p) Descriptive Headings. The headings in this Agreement
are for convenience only and shall in no way enlarge, limit or
define the scope or meaning of the various and several
provisions hereof.
EXECUTED as of the date first written above.
DEBTOR:
RED OAK FARMS, INC.
By:________________________
Print Name:
Title:
Debtor's Address: Secured Party's Address:
2010 Commerce Drive KBK Financial, Inc.
Box 495 301 Commerce Street
Red Oak, Iowa 51566 2200 City Center II
Fort Worth, Texas 76102
ATTN: Legal Department
Telecopy No. (712) 623-4533 Telecopy No. (817) 258-6114
SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED APRIL 20, 1998
EXECUTED BY RED OAK FARMS, INC.
FOR THE BENEFIT OF
KBK FINANCIAL, INC.
The addresses of any other locations of Collateral referenced
in Subsection 3(f) are as follows:
1. Freezer Services-Fremont
950 S. Schneider Street
P.O. Box 350
Fremont, NE 68026
2. Nebraska Beef, Inc.
4501 S. 36th Street
Omaha, NE 68107
3. Quality Refrigerated Services
6029 N. 16th Street
Omaha, NE 68110
4. Millard Refrigerated Services
2523 Gomez Avenue
Omaha, NE 68107
<PAGE>
SPECIFIC GUARANTY
THIS SPECIFIC GUARANTY (this "Guaranty") dated the 20th day of
April, 1998, is executed by the undersigned, JOHN DERNER, an
individual, whose address for notice hereunder is 2353 213rd
Avenue, Milford, Iowa 51351 ("Guarantor") in favor of KBK
FINANCIAL, INC., a Delaware corporation, authorized to do
business in Texas, whose address for notice hereunder is 2200
City Center II, 301 Commerce Street, Fort Worth, Texas 76102
("KBK").
1. Obligations. As an inducement to KBK to extend or
continue to extend credit and other financial
accommodations to RED OAK FARMS, INC., an Iowa corporation
("Borrower"), Guarantor, for value received, does hereby
unconditionally and absolutely guarantee the prompt and
full payment and performance of the Guaranteed
Indebtedness when due or declared to be due and at all
times thereafter. The term "Guaranteed Indebtedness"
shall mean (i) all amounts owing by Borrower under that
certain promissory note of even date herewith payable by
Borrower to the order of KBK in the stated principal
amount of $1,500,000 (the "Note"), (ii) all obligations
of Borrower to KBK under any documents evidencing,
securing, governing and/or pertaining to the Note
(collectively, the "Financing Documents"), (iii) all costs
and expenses incurred by KBK in connection with the
collection of all or any part of the indebtedness and
obligations owing by Borrower under the Note and/or any of
the other Financing Documents, or the protection of, or
realization upon, the collateral securing all or any part
of such indebtedness and obligations, and (iv) all
renewals, extensions, modifications and rearrangements of
the indebtedness and obligations owing by Borrower under
the Note and/or the other Financing Documents. This is an
absolute, continuing and unconditional guarantee of
payment and not of collection and if at any time or from
time to time there is no outstanding Guaranteed
Indebtedness, the obligations of Guarantor with respect to
any and all Guaranteed Indebtedness incurred thereafter
shall not be affected. This Guaranty and the Guarantor's
obligations hereunder are irrevocable and, in the event of
Guarantor's death, shall be binding upon Guarantor's
estate pursuant to paragraph 8 herein. All of the
Guaranteed Indebtedness shall be conclusively presumed to
have been made or acquired in acceptance hereof.
Guarantor shall be liable, jointly and severally, with
Borrower and any other guarantor of all or any part of the
Guaranteed Indebtedness.
2. Representations and Warranties. Guarantor hereby
represents and warrants the following to KBK:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and (i) if
Guarantor is a corporation, the Board of Directors
of Guarantor has determined that this Guaranty may
reasonably be expected to benefit, directly or
indirectly, Guarantor, or (ii) if Guarantor is a
partnership, the requisite number of its partners
have determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly,
Guarantor; and
(b) Guarantor has adequate means to obtain from Borrower
on a continuing basis information concerning the
financial condition of Borrower and Guarantor is not
relying on KBK to provide such information to
Guarantor either now or in the future; and
(c) Guarantor has the power and authority to execute,
deliver and perform this Guaranty and any other
agreements executed by Guarantor contemporaneously
herewith, and the execution, delivery and
performance of this Guaranty and any other
agreements executed by Guarantor contemporaneously
herewith do not and will not violate (i) any
agreement or instrument to which Guarantor is a
party, (ii) any law, rule, regulation or order of
any governmental authority to which Guarantor is
subject, or (iii) its articles or certificate of
incorporation or bylaws, if Guarantor is a
corporation, or its partnership agreement, if
Guarantor is a partnership; and
(d) Neither KBK nor any other party has made any
representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this
Guaranty; and
(e) The financial statements and other financial
information regarding Guarantor heretofore and
hereafter delivered to KBK are and shall be true and
correct in all material respects and fairly present
the financial position of Guarantor as of the dates
thereof, and no material adverse change has occurred
in the financial condition of Guarantor reflected in
the financial statements and other financial
information regarding Guarantor heretofore delivered
to KBK since the date of the last statement thereof;
and
(f) As of the date hereof, and after giving effect to
this Guaranty and the obligations evidenced hereby,
(i) Guarantor is and will be solvent, (ii) the fair
saleable value of Guarantor's assets exceeds and
will continue to exceed its liabilities (both fixed
and contingent), (iii) Guarantor is and will
continue to be able to pay its debts as they mature,
and (iv) if Guarantor is not an individual,
Guarantor has and will continue to have sufficient
capital to carry on its business and all businesses
in which it is about to engage; and
(g) Guarantor acknowledges that, in consideration for
its execution, delivery and performance of this
Guaranty, Guarantor has received "reasonably
equivalent in value" within the meaning of the
Uniform Fraudulent Transfer Act set forth in Chapter
24 of the Texas Business and Commerce Code, and
Section 548 of the United States Bankruptcy Code, as
amended; and
(h) Except as may be set out on any exhibit attached
hereto, (i) there are no legal proceedings, material
claims or demands pending or, to the knowledge of
Guarantor, threatened against Guarantor or any of
Guarantor's assets, (ii) Guarantor is not in
material breach or material default of any legal
requirement; and (iii) no event has occurred which,
with a lapse of time or action by a third party,
could result in Guarantor's material breach or
material default under any legal requirement.
3. Covenants. Guarantor hereby covenants and agrees with KBK
as follows:
(a) Guarantor shall not, so long as its obligations
under this Guaranty continue, transfer or pledge any
material portion of its assets for less than full
and adequate consideration; and
(b) Guarantor shall promptly furnish to KBK at any time
and from time to time such financial statements and
other financial information of Guarantor as the KBK
may require, in form and substance satisfactory to
KBK (including, without limitation, annual financial
statements within 45 days after the end of each
calendar year); and
(c) Guarantor shall promptly inform KBK of (i)_any
litigation or governmental investigation against
Guarantor or affecting any security for all or any
part of the Guaranteed Indebtedness or this Guaranty
which, if determined adversely, might have a
material adverse effect upon the financial condition
of Guarantor or upon such security or might cause a
default under any of the Loan Documents, (ii)_any
claim or controversy which might become the subject
of such litigation or governmental investigation,
and (iii)_any material adverse change in the
financial condition of Guarantor; and
(d) Guarantor hereby subordinates all indebtedness now
or hereafter owing by Borrower to Guarantor to the
Guaranteed Indebtedness.
4. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and
notice of acceptance of this Guaranty and notice of
the incurring of any obligation, indebtedness or
liability to which this Guaranty applies or may
apply and waives presentment for payment, notice of
nonpayment, protest, demand, notice of protest,
notice of intent to accelerate, notice of
acceleration, notice of dishonor, diligence in
enforcement and indulgences of every kind, and (ii)
the taking of any other action by KBK, including
without limitation giving any notice of default or
any other notice to, or making any demand on,
Borrower, any other guarantor of all or any part of
the Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or
any requirements imposed by, Chapter 34 of the Texas
Business and Commerce Code, as in effect on the date
of this Guaranty or as it may be amended from time
to time and waives all other notices to which
Guarantor may be entitled.
(c) KBK may at any time, without the consent of or
notice to Guarantor, without incurring
responsibility to Guarantor and without impairing,
releasing, reducing or affecting the obligations of
Guarantor hereunder: (i) change the manner, place or
terms of payment of all or any part of the
Guaranteed Indebtedness, or renew, extend, modify,
rearrange or alter all or any part of the Guaranteed
Indebtedness; (ii) change the interest rate accruing
on any of the Guaranteed Indebtedness (including,
without limitation, any periodic change in such
interest rate that occurs because such Guaranteed
Indebtedness accrues interest at a variable rate
which may fluctuate from time to time); (iii) sell,
exchange, release, surrender, subordinate, realize
upon or otherwise deal with in any manner and in any
order any collateral for all or any part of the
Guaranteed Indebtedness or this Guaranty or setoff
against all or any part of the Guaranteed
Indebtedness; (iv) neglect, delay, omit, fail or
refuse to take or prosecute any action for the
collection of all or any part of the Guaranteed
Indebtedness or this Guaranty or to take or
prosecute any action in connection with any of the
Loan Documents; (v) exercise or refrain from
exercising any rights against Borrower or others, or
otherwise act or refrain from acting; (vi) settle or
compromise all or any part of the Guaranteed
Indebtedness and subordinate the payment of all or
any part of the Guaranteed Indebtedness to the
payment of any obligations, indebtedness or
liabilities which may be due or become due to KBK or
others; (vii) apply any payment, collections through
process of law or otherwise or other collateral of
Borrower to the satisfaction and liquidation of the
indebtedness or obligations of Borrower to KBK not
guaranteed under this Guaranty; and (viii) apply any
sums paid to KBK by Guarantor, Borrower or others to
the Guaranteed Indebtedness in such order and manner
as KBK, in its sole discretion, may determine.
(d) Should KBK seek to enforce the obligations of
Guarantor hereunder by action in any court or
otherwise, Guarantor waives any requirement,
substantive or procedural, that (i) KBK first
enforce any rights or remedies against Borrower or
any other person or entity liable to KBK for all or
any part of the Guaranteed Indebtedness, including
without limitation that a judgment first be rendered
against Borrower or any other person or entity, or
that Borrower or any other person or entity should
be joined in such cause, or (ii) KBK first enforce
rights against any collateral which shall ever have
been given to secure all or any part of the
Guaranteed Indebtedness or this Guaranty. Such
waiver shall be without prejudice to KBK's right, at
its option, to proceed against Borrower or any other
person or entity, whether by separate action or by
joinder.
(e) In addition to any other waivers, agreements and
covenants of Guarantor set forth herein, Guarantor
hereby further waives and releases all claims,
causes of action, defenses and offsets for any act
or omission of KBK, its directors, officers,
employees, representatives or agents in connection
with KBK's administration of the Guaranteed
Indebtedness, except for KBK's willful misconduct
and gross negligence.
5. Obligations Not Impaired.
(a) Guarantor agrees that its obligations hereunder
shall not be released, diminished, impaired, reduced
or affected by the occurrence of any one or more of
the following events: (i) the death, disability or
lack of corporate power of Borrower, Guarantor
(except as provided in paragraph 8 herein) or any
other guarantor of all or any part of the Guaranteed
Indebtedness, (ii) any receivership, insolvency,
bankruptcy or other proceedings affecting Borrower,
Guarantor or any other guarantor of all or any part
of the Guaranteed Indebtedness, or any of their
respective property; (iii) the partial or total
release or discharge of Borrower or any other
guarantor of all or any part of the Guaranteed
Indebtedness, or any other person or entity from the
performance of any obligation contained in any
instrument or agreement evidencing, governing or
securing all or any part of the Guaranteed
Indebtedness, whether occurring by reason of law or
otherwise; (iv) the taking or accepting of any
collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty; (v) the taking or
accepting of any other guaranty for all or any part
of the Guaranteed Indebtedness; (vi) any failure by
KBK to acquire, perfect or continue any lien or
security interest on collateral securing all or any
part of the Guaranteed Indebtedness or this
Guaranty; (vii) the impairment of any collateral
securing all or any part of the Guaranteed
Indebtedness or this Guaranty; (viii) any failure by
KBK to sell any collateral securing all or any part
of the Guaranteed Indebtedness or this Guaranty in a
commercially reasonable manner or as otherwise
required by law; (ix) any invalidity or
unenforceability of or defect or deficiency in any
of the Loan Documents; or (x) any other circumstance
which might otherwise constitute a defense available
to, or discharge of, Borrower or any other guarantor
of all or any part of the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any
payment of all or any part of the Guaranteed
Indebtedness is rescinded or must otherwise be
returned by KBK upon the insolvency, bankruptcy or
reorganization of Borrower, Guarantor, any other
guarantor of all or any part of the Guaranteed
Indebtedness, or otherwise, all as though such
payment had not been made.
(c) Guarantor agrees that its obligations hereunder
shall not be released, diminished, impaired, reduced
or affected by the existence of any other guaranty
or the payment by any other guarantor of all or any
part of the Guaranteed Indebtedness.
(d) Guarantor's obligations hereunder shall not be
released, diminished, impaired, reduced or affected
by, nor shall any provision contained herein be
deemed to be a limitation upon, the amount of credit
which KBK may extend to Borrower, the number of
transactions between KBK and Borrower, payments by
Borrower to KBK or KBK's allocation of payments by
Borrower.
(e) In the event Borrower is a corporation or
partnership, none of the following shall affect
Guarantor's liability hereunder: (i) the
unenforceability of all or any part of the
Guaranteed Indebtedness against Borrower by reason
of the fact that the Guaranteed Indebtedness exceeds
the amount permitted by law; (ii) the act of
creating all or any part of the Guaranteed
Indebtedness is ultra vires; or (iii) the officers
or partners creating all or any part of the
Guaranteed Indebtedness acted in excess of their
authority. Guarantor hereby acknowledges that
withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held
by Guarantor shall not alter, affect or in any way
limit the obligations of Guarantor hereunder.
6. Actions against Guarantor. In the event of a default in
the payment or performance of all or any part of the
Guaranteed Indebtedness when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall pay the amount due thereon to
KBK, in lawful money of the United States, at KBK's
address set forth above within 5 days after demand thereof
by KBK. One or more successive or concurrent actions may
be brought against Guarantor, either in the same action in
which Borrower is sued or in separate actions, as often as
KBK deems advisable. The exercise by KBK of any right or
remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not
preclude concurrent or subsequent exercise of any other
right or remedy. The books and records of KBK shall be
admissible in evidence in any action or proceeding
involving this Guaranty and shall be prima facie evidence
of the payments made on, and the outstanding balance of,
the Guaranteed Indebtedness.
7. Payment by Guarantor. Whenever Guarantor pays any sum
which is or may become due under this Guaranty, written
notice must be delivered to KBK contemporaneously with
such payment. In the absence of such notice to KBK by
Guarantor in compliance with the provisions hereof, any
sums received by KBK on account of the Guaranteed
Indebtedness shall be conclusively deemed paid by
Borrower.
8. Death of Guarantor. In the event of the death of
Guarantor, the obligations of the deceased Guarantor under
this Guaranty shall continue as an obligation against
Guarantor's estate as to (a) all of the Guaranteed
Indebtedness that is outstanding on the date of
Guarantor's death, and any renewals or extensions thereof,
and (b) all loans, advances and other extensions of credit
made to or for the account of Borrower on or after the
date of Guarantor's death pursuant to an obligation of KBK
under a commitment or agreement described in paragraph 1
above and made to or with Borrower prior to the date of
Guarantor's death. The terms and conditions of this
Guaranty, including without limitation the consents and
waivers set forth in paragraph 4 hereof, shall remain in
effect with respect to the Guaranteed Indebtedness
described in the preceding sentence in the same manner as
if Guarantor had not died.
9. Notice of Sale. In the event that Guarantor is entitled
to receive any notice under the Uniform Commercial Code,
as it exists in the state governing any such notice, of
the sale or other disposition of any collateral securing
all or any part of the Guaranteed Indebtedness or this
Guaranty, reasonable notice shall be deemed given when
such notice is deposited in the United States mail,
postage prepaid, at the address for Guarantor set forth on
the first page of this Guaranty, five (5) days prior to
the date any public sale, or after which any private sale,
of any such collateral is to be held; provided, however,
that notice given in any other reasonable manner or at any
other reasonable time shall be sufficient.
10. Waiver by KBK. No delay on the part of KBK in exercising
any right hereunder or failure to exercise the same shall
operate as a waiver of such right. In no event shall any
waiver of the provisions of this Guaranty be effective
unless the same be in writing and signed by an officer of
KBK, and then only in the specific instance and for the
purpose given.
11. Successors and Assigns. This Guaranty is for the benefit
of KBK, its successors and assigns, and in the event of an
assignment by KBK of the Guaranteed Indebtedness, or any
part thereof, the rights and benefits hereunder shall be
transferred with such indebtedness. This Guaranty is
binding upon Guarantor and Guarantor's heirs, executors,
administrators, personal representatives and successors,
including without limitation any person or entity
obligated by operation of law upon the reorganization,
merger, consolidation or other change in the
organizational structure of Guarantor.
12. Costs and Expenses. Guarantor shall pay on demand by KBK
all costs and expenses, including without limitation all
reasonable attorneys' fees, incurred by KBK in connection
with the enforcement and/or collection of this Guaranty.
This covenant shall survive the payment of the Guaranteed
Indebtedness.
13. Severability. If any provision of this Guaranty is held
by a court of competent jurisdiction to be illegal,
invalid or unenforceable under present or future laws,
such provision shall be fully severable, shall not impair
or invalidate the remainder of this Guaranty and the
effect thereof shall be confined to the provision held to
be illegal, invalid or unenforceable.
14. No Obligation. Nothing contained herein shall be
construed as an obligation on the part of KBK to extend or
continue to extend credit to Borrower.
15. Amendment. No modification or amendment of any provision
of this Guaranty, nor consent to any departure by
Guarantor therefrom, shall be effective unless the same
shall be in writing and signed by an officer of KBK, and
then shall be effective only in the specific instance and
for the purpose for which given.
16. Cumulative Rights. All rights and remedies of KBK
hereunder are cumulative of each other and of every other
right or remedy which KBK may otherwise have at law or in
equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall
not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
17. Governing Law; Venue; Submission to Jurisdiction. THIS
GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT
TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS
GUARANTY IS PERFORMABLE IN TARRANT COUNTY, TEXAS.
GUARANTOR AGREES THAT TARRANT COUNTY, TEXAS SHALL BE THE
EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM
ARISING UNDER OR RELATING TO THIS GUARANTY, AND THAT SUCH
COUNTY IS A CONVENEINT FORUM IN WHICH TO DECIDE ANY SUCH
DISPUTE OR CLAIM. GUARANTOR CONSENTS TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
TARRANT COUNTY, TEXAS FOR THE LITIGATION OF ANY SUCH
DISPUTE OR CLAIM. GUARANTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
18. Compliance with Applicable Usury Laws. Notwithstanding
any other provision of this Guaranty or of any instrument
or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness, Guarantor and KBK by
its acceptance hereof agree that Guarantor shall never be
required or obligated to pay interest in excess of the
maximum nonusurious interest rate as may be authorized by
applicable law for the written contracts which constitute
the Guaranteed Indebtedness. It is the intention of
Guarantor and KBK to conform strictly to the applicable
laws which limit interest rates, and any of the aforesaid
contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the
maximum nonusurious interest rate allowed under said law.
19. Descriptive Headings. The headings in this Guaranty are
for convenience only and shall not define or limit the
provisions hereof.
20. Gender. Within this Guaranty, words of any gender shall
be held and construed to include the other gender.
21. Notices. All notices hereunder shall be in writing and
shall be personally delivered or sent by registered or
certified mail, return receipt requested, to the address
for KBK and Guarantor set forth on the first page of this
Guaranty. KBK and Guarantor may, by proper written notice
hereunder, change the address to which notices may be sent
thereafter to such party.
22. Entire Agreement. This Guaranty contains the entire
agreement between Guarantor and KBK regarding the subject
matter hereof and supersedes all prior written and oral
agreements and understandings, if any, regarding same;
provided, however, this Guaranty is in addition to and
does not replace, cancel, modify or affect any other
guaranty of Guarantor now or hereafter held by KBK that
relates to Borrower or any other person or entity.
23. WAIVER OF JURY TRIAL. GUARANTOR HEREBY IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT
GUARANTOR MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR ANY
TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
24. NOTICE OF NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY
NOT CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED AND EFFECTIVE as of the date first set forth above.
GUARANTOR:
JOHN DERNER
STATE OF
COUNTY OF
The foregoing instrument was acknowledged before me this
_________ day of April, 1998, by John Derner.
Witness my hand and official seal.
My Commission expires:
(Notary Public)
<PAGE>
SUBORDINATION AGREEMENT
(Debt)
This Subordination Agreement ("Agreement") is made and
entered into as of the 20th day of April, 1998, by and between
KBK Financial, Inc., a Delaware corporation ("KBK") and Red Oak
Hereford Farms, Inc., a Nevada corporation ("Creditor"), with
respect to the following facts:
A. KBK and Red Oak Farms, Inc., an Iowa corporation ("Client"),
have entered into that certain Account Transfer and Purchase
Agreement, dated to be effective as of April 20, 1998,
("Purchase Agreement"), pursuant to which Purchase Agreement
the parties have provided for the terms and conditions under
which KBK may, from time to time, purchase from Client
certain accounts receivable of Client and related rights
(hereinafter collectively referred to as the "Purchased
Accounts"), and Client has made certain covenants,
representatives, and warranties to KBK with respect to each
Purchased Account. KBK has or will provide certain
financing to Client as evidenced by that certain Revolving
Credit Promissory Note dated as of April 20, 1998, payable
by Client to the order of KBK in the stated principal amount
of $1,500,000 (such promissory note, together with all
renewals, amendments and modifications thereof, the "KBK
Note").
B. To secure Client's obligations to KBK under the Purchase
Agreement and the KBK Note, Client has granted to KBK a
first priority security interest in and to all present and
future accounts, general intangibles, equipment, inventory,
livestock, documents, instruments, chattel paper, and
contract rights, and any and all proceeds thereof, and such
other and additional collateral as may be described in the
Purchase Agreement and that certain Security Agreement of
even date with the KBK Note, executed by Client for the
benefit of KBK (all of the foregoing are hereinafter
collectively referred to as the "Collateral").
C. Client has executed that certain promissory note dated
December 19, 1997, payable by Client to the order of
Creditor in the stated principal amount of $1,500,000.00, a
copy of which is attached hereto as Exhibit A (the
"Subordinated Note").
D. KBK and Creditor intend, by this Agreement, to establish,
between themselves, and their respective successors and
assigns, for the subordination by Creditor of all
indebtedness and other obligations of Client now and
hereafter owing to Creditor (including, without limitation,
all indebtedness owing under the Subordinated Note, and any
and all renewals, modifications, and extensions thereof) to
the obligations of Client to KBK, however contingent.
NOW, THEREFORE, FOR VALUABLE CONSIDERATION, the receipt and
sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. Subordination of Obligations.
1.1 The term "Obligations" is used and shall be
construed in this Agreement in its broadest and
most comprehensive sense and shall mean all
present and future indebtedness of Client which
may be, from time to time, directly or
indirectly, incurred by Client, and any and all
extensions, renewals, renewals, and modifications
thereof, including, but not limited to, any
invoices, contracts, agreements, or other
instruments evidencing the same, and all
promissory notes, guarantees, debts, demands,
monies, indebtedness, liabilities and obligations
owed, or to become owing, including interest,
principal, costs, and other charges, and all
claims, rights, causes of actions, judgments,
decrees, remedies, liens, security interests, or
other obligations, and all security therefor, of
any kind whatsoever and howsoever arising,
whether voluntary, involuntary, absolute,
contingent, or by operation of law, specifically
excluding herefrom all obligations due to
Creditor by Client for goods purchased by Client
from Creditor in the ordinary course of and used
in the business of Client.
1.2 Any and all Obligations now owing and hereafter
owed by Client to Creditor, including, without
limitation, all indebtedness evidenced by the
Subordinated Note (the "Creditor Obligations")
are hereby unconditionally and irrevocably
subordinated and made subject to any and all
Obligations now owing and hereafter owed by
Client to KBK, including, without limitation, all
amounts owing by Client under the KBK Note
(hereinafter collectively the "KBK Obligations"),
for so long as any of the KBK Obligations shall
remain unpaid and not fully and finally
discharged and satisfied.
1.3 Until termination of this Agreement, Creditor
agrees: (a) not to collect, or to receive payment
upon, by setoff or in any other manner, all or
any portion of the Creditor Obligation; (b) not
to sell, assign, transfer, pledge, or grant a
security interest in the Creditor Obligations
(except subject expressly to this Agreement); (c)
not to accelerate the maturity of the Creditor
Obligations; (d) not to commence, prosecute or
participate in any administrative, legal, or
equitable action that might adversely affect
Client or KBK's interests; (e) not to join in any
petition for bankruptcy or assignment for the
benefit of creditors agreement affecting Client
or any of its assets, or seek to appoint a
receiver for all or any portion of Client's
assets; (f) not to take any lien or security on
Client's assets or property, real or personal;
(g) not to incur any obligation to or receive any
loans advances, or payments of any kind or gifts
from Client; (h) not to take any other action,
directly or indirectly, which would in any manner
interfere with or impair the rights of KBK with
respect to any collateral for the KBK
Obligations, without KBK's prior written consent;
and (i) not to amend or modify the terms of the
Subordinated Note without the prior written
consent of KBK.
1.4 Except as otherwise hereinafter expressly
provided, all of the KBK Obligations now or
hereafter existing shall be first paid,
satisfied, discharged or satisfactory provisions
made therefore by Client before any payment shall
be made by Client on the Creditor Obligations.
This priority of payment shall apply at all times
until all of the KBK Obligations have been fully
and finally repaid, satisfied, and discharged in
full.
1.5 In the event of any liquidation or dissolution of
Client, whether partial or complete, voluntary or
involuntary, by operation of law or otherwise, or
in the event of any receivership, insolvency or
bankruptcy proceedings by or against Client under
any bankruptcy or insolvency laws (a) any and all
payments or distributions of any kind or
character, whether in cash, securities, or other
property, which thereafter shall be payable or
deliverable to Creditor upon or with respect to
any portion of the Creditor Obligations, shall
immediately be paid or delivered by Creditor
directly to KBK for application in reduction of
the KBK Obligations, whether or not then due or
mature, in such manner as KBK shall determine in
its sole discretion, and (b) KBK shall have the
right (but not the obligation) to file a claim on
behalf of Creditor respecting the Creditor
Obligations in any such proceedings and to
collect and receive all payments that may be
declared or become payable on the claim of
Creditor thereunder, or interest thereon (up
until full payment and performance of the KBK
Obligations at which time, upon request by
Creditor, such claim shall be assigned or
otherwise conveyed to Creditor without recourse),
and KBK hereby is irrevocably appointed as
attorney-in-fact for Creditor for such purpose in
all such proceedings.
1.6 Creditor further agrees that should Creditor take
or receive any security interest in, or lien by
way of attachment, execution or otherwise on any
of the assets or property, real or personal, of
Client, or should Creditor take or join in any
other action or proceeding contrary to this
Agreement, at any time prior to the termination
of this Agreement, KBK shall be entitled to have
the same vacated, dissolved and set aside by such
proceedings at law, or otherwise, as KBK may deem
proper. This Agreement shall be and constitutes
full and sufficient grounds for such action and
shall entitle KBK to become a party to any
proceedings at law, or otherwise, initiated by
KBK or by any other party, in or by which KBK may
deem it proper to protect KBK's interests
hereunder. Creditor shall be liable to KBK for
all losses, expenses, and other damages sustained
by KBK by reason of such breach, including
attorneys' fees and related costs in any such
legal action or proceeding.
1.7 If Creditor shall receive any payments, security
interest, or other rights in any property of
Client in violation of this Agreement, such
payment or property shall be deemed to be
received and held by Creditor in trust for KBK
and shall forthwith be delivered and transferred
to KBK for application in reduction of the KBK
Obligations, whether or not then due or mature,
in such manner as KBK shall determine in its sole
discretion.
2. Representations and Warranties of Creditor. Creditor
hereby represents and warrants to KBK that Creditor is
the sole holder and beneficial owner of the
Subordinated Note and all interests and rights created
thereby with respect to said instruments relating
thereto, and have not assigned, transferred, pledged,
or granted a security interest in the Subordinated
Note, or any right or interest therein or thereunder,
and has not entered into any agreement, option, or
other Agreement for the sale, assignment, pledge or
grant of a security interest in any of the foregoing,
including, without limitation, any grant of any option,
right of first refusal, or other pre-emptive right to
purchase or acquire any right or interest therein.
3. Reliance by KBK. This Agreement is an irrevocable and
continuing agreement of subordination and KBK may
continue to rely upon same in providing financing and
other financial accommodations to or for the benefit of
Client. In connection therewith, KBK may without
notice to or consent from Creditor and without
impairing the rights and obligations of the parties
under this Agreement (a) release any person or entity
now or hereafter liable upon any of the KBK
Obligations, (b) permit substitutions of or release all
or any portion of the Collateral, (c) renew, extend or
modify the terms of the KBK Obligations or any document
or instrument evidencing, governing, securing or
guaranteeing any of the KBK Obligations, and/or (d)
provide additional financing to Client after the date
hereof.
4. No Commitment. It is understood and agreed that this
Agreement shall in no way be construed as a commitment
or agreement by KBK to continue financing arrangements
with Client and that KBK may terminate such
arrangements at any time, in accordance with KBK's
agreements with Client.
5. Financial Condition of Client. Creditor has adequate
means to obtain from Client on a continuing basis
information concerning the financial condition of
Client and Creditor is not relying on KBK to provide
such information now or in the future. Creditor
acknowledges and agrees that KBK is not obligated to
keep Creditor informed of Client's financial condition.
6. Affect on Client's Actions. Client shall not be
entitled for any purpose or under any circumstances to
rely upon the failure of KBK or Creditor to comply with
the terms hereof. Nothing herein contained shall be
deemed to authorize Client to take any action not
permitted under any agreement between Client and KBK or
Creditor. Client shall not be deemed to be a third
party beneficiary to this Agreement or to have any
rights hereunder whatsoever.
7. No Challenge to Validity. Creditor covenants and
agrees not to take any action to seek to avoid or set
aside the perfected security interest in the Purchased
Accounts or the Collateral or to seek to rescind,
modify, or circumvent the provisions of this Agreement.
8. Termination. This Agreement shall terminate on the
first date when both of the following events shall have
occurred and exist simultaneously: (a) full and final
payment in cash of all of the KBK Obligations; and (b)
termination or expiration of the Purchase Agreement and
all obligations or commitments of KBK to provide
financing to Client.
9. Amendment. This Agreement may not be amended except by
written agreement executed by both KBK and Creditor.
10. Captions. Captions as used in this Agreement are for
convenience only, and shall not affect the construction
of this Agreement.
11. Governing Law; Jury Waiver. This Agreement shall be governed by
and construed in accordance with the laws of the state of Texas.
The parties hereto agree that Tarrant County, Texas, will be the
exclusive venue for litigation of any dispute or claim arising under
or related to this Agreement. the parties hereto waive the right
to a trial by jury in any action or proceeding of any kind arising
out of or relating to this agreement.
12. Successors and Assigns. Unless otherwise herein
provided, this Agreement shall be binding upon and
inure to the benefit of all successors and assigns,
including, without limitation, such transferee of any
of the obligations of Client to KBK or to Creditor
under any agreement or by law. Any transferee of the
obligations or indebtedness owed by Client to Creditor
or any part thereof, shall take such obligations or
indebtedness or any part thereof subject to the
provisions of this Agreement.
13. Entire Agreement. This Agreement constitutes the
complete and integrated agreement of both KBK and
Creditor with respect to the subject matter hereof,
supersedes all prior or contemporaneous oral
agreements, assigns or negotiations, and may not be
orally modified or supplemented by parol or extrinsic
evidence.
14. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be original, but
all of which constitute but one agreement. Delivery of
an executed counterpart of this Agreement by
telefacsimile shall be equally effective as delivery of
a manually executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"Creditor" "KBK"
RED OAK HEREFORD FARMS, INC. KBK FINANCIAL, INC.
By: By:
Name: Name:
Title: Title:
ACKNOWLEDGMENT BY CLIENT
The undersigned, being the Client named in the foregoing
Agreement, hereby (i) accepts and consents to such Agreement,
(ii) agrees to be bound by all of the provisions thereof, (iii)
agrees to recognize all priorities and other rights granted
thereby, (iv) agrees to pay Creditor in accordance therewith, and
(v) acknowledges and agrees that such Agreement may be altered,
modified or amended by KBK and Creditor without notice to or
consent of Client.
RED OAK FARMS, INC.
By:
Name:
Title:
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from financial statements for the six month
period ended June 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,941
<ALLOWANCES> 0
<INVENTORY> 473
<CURRENT-ASSETS> 5,519
<PP&E> 578
<DEPRECIATION> 255
<TOTAL-ASSETS> 6,558
<CURRENT-LIABILITIES> 5,534
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> (205)
<TOTAL-LIABILITY-AND-EQUITY> 6,558
<SALES> 31,955
<TOTAL-REVENUES> 31,955
<CGS> 32,941
<TOTAL-COSTS> 32,941
<OTHER-EXPENSES> 1,722
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> (3,048)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,048)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,048)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
