EXHIBIT 4.1
LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of the 10th day of
November, 2004 (the "Effective Date"), by and among B&B ARMR CORPORATION, a
Delaware corporation, with its principal office and mailing address at 00000
Xxxx Xxxxxx, Xxxxxxx, Xxxxxxxxx 00000 (hereinafter called the "Borrower"), BRIAR
CAPITAL, L.P., a Texas limited partnership, with principal office at 0000 Xxxx
Xxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000 (hereinafter
called the "Lender"), INTEGRATED SECURITY SYSTEMS, INC., a Delaware corporation
("ISSI"), INTELLI-SITE, INC., a Texas corporation ("Intelli"), and as validity
guarantors, C.A. XXXXXXX, JR., an individual ("Xxxxxxx"), XXXXX XXXXX, an
individual ("Beare"), and XXX XXXXXXXXXX, an individual ("Xxxxxxxxxx").
W I T N E S S E T H:
For and in consideration of the mutual covenants and agreements herein
contained and of the loans and commitment hereinafter referred to, the Borrower
and the Lender agree as follows:
ARTICLE I
GENERAL TERMS
Section 1.01 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Accounts" shall have the definition as set forth in
ss.9.102(2) of the Texas Business and Commerce Code, as
amended.
"Accounts Advance Amount" shall mean at any time an
amount equal to the product of Eligible Accounts times a
percentage (the "Accounts Advance Percentage"), which shall
initially be eighty percent (80%); Lender shall have the
right at any time, and from time to time, in its sole
discretion, to revise the Accounts Advance Percentage.
"Affiliate" shall mean any Person controlling,
controlled by or under common control with any other Person.
For purposes of this definition, "control" (including
"controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or
otherwise. Without limiting the generality of the foregoing,
for purposes of this Agreement, Borrower, Guarantors, and
each of their respective Subsidiaries shall be deemed to be
Affiliates of one another.
"Agreement" shall mean this Loan Agreement, as the
same may from time to time be amended, modified or
supplemented.
"Anti-Terrorism Laws" shall mean any and all present
and future judicial decisions, statutes, rulings, rules,
regulations, permits, certificates, orders and ordinances of
any governmental authority relating to terrorism or money
laundering, including, without limiting the generality of the
foregoing, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (Pub. L. No. 107-56); the Trading with
the Enemy Act (50 U.S.C.A. App. 1 et. seq.); the
International Emergency Economic Powers Act (50 U.S.C.A.
ss.1701-06); Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001 (relating to
"Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism") and
the United States Treasury Department's Office of Foreign
Assets Control list of "Specifically Designated National and
Blocked Persons" (as published from time to time in various
media, including, without limitation, at
http:xxx.xxxxx.xxx/xxxx/x00xxx.xxx).
"Blocked Account" shall mean that certain account
established by Borrower and Lender at a bank acceptable to
Lender into which Borrower shall deposit certain receipts, as
set forth in Section 4.11 hereof.
"Blocked Account Agreement" shall mean that certain
Blocked Account Agreement of even date herewith executed by
and among Bank One, N.A., Borrower, and Lender regarding the
establishment of the Blocked Account at a financial
institution acceptable to Lender and setting forth Lender's
security interest in such Blocked Account, the form of which
Blocked Account Agreement is attached hereto as Exhibit
"1.1A".
"Borrower" shall have the meaning given to such term
in the first paragraph of this Agreement.
"Borrower's Facilities" shall mean those certain
facilities described in Section 5.07 hereof.
"Borrowing Base" shall mean at any time an amount not
to exceed the lesser of: (1) Three Million and No/100 Dollars
($3,000,000.00), or (2) (a) the Accounts Advance Amount
determined as of the date the Borrowing Base is calculated,
plus (b) the Inventory Advance Amount as of the date of the
Borrowing Base is calculated. The Borrowing Base will not
include any Properties of Subsidiaries.
"Business Day" shall mean any day on which Reference
Bank is open for the conduct of general banking business.
"Closing" shall mean the date and time for closing the
transaction contemplated hereby, described in Section 7.01
hereof.
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"Closing Fee" shall mean the fee payable by Borrower
as described in Section 2.12 hereof.
"Commitment" shall mean the obligation of the Lender
to make loans to the Borrower under Section 2.01 hereof, up
to the maximum amount therein stated.
"Default" shall mean the occurrence of any of the
events specified in Article VI hereof, whether or not any
requirement for notice or lapse of time or other condition
precedent has been satisfied.
"DTPA" shall mean the Texas Deceptive Trade
Practices-Consumer Protection Act, Subchapter E of Chapter 17
of the Texas Business and Commerce Code.
"EBITDA" means an amount equal to Net Income plus the
sum of interest, taxes, depreciation, amortization, and
corporate management fee.
"Effective Date" shall have the meaning given to such
term in the first paragraph of this Agreement.
"Eligible Accounts" shall mean at any time an amount
equal to the gross amount owing on all trade accounts
receivable of the Borrower for goods sold or leased or
services rendered, in which the Lender has a valid,
exclusive, fully perfected, first priority lien or security
interest (except for Liens permitted under Section 5.02
hereof), which conform to the warranties contained herein and
which, at all times, continue to be acceptable to Lender in
the exercise of its sole judgment, after deducting, without
duplication, the sum of (a) the amount of any returns,
discounts, claims, credits and allowances of any nature
(whether issued, owing, granted, claimed or outstanding) to
such accounts, and (b) reserves for any such accounts that
arise from or are subject to or include: (i) sales to the
United States of America, any state or other governmental
entity or to any agency, department or division thereof,
except for any such sales as to which the Borrower has
complied with the Assignment of Claims Act of 1940 or any
other applicable statute, rules or regulation, to Lender's
satisfaction in the exercise of its reasonable business
judgment; (ii) foreign sales, other than sales which
otherwise comply with all of the other criteria for
eligibility hereunder and are (A) secured by letter of credit
(in form and substance satisfactory to Lender) issued or
confirmed by, and payable at, banks having a place of
business in the United States of America, or (B) to customers
residing in Canada; (iii) Accounts that remain unpaid more
than ninety (90) days from invoice date or sixty (60) days
from due date; (iv) contra accounts; (v) sales to any parent,
Subsidiary, division, or any other company affiliated with
the Borrower or its parent or Subsidiaries in any way; (vi)
xxxx and hold (deferred shipment) or consignment sales; (vii)
sales to any customer which is (A) insolvent, (B) the debtor
in any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceedings under any federal or
state law, (C) negotiating, or has called a meeting of its
creditors for purposes of negotiating, a compromise of its
debts, or (D) financially unacceptable to Lender or has a
credit rating unacceptable to Lender; (viii) all sales to any
customer if twenty-five percent (25%) or more of the
aggregate dollar amount of all outstanding invoices to such
customer are more than sixty (60) days past due or unpaid
more than ninety (90) days from invoice date; (ix) sales to
any customer and/or its affiliates to the extent such sales
exceed at any one time ten percent (10%) or more of all
Eligible Accounts; (x) pre-billed receivables and receivables
arising from progress billing or purchase orders; (xi) an
amount representing, historically, returns, discounts,
claims, credits, allowances and applicable terms; (xii) sales
not payable in United States currency; (xiii) all Accounts
owed by account debtors in excess of the limit of total
Accounts, if any, that is established and/or revised by
Lender from time to time, in Lender's sole and exclusive
discretion, for such account debtor; (xiv) Accounts for
projects in which Borrower hired subcontractors but has not
delivered to Lender an executed release of lien from said
subcontractors; and (xv) any other reasons deemed necessary
by Lender in its sole judgment, including without limitation,
those which are customary either in the commercial finance
industry or in the lending practices of Lender.
Notwithstanding the foregoing limitations and concentrations,
however, the standards of eligibility for Eligible Accounts
may be set and may be revised from time to time solely by the
Lender in its exclusive judgment.
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"Eligible Inventory" shall mean the Borrower's
Inventory that is subject to a valid, exclusive, first
priority and fully perfected security interest in favor of
Lender and which conforms to the warranties contained herein
and which, at all times continues to be acceptable to Lender
in the exercise of its reasonable judgment, less, without
duplication, any (a) work-in-progress (whether listed or
determined by Lender's inspection), (b) goods privately
labeled for a customer (whether listed or determined by
Lender's inspection), (c) Inventory not present in the United
States of America, (d) Inventory returned or rejected by the
Borrower's customers (other than goods that are undamaged and
resaleable in the normal course of business) and goods to be
returned to the Borrower's suppliers, (e) Inventory in
transit to third parties (other than to the Borrower's agents
or warehouses), or in the possession of a warehouseman,
bailee, third party processor, or other third party, unless
such warehouseman, bailee or third party has executed a
notice of security interest agreement (in form and substance
satisfactory to Lender) and Lender shall have a first
priority perfected security interest in such Inventory, (f)
any damaged or worthless goods (whether listed or determined
by Lender's inspection), (g) unsold Inventory owned by
Borrower for at least two (2) years, (h) categories of
Inventory for which the individual components of which have
not turned over at least twice in the previous twelve (12)
months, (i) finished goods, and (j) any reserves required by
Lender in its sole discretion, including, without limitation
for special order goods, discontinued, slow-moving and
obsolete Inventory, market value declines, xxxx and hold
(deferred shipment), consignment sales, shrinkage and any
applicable customs, freight, duties and taxes.
Standards of eligibility for Eligible Inventory may be
set and may be revised from time to time solely by the Lender
in its exclusive judgment.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
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"Event of Default" shall mean the occurrence of any of
the events specified in Article VI hereof, provided that any
requirement for notice or lapse of time or any other
condition precedent has been satisfied.
"Financial Statements" shall mean the consolidated and
consolidating financial statement or statements of the
Borrower and its Subsidiaries described or referred to in
Section 3.06 hereof.
"GAAP" means generally accepted accounting principles,
applied on a consistent basis, as set forth in Opinions of
the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the
Financial Account Standards Board and/or their respective
successors and which are applicable in the circumstances as
of the date in question. Accounting principles are applied on
a "consistent basis" when the accounting principles applied
in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Guaranties" shall mean those certain guaranty
agreements referenced in Section 7.10.
"Guarantors" shall mean, collectively, ISSI and
Intelli, as defined and referred to in the preamble.
"Indebtedness" shall mean any and all amounts owing or
to be owing by the Borrower to the Lender in connection with
the Note, this Agreement, the Security Instruments, and other
liabilities of the Borrower to the Lender from time to time
existing, including without limitation guaranties of
indebtedness, letters of credit and obligations acquired from
third Persons, whether in connection with this or other
transactions.
"Inventory" shall mean all personal property held by
Borrower for sale or lease, including but not limited to, raw
materials, finished goods, work-in-process, packaging
materials and items located offsite, in which Lender has a
perfected, first priority lien or security interest (subject
to liens, if any, described in Section 5.02).
"Inventory Advance Amount" shall mean at any time an
amount equal to the lesser of: (1) product of the book value
of the Eligible Inventory times a percentage (the "Inventory
Advance Percentage"), which shall initially be twenty percent
(20%), and (2) $300,000 (the "Maximum Inventory Advance
Amount"); provided, however, that (i) under no circumstances
shall the aggregate Inventory Advance Amount exceed
twenty-five percent (25%) of the Accounts Advance Amount, and
(ii) Lender shall have the right at any time, and from time
to time, in its sole discretion, to revise the Inventory
Advance Percentage and/or the Maximum Inventory Advance
Amount.
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"Lender" shall have the meaning given to such term in
the first paragraph of this Agreement.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the
owner of the Property, whether such interest is based on the
common law, statute or contract, and including but not
limited to the security interest or lien arising from a
mortgage, security agreement, deed of trust, assignment,
collateral mortgage, chattel mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment,
bailment for security purposes or certificate of title lien.
The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to
be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, financing lease or
other arrangement pursuant to which title to the Property has
been retained by or vested in some other Person for security
purposes.
"Loan" shall mean the loan from Lender to Borrower
made the subject of this Agreement.
"Maximum Credit Facility" shall mean the maximum
amount of funds Lender have agreed to advance to the Borrower
under the Note, which amount shall not exceed Three Million
and No/100 Dollars ($3,000,000.00).
"Maximum Nonusurious Interest Rate" shall mean the
maximum nonusurious interest rate allowable under applicable
United States federal law and under the laws of the State of
Texas as presently in effect and, to the extent allowed by
such laws, as such laws may be amended from time to time to
increase such rate.
"Net Income" or "net income" means the net income (or
loss) of a Person for any applicable period of determination,
determined in accordance with GAAP.
"Note" shall mean the promissory note or notes
(whether one or more) of the Borrower described in Section
2.01 hereof, together with any and all renewals, extensions,
increases or rearrangements thereof. The "Note" shall
include, without limitation, the Revolving Promissory Note.
"Person" shall mean any individual, corporation,
partnership, joint venture, limited liability company,
association, joint stock company, trust, trustee,
unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
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"Plan" shall mean any Plan subject to Title IV of
ERISA and maintained by the Borrower or any Subsidiary, or
any such plan to which the Borrower or any Subsidiary is
required to contribute on behalf of its employees.
"Prime Rate" shall mean the greater of: (i) four and
one quarter percent (4.25%), or (ii) the variable rate of
interest per annum established by Reference Bank from time to
time as its "prime rate." Such rate is set by Reference Bank
as a general reference rate of interest, taking into account
such factors as Reference Bank may deem appropriate, it being
understood that many of Reference Bank's commercial or other
loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any
customer and that Reference Bank may make various commercial
or other loans at rates of interest having no relationship to
such rate.
"Prohibited Person" shall mean any person or entity
that (i) is specifically named or listed in, or otherwise
prohibited from engaging in transactions with Lender due to,
any Anti-Terrorism Laws, (ii) is owned or controlled by, or
acting for or on behalf of, any person or entity specifically
named or listed in, or otherwise prohibited from engaging in
transactions with Lender due to, any Anti-Terrorism Laws,
(iii) Lender is prohibited from dealing with, or engaging in
any transaction with, pursuant to any Anti-Terrorism Laws, or
(iv) is affiliated with any person or entity described in
clauses (i)-(iii) of this definition.
"Property" shall mean any interest in any kind of
tangible or intangible property or asset.
"Reference Bank" shall mean Xxxxx Fargo Bank, a
national banking association, and its successors and assigns,
or such other national banking association as may be selected
by Lender from time to time.
"Revolving Promissory Note" shall mean the promissory
note of the Borrower described in Subsection 2.01(a) hereof
and being in the form of note attached as Exhibit "1.1B"
hereto, and all renewals, extensions, modifications and
rearrangements thereof.
"RICO" shall mean the Racketeer Influence and Corrupt
Organization Act of 1970, as amended.
"Security Instruments" shall mean this Agreement, the
Note, the agreements or instruments described or referred to
in Sections 7.09, 7.10 and 7.12 hereof, and any and all other
agreements or instruments now or hereafter executed and
delivered by the Borrower, any Subsidiary or any other Person
(other than solely by the Lender and/or any bank or creditor
participating in the benefits of loans evidenced by the Note
or any collateral or security therefor) in connection with,
or as security for the payment or performance of, the Notes
or this Agreement.
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"Subsidiary" shall mean any corporation of which more
than fifty percent (50%) of the issued and outstanding
securities having ordinary voting power for the election of
directors is owned or controlled, directly or indirectly, by
the Borrower and/or one or more of its subsidiaries and/or
one or more shareholders of the Borrower; provided, that any
such corporation of which more than fifty percent (50%) of
such securities is owned by the shareholders of the Borrower,
and none of which securities are owned by the Borrower or any
subsidiary of the Borrower, shall not be deemed a Subsidiary
hereunder.
"Tangible Net Worth" shall mean as of any date, the
amount by which the Borrower's assets less (i) patents,
copyrights, trademarks, tradenames, franchises, goodwill,
experimental expenses and other similar intangibles net of
accumulated amortization; (ii) unamortized debt discount and
expense; (iii) assets located and notes due from obligors
domiciled outside the United States of America; and (iv)
obligations due to the Borrower from shareholders or other
related parties, as of such date exceed the Borrower's
liabilities as of such date.
"Termination Date" shall mean that certain date which
is three (3) years after the Effective Date of this
Agreement.
"Validity Guarantors" shall mean, collectively,
Rundell, Beare, and Xxxxxxxxxx, as defined in the preamble.
Section 1.02 Accounting Principles. Where the character or amount of
any asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, this shall be done in accordance with GAAP,
except where such method is inconsistent with the requirements of this
Agreement.
ARTICLE II
AMOUNT AND TERMS OF LOAN
Section 2.01 The Loans and Commitment. Subject to the terms and
conditions and relying on the representations and warranties contained in this
Agreement, the Lender agrees to make the following loans to the Borrower:
(a) Revolving Credit Loans. From the date of this
Agreement through the Termination Date, the Lender may make
revolving credit loans to the Borrower from time to time on
any Business Day in such amounts as the Borrower may request
up to the maximum amount hereinafter stated, and the Borrower
may make borrowings, prepayments and reborrowings (as
permitted or required in Sections 2.03, 2.06 and 2.07 hereof)
in respect thereof; provided, however, that the aggregate
principal amount of all such revolving credit loans at any
one time outstanding (i) shall not exceed the Borrowing Base,
and (ii) shall not be less than $500,000.00, unless the
Borrowing Base is less than $500,000.00, in which case such
aggregate principal amount shall not be less than the
Borrowing Base. To evidence the revolving credit loans made
by the Lender pursuant to this Section, the Borrower will
issue, execute and deliver the Note dated as of the Effective
Date of this Agreement and payable on Lender's demand, but if
no demand is made, on the Termination Date. On the
Termination Date, in the event the Borrower has not given the
Lender sixty (60) days' prior written notice of its intent to
terminate the revolving credit loans pursuant to the Note,
then, at the sole discretion of the Lender, the revolving
credit loans may be renewed, and the Termination Date
extended, for a period of one (1) year; and at the end of
such one (1) year extension, the revolving credit loans may
be again extended, from year to year, in the same fashion.
Each such extension shall be upon the same terms and
conditions as set forth herein and in the Note and the
Security Instruments relating to the same, and upon such
further stipulations and conditions as the Lender may
require. Interest on the Note shall accrue at the rate
provided in Section 2.02 hereof and shall be payable monthly
on the first day of each month during its term.
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(b) Inventory Advances. Notwithstanding anything to
the contrary in this Agreement, the maximum Inventory Advance
Amount shall be equal to the lesser of (i) ninety thousand
dollars ($90,000), and (ii) the product of the book value of
the Eligible Inventory and twenty percent (20%), until the
following conditions have been satisfied: (x) Borrower has
positive Net Income for one (1) calendar quarter during the
term of this Loan, (y) Borrower implements an inventory
accounting and reporting system acceptable to Lender which
can produce weekly reporting and age inventory, and (z) if an
entity other than Borrower owns any of the Borrower's
Facilities and if requested by Lender, the owner of each such
facility shall have executed and delivered to Lender, in form
and substance satisfactory to the Lender, in sufficient
executed counterparts for recording purposes, waivers of any
Liens to which it may be entitled, in favor of the Lender.
Upon the satisfaction of the requirements in this Section
2.01(b), the maximum Inventory Advance Amount shall be
determined in accordance the definition set forth in Section
1.01.
Section 2.02 Interest Rate. The Note shall bear interest at the
following rate:
(a) The Note shall bear interest from the date
thereof until maturity at a varying rate per annum which is
two percent (2.0%) above the Prime Rate as of the last day of
the applicable month in which interest is being calculated,
as the same may change from month to month (but in no event
to exceed the Maximum Nonusurious Interest Rate); provided,
however, that in the event that the Commitment is terminated
and Indebtedness is paid in full on a day other than the last
day of a month, the interest rate for the partial month in
which termination occurs shall be calculated as of the date
the Indebtedness is paid in full.
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(b) Upon the occurrence of a Default or an Event of
Default, principal and past due interest (to the extent
permitted by law) in respect of the Note shall bear interest
at a rate which is four percent (4%) per annum in excess of
the rate set forth in Subsection 2.02(a) hereinabove (but in
no event to exceed the Maximum Nonusurious Interest Rate)
irrespective of whether the Indebtedness has been
accelerated.
Interest calculations are subject to certain recapture provisions set forth in
the Note.
Section 2.03 Notice and Manner of Revolving Credit Borrowing. The
amount and date of each revolving credit loan shall be made as set forth in this
Section. Advances under the Note may be made by Lender (i) pursuant to the terms
of any written agreement executed in connection herewith between Borrower and
Lender, or (ii) at the oral or written request of the Borrower or of any officer
or agent of Borrower designated by or acting under the authority of resolutions
of the board of directors of Borrower, if a corporation, or other written
authorization of Borrower if other than a corporation, a duly certified or
executed copy of which shall be furnished to the Lender, until written notice of
the revocation of such authority is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
five (5) days of the resulting loan or advance, but any such loan or advance
shall be deemed to be made under and entitled to the benefits of the Note
irrespective of any failure by Borrower to furnish such written confirmation.
Any loan or advance shall be conclusively presumed to have been made under the
terms of the Note to or for the benefit of Borrower when made pursuant to the
terms of any written agreement executed in connection therewith between Borrower
and Lender, or in accordance with such requests and directions, or when said
advances are deposited to the credit of the account of Borrower with Lender
regardless of the fact that persons other than those authorized hereunder may
have authority to draw against such account, or may have requested an advance.
Section 2.04 Application of Payments. All payments made to the Lender
on account of any Property upon which the Lender has a Lien shall, for purposes
of calculating the Borrowing Base, be applied by the Lender against the
Indebtedness on the day such funds are credited to Lender's bank account at
JPMorgan Chase or such successor bank Lender may choose from time to time,
whether or not such Indebtedness shall have, by its terms, matured, such
application to be made to the Note, and to principal or interest or expenses as
the Lender may elect; provided, however, that, for purposes of calculating
interest under Section 2.02 hereof, the Lender need not give credit for any
payments made to and received by the Lender until at least the fourth [4th]
Business Day following the Business Day in which such payments are credited to
Lender's bank account; provided, further, however, that the Lender's failure to
so apply any such payments to and received by the Lender on the Business Day
such payments are received by Lender shall not be a waiver of the Lender's right
to so apply such payments or any other payments at any time.
Section 2.05 Computation. All payments of interest shall be computed on
the per annum basis of a year of three hundred sixty (360) days and for the
actual number of days (including the first but excluding the last day) elapsed
unless such calculation would result in a usurious rate, in which case interest
shall be calculated on a per annum basis of a year of three hundred sixty five
(365) or three hundred sixty six (366) days, as the case may be.
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Section 2.06 Voluntary Prepayments and Reborrowings. The unpaid
principal balance of the Note at any time shall be the total amounts loaned or
advanced thereunder by the Lender, less the amount of payments or prepayments of
principal made thereon by or for the account of Borrower. All loans or advances
and all payments or prepayments made thereunder on account of principal or
interest may be evidenced by Lender, or any subsequent holder, maintaining in
accordance with its usual practice an account or accounts evidencing the
Indebtedness of the Borrower resulting from all loans or advances and all
payments or prepayments thereunder from time to time and the amounts of
principal and interest payable and paid from time to time thereunder, in which
event, in any legal action or proceeding in respect of the Note, the entries
made in such account or accounts shall be prima fascia evidence of the existence
and amounts of the obligations of the Borrower therein recorded.
Section 2.07 Mandatory Prepayments. If at any time the outstanding
principal balance under the Note exceeds the Borrowing Base, then the Borrower
shall forthwith prepay the amount of such excess for application towards
reduction of the outstanding principal balance of the Note. Said prepayment
shall be without premium or penalty, and shall be made together with the payment
of accrued interest on the amount prepaid.
Section 2.08 Cross-Collateralization and Default. The Security
Instruments, including this Agreement, the Note and any other instrument given
in connection with, or as security for, any Indebtedness of the Borrower or any
Subsidiary, shall serve as security one for the other, and an Event of Default
under any of the Security Instruments or any such instrument shall constitute an
Event of Default under all such other Security Instruments.
Section 2.09 Refusal to Advance Funds/Termination of Commitment.
Notwithstanding anything to the contrary contained herein, in the Note, or in
any other instrument or agreement executed in connection with or as security for
the Indebtedness, the Lender may (a) at any time, and from time to time, in its
sole discretion, refuse to make any advance for a loan hereunder and under the
Note, or (b) upon giving the Borrower at least ninety (90) days' prior notice,
at any time terminate its Commitment to advance funds to the Borrower hereunder
and under the Note and all other obligations, if any, of the Lender hereunder.
The rights of the Lender under this Section 2.09 are in addition to the rights
of the Lender to terminate the Commitment pursuant to Section 6.02 hereof. In
the event Lender exercises its rights under 2.09(b) hereof without cause,
Borrower shall not be required to pay the early termination fee described in
Section 2.10 hereof; provided, however, that Borrower and Lender hereby
specifically agree that, without limitation as to other circumstances when
Borrower shall be required to pay a termination fee, Borrower shall pay an early
termination fee described in Section 2.10 upon termination of the Commitment for
cause or termination of the Commitment pursuant to Section 6.02 of this
Agreement. For purposes of Sections 2.09 and 2.10 of this Agreement, Lender may
terminate the Commitment "for cause" if an event occurs that leads Lender to
believe that the prospect for repayment of the Loan in accordance with the terms
of this Agreement and in the ordinary course of business is impaired.
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Section 2.10 Early Termination Fee. If at any time prior to the
Termination Date (as such date may be extended from time to time), (i) the
Commitment is terminated by the Lender for cause, (ii) the Note is accelerated
by the Lender upon the occurrence and continuance of an Event of Default, or
(iii) the Borrower makes a voluntary total prepayment of the Revolving
Promissory Note prior to the Termination Date, in view of the impracticability
and extreme difficulty of ascertaining actual damages and by mutual agreement of
the parties as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrower shall pay Lender upon the effective date of the termination,
acceleration, or prepayment described above, a fee in an amount equal to: (a)
three percent (3%) of the Maximum Credit Facility if such termination,
acceleration, or prepayment occurs more than two (2) years prior to the
Termination Date (as such date may be extended from time to time); or (b) two
percent (2%) of the Maximum Credit Facility if such termination, acceleration,
or prepayment occurs more than one (1) year and less than two (2) years prior to
the Termination Date (as such date may be extended from time to time); or (c)
one percent (1%) of the Maximum Credit Facility if such termination,
acceleration, or prepayment occurs less than or equal to one (1) year before the
Termination Date (as such date may be extended from time to time). Such fee
shall be presumed to be the amount of damages sustained by Lender as the result
of an early termination or total prepayment, and Borrower acknowledges that it
is reasonable under the circumstances currently existing. The fee provided for
in this section shall be deemed included in the Indebtedness.
Section 2.11 Collateral Management Fee. Borrower shall pay to Lender,
monthly in arrears, a collateral management fee of $1,500.00. Such fee shall be
due and payable on the first day of each month during the term of this Loan.
Section 2.12 Closing Fee. Borrower shall pay to Lender a closing fee
of $30,000.00. The closing fee shall be payable in cash at the closing.
Section 2.13 Minimum Amount Outstanding. So long as any part of the
Note or the Commitment is outstanding, the outstanding principal balance under
the Note shall be at least Five Hundred Thousand Dollars ($500,000.00), subject,
in all instances, to the Borrowing Base. If, at any time, Borrower is not in
compliance with the provisions of this Section 2.13, Lender shall have the
right, in its sole discretion, to advance such amounts as shall be necessary to
bring Borrower into compliance with this Section 2.13. Any such amounts advanced
by Lender to bring Borrower into compliance with the provisions of this Section
2.13 shall constitute an advance under the Note and shall become immediately
available to Borrower. Subject to the limitations set forth hereinabove, there
may be times when no Indebtedness is owing under the Note; but notwithstanding
such occurrences, the Note shall remain valid and be in full force and effect as
to loans or advances made pursuant to and under the terms of the Note subsequent
to each such occurrence.
Section 2.14 Payoff Indemnification Letter Required Upon Refinance. In
the event that Borrower desires to make a voluntary total prepayment of the
Revolving Promissory Note and terminate the Commitment prior to the Termination
Date using funds borrowed by Borrower from a third-party (the "New Lender"),
Lender may refuse to accept such prepayment if Lender has not received a payoff
letter from New Lender, in form and substance acceptable to Lender in Lender's
reasonable discretion, providing certain indemnifications from New Lender to
Lender (the "Payoff Indemnification Letter"). Until such time as Lender receives
the fully-executed Payoff Indemnification Letter from the New Lender and accepts
Borrower's voluntary total prepayment of the Revolving Promissory Note, the Loan
shall continue according to its terms.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement, the
Borrower represents and warrants to the Lender (which representations and
warranties will survive the delivery of the Note and the making of the loans
thereunder) that:
Section 3.01 Corporate Existence. The Borrower is a Delaware
corporation, duly organized and legally existing under the laws of the
jurisdiction in which it is organized and is duly qualified as a foreign
corporation in all other jurisdictions where it is required by applicable law.
Section 3.02 Company Power and Authorization. The Borrower is duly
authorized and empowered to create and issue the Note; and the Borrower and each
Subsidiary is duly authorized and empowered to execute, deliver and perform the
Security Instruments, including this Agreement, to which it is a party; and all
company action on the Borrower's or any Subsidiary's part requisite for the due
creation and issuance of the Note and for the due execution, delivery and
performance of the Security Instruments, including this Agreement, to which the
Borrower or any Subsidiary is a party has been duly and effectively taken. The
directors of the Borrower acting pursuant to a duly called and constituted
meeting, after proper notice, or pursuant to valid and unanimous written
consent, have determined (i) that entry into and performance of this Agreement
and each of the other documents to which the Borrower is a party, directly or
indirectly benefits the Borrower and (ii) that adequate and fair consideration
and reasonably equivalent value have been received by the Borrower to execute
and perform this Agreement and each of the other documents to which it is a
party.
Section 3.03 Binding Obligations. This Agreement does, and the Note
and other Security Instruments to which the Borrower and any Subsidiaries or
Guarantors are parties upon their creation, issuance, execution and delivery
will, constitute valid and binding obligations of the Borrower or the Subsidiary
or Guarantors, as the case may be, enforceable in accordance with their terms.
Section 3.04 No Legal Bar or Resultant Lien. The Note and the Security
Instruments, including this Agreement, to which the Borrower or any Subsidiary
or Guarantor is a party, do not and will not violate any provisions of the
articles or certificates of incorporation or bylaws of the Borrower or
organizational documents of any such Subsidiary, or any contract, agreement,
law, regulation, order, injunction, judgment, decree or writ to which the
Borrower or such Subsidiary or Guarantor is subject, or result in the creation
or imposition of any Lien upon any Properties of the Borrower or such Subsidiary
or Guarantor, other than those contemplated by this Agreement.
Section 3.05 No Consent. The execution, delivery and performance of
the Note and the Security Instruments, including this Agreement, to which the
Borrower or any Subsidiary or Guarantor is a party do not require the consent or
approval of any other Person, including without limitation any regulatory
authority or governmental body of the United States or any state thereof or any
political subdivision of the United States or any state thereof.
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Section 3.06 Financial Condition.
(a) None of the financial statements, reports and other
information furnished or to be furnished by Borrower to Lender with
respect to Borrower or any Subsidiary or Guarantor contain, as of their
respective dates, any untrue statement of material fact or omit to
state any material fact necessary to make the information therein not
misleading. Such financial statements and reports were and will be
prepared in accordance with GAAP, or in the case of pro forma balance
sheets and projections in accordance with appropriate accounting
standards, and shall fairly, completely and accurately present the
financial condition and results of operations of Borrower, as of the
dates and for the periods indicated thereon.
(b) The future cash flow projections for Borrower (together
with summaries of assumptions with respect thereto) furnished by
Borrower to Lender represent the reasonable, good faith opinion of
Borrower and its management as to the subject matter thereof and based
on assumptions as set forth therein which Borrower has determined to be
fair and reasonable in view of current and reasonably foreseeable
business conditions.
(c) No material adverse change, either in any case or in the
aggregate, has occurred in the condition, financial or otherwise, of
the Borrower or any Subsidiary or Guarantor, since the date of the most
recent financial statements presented by Borrower to Lender, except as
disclosed to the Lender in writing.
Section 3.07 Investments and Guaranties. Neither the Borrower nor any
Subsidiary or Guarantor has made investments in, advances to or guaranties of
the obligations of any Person, except as reflected in the Financial Statements
or disclosed to the Lender in writing.
Section 3.08 Issuance of Stock. There are no outstanding agreements
to which Borrower is a party or by which it is bound, calling for the issuance
of any stock of Borrower.
Section 3.09 Liabilities. Except for liabilities incurred in the
normal course of business and indebtedness permitted by Section 5.01, neither
the Borrower nor any Subsidiary or Guarantor has any material (individually or
in the aggregate) liabilities, direct or contingent, except as disclosed or
referred to in the Financial Statements or as disclosed to the Lender in
writing. Except as described in the Financial Statements, or as otherwise
disclosed to the Lender in writing, there is no litigation, legal or
administrative proceeding, investigation or other action of any nature pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any Subsidiary or Guarantor which involves the possibility of any
judgment or liability not fully covered by insurance, and which may materially
and adversely affect the business or the Properties of the Borrower or any
Subsidiary or Guarantor or their ability to carry on business as now conducted.
Section 3.10 Taxes. Borrower and each Guarantor and Subsidiary have
prepared and duly and timely filed with the appropriate governmental agencies
all federal, state, and local income, franchise, personal property, excise,
severance, payroll, and other tax returns and reports required to be filed and
has paid all taxes due with respect to the periods covered thereby, subject to
timely filed protests. Neither Borrower nor any Guarantor or Subsidiary has
executed or filed with the Internal Revenue Service any agreement extending the
period for assessment and collection of any federal tax or is a party to any
action or proceeding by any governmental authority for assessment and collection
of taxes, and no claim for assessment and collection of taxes that has been
asserted against Borrower, any Guarantor, or any Subsidiary remains unpaid.
Borrower and each Guarantor and Subsidiary have (i) properly classified all
Persons providing services to it as an employee or independent contractor, (ii)
properly classified all amounts paid to such Persons, and (iii) timely paid all
payroll taxes due on such amounts. All amounts paid by Borrower to Affiliates of
Borrower or Affiliates of any Guarantor which are shown as deductible expenses
on any tax return of Borrower were properly classified as deductible expenses.
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Section 3.11 Titles, etc. The Borrower and each Subsidiary and
Guarantor have good title to its respective material (individually or in the
aggregate) Properties, free and clear of all Liens except those referred to in
the Financial Statements and those permitted pursuant to Section 5.02 hereof.
Section 3.12 Defaults. Neither the Borrower nor any Subsidiary or
Guarantor is in default (in any respect which materially and adversely affects
its respective business, Properties, operations or condition, financial or
otherwise) under any indenture, mortgage, deed of trust, agreement or other
instrument to which the Borrower or any Subsidiary or Guarantor is a party or by
which the Borrower or any Subsidiary or Guarantor is bound. No Default hereunder
has occurred and is continuing.
Section 3.13 Use of Proceeds; Margin Stock. The proceeds of the Note
will be used by the Borrower for working capital in Borrower's ordinary course
of business. None of such proceeds will be used for, and neither the Borrower
nor any Subsidiary are engaged in, the business of extending credit for the
purpose of purchasing or carrying any "margin stock" as defined in Regulations G
or U of the Board of Governors of the Federal Reserve System (12 C.F.R. Part
221), or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
said Regulations G or U. No part of the proceeds of the loans evidenced by the
Note will be used for any purpose which violates Regulation X of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 224). All loans
evidenced by the Note are and shall be "business loans" as such term is used in
the Depository Institutions Deregulation and Monetary Control Act of 1980, as
amended, and such loans are for business, commercial, investment or other
similar purposes and not primarily for personal, family, household or
agricultural use, as such terms are used and defined in Chapter 1 of the Texas
Credit Code, Title 79, Texas Revised Civil Statutes. Neither the Borrower nor
any Subsidiary nor any Person acting on behalf of the Borrower or any Subsidiary
has taken or will take any action which might cause the Note or any of the
Security Instruments, including this Agreement, to violate Regulations G or U or
any other regulation of the Board of Governors of the Federal Reserve System or
to violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be in
effect.
15
Section 3.14 Compliance with the Law. Neither the Borrower nor any
Subsidiary:
(a) is in violation of any applicable law,
ordinance, or governmental rule or regulation to which the
Borrower or any Subsidiary or any of their respective
Properties are subject including but not limited to those
laws, ordinances and governmental rules and regulations
regarding employee wages and overtime; or
(b) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to
the ownership of any of their respective Properties or the
conduct of their respective businesses; which failure might
adversely affect the financial condition of the Borrower or
any Subsidiary or Guarantor.
Section 3.15 ERISA. The Borrower and its Subsidiaries are in
compliance in all material respects with the applicable provisions of ERISA, and
no "reportable event," as such term is defined in Section 4043 of ERISA, has
occurred with respect to any Plan of the Borrower or any Subsidiary.
Section 3.16 Subsidiaries. The Borrower has no Subsidiaries.
Section 3.17 Direct Benefit From Loans. The Borrower has received, or,
upon the execution and funding thereof, will receive (i) direct benefit from the
making and execution of this Agreement and the other documents to which it is a
party, and (ii) fair and independent consideration for the entry into, and
performance of, this Agreement and the other documents to which it is a party.
Section 3.18 RICO. None of the Borrower, its Subsidiaries, or the
Guarantors are in violation of any applicable laws, statutes or regulations,
including, without limitation, RICO, the violation of which could subordinate
Lender's security interest in the Collateral (as that term is defined in the
Security Instruments).
Section 3.19 Brokers and Finders. No Person has any right, interest,
or valid claim against Lender, Borrower, or any Affiliate of Borrower because of
any agreement, undertaking, act or omission of Borrower or any Affiliate of
Borrower or other Person acting on behalf of Borrower or any Affiliate of
Borrower for any commission, fee, or other compensation as a result of the
transactions contemplated by this Agreement or the Security Instruments.
Borrower hereby expressly acknowledges and recognizes Borrower's responsibility
for and agrees to indemnify and hold Lender and Lender's successors and assigns
absolutely harmless from and against all costs, expenses, liabilities, loss,
damage or obligations incurred by or imposed upon or alleged to be due of Lender
or Lender's successors and assigns in connection with the assertion of any claim
for brokerage, agency or finder's fees or commissions in connection with the
Loan.
Section 3.20 Money Laundering; Anti-Terrorism Laws.
(a) ISSI is the sole shareholder of Borrower. Borrower and
its shareholder will furnish all of the funds for Borrower's the
repayment of the Loan, and such funds will not be from any sources that
are described in 18 U.S.C.A. xx.xx. 1956 and 1957 as funds or property
derived from "specified unlawful activity".
16
(b) None of Borrower, ISSI, Intelli, Xxxxxxx, or Xxxxx (nor
any person or entity owning an interest in any of the aforementioned
entities) (i) is a Prohibited Person, or (ii) has violated any
Anti-Terrorism Laws. None of the funds of Borrower, ISSI, Intelli,
Xxxxxxx, or Beare have been derived from any activity in violation of
Anti-Terrorism Laws.
ARTICLE IV
AFFIRMATIVE COVENANTS
A deviation from the provisions of this Article IV shall not constitute
a Default under this Agreement if such deviation is consented to in writing (in
the manner hereinafter provided in Section 8.02) by the Lender. Without the
prior written consent of the Lender, the Borrower will at all times comply with
the covenants contained in this Article IV, from the date hereof and for so long
as any part of the Note or the Commitment is outstanding.
Section 4.01 Financial Statements and Reports. The Borrower, the
Subsidiaries, and the Guarantors will promptly furnish to the Lender from time
to time upon request such information regarding the business and affairs and
financial condition of the Borrower, its Subsidiaries, and the Guarantors as the
Lender may reasonably request, and will furnish to the Lender:
(a) Annual Financial Statements. As soon as
available and in any event within ninety (90) days after the
close of each fiscal year of the Borrower, the balance sheets
of the Borrower and its Subsidiaries as at the end of such
year and the operating statements of the Borrower and its
Subsidiaries as at the end of such year (showing income,
expenses and surplus), setting forth in each case in
comparative form figures for the previous fiscal year, all
prepared in accordance with GAAP, certified by the principal
financial officer of the Borrower, and audited at Borrower's
sole cost and expense by a Certified Public Accountant
acceptable to Lender. Further, if an entity Guarantor's
financial information is not contained in a balance sheet and
operating statement consolidated with the Borrower's
financial information and delivered by the Borrower to the
Lender, then as soon as available, and in any event within
ninety (90) days after the close of each fiscal year of each
respective Guarantor which is not a natural person, Borrower,
its Subsidiaries, or the Guarantors will deliver to Lender
the balance sheets of each respective Guarantor as at the end
of such year and the operating statements of each respective
Guarantor as at the end of such year (showing income,
expenses and surplus), setting forth in each case in
comparative form figures for the previous fiscal year, all
prepared in accordance with GAAP and each of which operating
statement and balance sheet shall be audited by a Certified
Public Accountant acceptable to Lender.
17
(b) Annual Budget and Operating Plan. As soon as
available and in any event within ninety (90) days after the
close of each fiscal year of the Borrower, the annual budget
and operating plan of Borrower;
(c) Quarterly Reports. As soon as available and in
any event within thirty (30) days after the end of each
calendar quarter, proof of payment of the Borrower's and each
Subsidiaries' payroll taxes;
(d) Monthly Financial Statements. As soon as
available and in any event within thirty (30) days after the
end of each calendar month, the balance sheets of the
Borrower and its Subsidiaries as at the end of such month and
the operating statements of the Borrower and its Subsidiaries
for such month (showing income, expenses and surplus for such
month and for the period from the beginning of the fiscal
year to the end of such month), all prepared in accordance
with GAAP, certified by the principal financial officer of
the Borrower;
(e) Accounts Aging/Payable. As soon as available,
and in any event within ten (10) days after the end of each
calendar month, copies of customer statements, together with
an aging of all accounts receivable, showing each such
account which is thirty (30), sixty (60), ninety (90) and
over ninety (90) days past due, and within ten (10) days
after the end of each calendar month, an aging of all
accounts payable;
(f) Inventory Schedule. For so long as the
Inventory Advance Amount is less than or equal to $90,000.00,
Borrower shall deliver to Lender, on or before the first
Business Day of each month, an aged, perpetual Inventory as
of the end of the preceding month, showing all Inventory;
and, once the conditions in 2.01(b) have been satisfied,
Borrower shall deliver to Lender, on or before the first
Business Day of each week, an aged, perpetual Inventory
schedule as of the end of the preceding week, showing all
Inventory; and
(g) Weekly Borrowing Base Report and Sales Journal.
Once each week, a report in such form as Lender may
reasonably request, reflecting (i) the Eligible Accounts of
Borrower as of the end of the previous week and calculating
the Accounts Advance Amount based thereon, together with cash
receipt journals, sales journals and backup for all
miscellaneous credits and debits which support such report
(as well as copies of checks and invoices for new xxxxxxxx if
requested by Lender), and (ii) the Eligible Inventory of
Borrower as of the end of the previous week and calculating
the Inventory Advance Amount based thereon. Such report shall
also reflect the amount of sales and receipts of Borrower
during the preceding week, list the Accounts and Inventory
which Borrower believes are ineligible for inclusion in
Eligible Accounts and Eligible Inventory, and such other
information as Lender may reasonably request. At each
occasion in which Seller submits its weekly borrowing base
report, Borrower's chief financial officer shall complete,
execute, and deliver to Lender a document in the form of
Schedule "4.01(g)" attached hereto.
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All such balance sheets, schedules, and other financial statements referred to
in this Section 4.01 shall be in such detail as the Lender may reasonably
request and shall conform to GAAP, except only for audit adjustments, such
changes in accounting principles or practice with which independent certified
public accountants concur.
Section 4.02 Compliance with Laws; Payment of Taxes and Other Claims.
The Borrower will and will cause each Subsidiary to observe and comply with (a)
all laws, statutes, codes, acts, ordinances, rules, regulations, directions and
requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials and officers
applicable to it and where the failure to observe or comply would have a
material adverse effect on Borrower's financial condition; and (b) pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon the Borrower or any Subsidiary or upon the income or any Property
of the Borrower or any Subsidiary as well as all claims of any kind (including
claims for labor, materials, supplies and rent) which, if unpaid, might become a
Lien upon any or all of the Property of the Borrower or any Subsidiary;
provided, however, that, subject to the written approval of the Lender, neither
the Borrower nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted and if the Borrower or its Subsidiary shall have set up
reserves therefor adequate under GAAP.
Section 4.03 Maintenance. The Borrower will and will cause each
Subsidiary to (i) maintain its corporate existence, rights and franchises; (ii)
observe and comply with all valid laws, statutes, codes, acts, ordinances,
judgments, injunctions, rules, regulations, certificates, franchises, permits
and licenses (including without limitation applicable statutes, regulations,
orders and restrictions relating to environmental standards or controls or to
energy regulations) of all federal, state, county, municipal and other
governmental authorities; (iii) maintain its Properties (and any Properties
leased by or consigned to it or held under title retention or conditional sales
contracts) in good and workable condition (ordinary wear and tear excepted) at
all times and make all repairs, replacements, additions, betterments and
improvements to its Properties as are needful and proper so that the business
carried on in connection therewith may be conducted properly and efficiently at
all times; and (iv) maintain and keep books of records and accounts, all in
accordance with GAAP, consistently applied, of all dealings and transactions in
relation to its business and activity.
Section 4.04 Further Assurances. The Borrower will and will cause each
Subsidiary to cure promptly any defects in the creation and issuance of the Note
and the execution and delivery of the Security Instruments, including this
Agreement. The Borrower and the Guarantors shall, each at its own expense,
promptly execute and deliver to the Lender upon request all such other and
further documents, agreements and instruments to effectuate the agreements of
the Borrower or any of its Subsidiaries or the Guarantors in the Security
Instruments, including in this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Note, or to correct any
omissions in the Security Instruments, or more fully to state the security
obligations set out herein or in any of the Security Instruments, or to perfect,
protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices, or obtain any
consents, all as may be necessary or appropriate in connection therewith.
19
Section 4.05 Performance of Obligations. The Borrower will pay the
Note according to the reading, tenor and effect thereof; and the Borrower will
do and perform every act and discharge all of the obligations provided to be
performed and discharged by the Borrower under the Security Instruments,
including this Agreement, at the time or times and in the manner specified, and
cause each of its Subsidiaries to take such action with respect to their
obligations to be performed and discharged under the Security Instruments to
which they respectively are parties.
Section 4.06 Reimbursement of Expenses. The Borrower will pay all
reasonable legal fees incurred by the Lender in connection with the preparation,
amendment, interpretation, administration and enforcement of this Agreement and
any and all other Security Instruments contemplated hereby. The Borrower will,
upon request, promptly reimburse the Lender for all amounts expended, advanced
or incurred by the Lender to satisfy any obligation of the Borrower under this
Agreement or any other Security Instrument, or to protect the Properties or
business of the Borrower or any Subsidiary or to collect the Note, or to enforce
the rights of the Lender under this Agreement, the Note, or any other Security
Instrument, which amounts will include all court costs, reasonable attorneys'
fees, fees of auditors and accountants, and investigation expenses reasonably
incurred by the Lender in connection with any such matters, together with
interest at either (i) the post-maturity rate specified in Section 2.02 on each
such amount from the date that the same is expended, advanced or incurred by the
Lender until the date of reimbursement to the Lender, or (ii) if no default
shall have occurred and be continuing, the prematurity rate specified in Section
2.02 on each such amount from the date that the same is expended, advanced or
incurred by the Lender until the date of written demand or request by the Lender
for the reimbursement of same, and thereafter at the applicable post-maturity
rate specified in Section 2.02 until the date of reimbursement to the Lender.
Section 4.07 Insurance. The Borrower and each Subsidiary now maintains
and will continue to maintain with financially sound and reputable insurers,
insurance with respect to its respective Properties and businesses against such
liabilities, casualties, risks and contingencies and in such types and amounts
as is customary in the case of companies engaged in the same or similar
businesses and similarly situated but in any event, all fixed assets of the
Borrower shall be insured for an amount at least equal to the lesser of (i) the
full replacement value of the Borrower's and each Subsidiary's Properties, and
(ii) the unpaid principal balance of the Note, from time to time outstanding.
All such policies shall name the Lender as loss payee or additional insured
thereon, as applicable, and shall provide for at least thirty (30) days prior
written notice to the Lender prior to the cancellation or modification of each
such policy. Upon request of the Lender, the Borrower will furnish or cause to
be furnished to the Lender from time to time a summary of the insurance coverage
of the Borrower and its Subsidiaries in form and substance satisfactory to the
Lender and if requested will furnish the Lender copies of the applicable
policies. If, while any Secured Liabilities are outstanding, any proceeds with
respect to any casualty loss are paid to the Lender under such policies on
account of such casualty loss, and no Event of Default has occurred and is
continuing, the Lender will pay over such proceeds in whole or in part to the
Borrower, for the purpose of repairing or replacing the Collateral destroyed or
damaged, with any such repaired or replaced Collateral to be secured by this
Security Agreement. If an Event of Default has occurred and is continuing, the
Lender may apply the proceeds as Lender deems fit, subject to applicable law and
the terms of the Financing Documents, and may cancel, assign or surrender any
such insurance policies.
20
Section 4.08 Right of Inspection. The Borrower will permit and will
cause each Subsidiary to permit any officer, employee or agent of the Lender to
visit and inspect any of the Properties of the Borrower or any Subsidiary, to
conduct collateral reviews at Lender's discretion from time to time during the
term of the Loan, to examine the Borrower's or any Subsidiary's books of record
and accounts, to take copies and extracts therefrom, and to discuss the affairs,
finances and accounts of the Borrower or any Subsidiary with the Borrower's or
Subsidiary's current and former officers, employees, accountants and auditors,
all at such times (during normal business hours) and as often as the Lender may
desire. The Borrower shall reimburse Lender for all of Lender's out-of-pocket
expenses in connection with the collateral reviews, in addition to a review fee
of $950.00 per auditor per day; provided, however, that Borrower shall not be
responsible for more than four (4) days' of audit charges per quarter unless an
Event of Default occurred during such quarter.
Section 4.09 Notice of Certain Events. The Borrower and Guarantors, as
the case may be, shall promptly notify the Lender if the Borrower or any such
Guarantor learns of the occurrence of (i) any event which constitutes a Default,
together with a detailed statement by a responsible officer of the Borrower or
the relevant Guarantor of the steps being taken to cure the effect of such
Default; or (ii) the receipt of any notice from, or the taking of any other
action by, the holder of any promissory note, debenture or other evidence of
indebtedness of the Borrower or any Subsidiary or Guarantor or of any security
(as defined in the Securities Act of 1933, as amended) of the Borrower or any
Subsidiary or Guarantor with respect to a claimed default, together with a
detailed statement by a responsible officer of the Borrower or the relevant
Guarantor specifying the notice given or other action taken by such holder and
the nature of the claimed default and what action the Borrower or its Subsidiary
or the relevant Guarantor is taking or proposes to take with respect thereto; or
(iii) any legal, judicial or regulatory proceedings affecting the Borrower or
any Subsidiary or Guarantor or any of the Properties of the Borrower or any
Subsidiary or Guarantor in which the amount involved is material and is not
covered by insurance or which, if adversely determined, would have a material
and adverse effect on the business or the financial condition of the Borrower or
any Subsidiary or Guarantor; or (iv) any dispute between the Borrower or any
Subsidiary or Guarantor and any governmental or regulatory body or any other
Person which, if adversely determined, might materially interfere with the
normal business operations of the Borrower or any Subsidiary or Guarantor; or
(v) any material adverse changes, either in any case or in the aggregate, in the
assets, liabilities, or financial condition of the Borrower or any Subsidiary or
Guarantor, from those reflected in the Financial Statements (or, with respect to
any Guarantor, the financial statements of such Guarantor required to be
delivered to the Lender) or by the facts warranted or represented in any
Security Instrument, including this Agreement.
Section 4.10 ERISA Information and Compliance. The Borrower will
promptly furnish to the Lender (i) if requested by the Lender, promptly after
the filing thereof with the United States Secretary of Labor or the Pension
Benefit Guaranty Corporation, copies of each annual and other report with
respect to each Plan or any trust created thereunder, and (ii) immediately upon
becoming aware of the occurrence of any "reportable event," as such term is
defined in Section 4043 of ERISA, or of any "prohibited transaction," as such
term is defined in Section 4975 of the Internal Revenue Code of 1986, as
amended, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal financial officer of the
Borrower specifying the nature thereof, what action the Borrower or any of its
Subsidiaries is taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect thereto.
The Borrower will fund, or will cause its Subsidiaries to fund, all current
service pension liabilities as they are incurred under the provisions of all
Plans from time to time in effect for the benefit of employees of the Borrower
or any of its Subsidiaries, and comply with all applicable provisions of ERISA.
21
Section 4.11 Blocked Account. Throughout the term of this Agreement,
Borrower shall maintain the Blocked Account at a bank acceptable to Lender,
which account shall be pledged to Lender and subject to offset in favor of
Lender. All receipts from any Property on which Lender has a Lien and daily
deposits of all receipts from each respective day shall be deposited in said
Blocked Account.
Section 4.12 Environmental Requirements. Borrower shall comply with
all federal laws, state statutes, municipal ordinances and all other
governmental standards, rules and regulations applicable to Borrower or to its
Property in respect to occupational health and safety, hazardous waste and
substances and environmental matters. Borrower shall promptly notify Lender of
its receipt of any notice of a violation or an alleged violation of any such
federal laws, state statutes, municipal ordinances or other governmental
standards, rules or regulations. Borrower shall indemnify and hold Lender
harmless from all loss, cost, damages, claim and expenses (including attorney's
fees and court costs) incurred by Lender on account of the Borrower's failure to
perform the obligations of this Section.
Section 4.13 Financial Covenants.
(a) Borrower shall maintain a minimum Tangible Net Worth
equal to $200,000.00. Such Tangible Net Worth will be calculated
monthly.
(b) EBITDA. Borrower will maintain a minimum trailing three
(3) month EBITDA of: $200,000.00 at all times during the period
beginning January 31, 2005, and ending March 31, 2005; $225,000.00 at
all times during the period beginning April 1, 2005, and ending June
30, 2005; and $250,000.00 at all times during the period beginning July
1, 2005, through the Termination Date.
Section 4.14 Verification. Borrower hereby authorizes Lender to
contact Borrower's account debtors and vendors for purposes of verification of
any account debtor's accounts receivable owed to Borrower or of accounts payable
owed by Borrower to its vendors, and for such other purposes as Lender deeds
necessary or convenient. Borrower shall cooperate with Lender to the maximum
extent possible to provide information necessary for Lender to accomplish
verification or collection of any Account. If requested by Lender, Borrower
agrees to furnish evidence of shipment of the related merchandise and/or
performance of services rendered, all in a form satisfactory to Lender,
including the original purchase order from the account debtor.
Section 4.15 Payoff of Highlands Bank Debt. Borrower hereby covenants
and agrees with Lender that Borrower shall pay at Closing from Loan proceeds all
of Borrower's approximately $90,000.00 debt owed to Highlands Bank and shall
obtain from Highlands Bank fully executed releases or assignments in favor of
Lender of all of Highlands Bank's liens on Borrower's Properties, excluding
Highlands Bank's liens on specific pieces of equipment or machinery owned by
Borrower and financed by Highlands Bank or on real estate owned by Borrower.
22
Section 4.16 Any Additional Funding. In the event that ISSI receives
commitments for additional funds (which may be in the form of convertible debt)
in an aggregate amount greater than $1,000,000.00, ISSI may apply the first
million dollars of proceeds thereof as ISSI deems appropriate, but ISSI shall
cause the second million dollars of proceeds raised thereby to be transferred to
the Borrower to be used by the Borrower to pay the following obligations: (i)
Borrower's outstanding obligations to Xxxxxxx in the original principal amount
of $150,000.00; (ii) Borrower's outstanding obligations to Bank One, N.A.
pursuant to that certain Promissory Note dated January 27, 2004, in the original
principal amount of $500,000.00; and (iii) at least $400,000.00 to pay down the
Borrower's accounts payable which are at least sixty (60) days past due. ISSI
shall ensure that any additional debt incurred by ISSI is subordinated to the
ISSI's obligations under the Security Instruments pursuant to a subordination
agreement containing such terms and provisions as Lender deems appropriate in
Lender's sole discretion.
Section 4.17 Release Upon Loan Termination. Upon the termination of
this Commitment, Borrower hereby agrees to execute and delivered to Lender a
general release in form and substance acceptable to Lender. In recognition of
Lender's right to have its attorneys' fees and other expenses incurred in
connection with this Agreement secured by the Collateral, notwithstanding
payment in full of all Indebtedness by Borrower or other parties, Lender shall
not be required to record any terminations or satisfactions of any of Lender's
liens on the Collateral unless and until Borrower has executed and delivered to
Lender the general release described herein. Borrower understands that this
provision constitutes a waiver of Borrower's rights under ss.9-513 of the UCC.
ARTICLE V
NEGATIVE COVENANTS
A deviation from the provisions of this Article V shall not constitute
a Default under this Agreement if such deviation is consented to in writing (in
the manner hereinafter provided in Section 8.02) by the Lender. Without the
prior written consent of the Lender, the Borrower will at all times comply with
the covenants contained in this Article V, from the date hereof and for so long
as any part of the Note or the Commitment is outstanding.
Section 5.01 Debts, Guaranties and Other Obligations. Neither the
Borrower nor any Subsidiary or Guarantor will incur, create, assume or in any
manner become or be liable in respect of any indebtedness (including obligations
for the payment of rentals); and neither the Borrower nor any Subsidiary or
Guarantor will guarantee or otherwise in any way become or be responsible for
obligations of any other Person, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of funds to any
other Person through the purchase or lease of goods, supplies or services (or by
way of stock purchase, capital contribution, advance or loan) for the purpose of
paying or discharging the indebtedness of any other Person, or otherwise, except
that the foregoing restrictions within this Section 5.01 shall not apply to:
23
(a) the Note or other Indebtedness to the Lender;
(b) liabilities, direct or contingent (including,
but not limited to, convertible debt), of the Borrower and
its Subsidiaries and Guarantors existing on the Effective
Date of this Agreement which are reflected in the Financial
Statements (or, with respect to any Guarantor, the financial
statements of such Guarantor required to be delivered to the
Lender) or have been disclosed to the Lender in writing, but
not any renewals and extensions thereof;
(c) liabilities in relation to leases and lease
agreements to the extent permitted by Section 5.07 hereof;
(d) endorsements of negotiable or similar
instruments for collection or deposit in the ordinary course
of business;
(e) trade payables or similar obligations from time
to time incurred in the ordinary course of business other
than for borrowed money;
(f) taxes, assessments or other government charges
which are not yet due or are being contested pursuant to
Section 4.02 hereof;
(g) indebtedness which is subordinated to the Note
by terms satisfactory to the Lender, in its sole discretion;
(h) the Guaranties dated of even date herewith by
the Guarantors for the benefit of the Lender pursuant to
which the Guarantors guaranty Borrower's obligations under
this Agreement;
(i) debt to ISSI in amounts and pursuant to terms
approved by Lender; and
(j) capital expenditures for purchasing or
financing equipment not to exceed an aggregate amount of
$150,000.00 per calendar year; provided, however, that
Borrower may use funds raised by ISSI and transferred to
Borrower pursuant to Section 4.16 for additional capital
expenditures to the extent such transferred funds exceed the
amounts allocated in Section 4.16 for payment of Borrower's
existing obligations.
Section 5.02 Liens. Neither the Borrower nor any Subsidiary or
Guarantor will create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except: (a) the liens held by the
Lender, (b) liens for taxes not yet delinquent or which are being contested in
good faith by appropriate proceedings; provided that adequate reserves with
respect thereto are being maintained on the books of the Borrower or the
relevant Subsidiary in conformity with GAAP, (c) liens (other than liens in
favor of taxing entities) in favor of carriers', warehouseman's, mechanics',
materialmen's, repairmen's or other like liens arising in the ordinary course of
business and not overdue for a period of more than sixty (60) days or which are
being contested in good faith by appropriate proceedings, (d) liens securing
equipment acquired in the ordinary course of business under equipment leases or
vendor-financed purchases, provided that the Borrower or the relevant Subsidiary
is current in the payment of all amounts owed under such leases or purchase
money financings, (e) nonconsensual liens and rights of financial institutions
in checking, savings, money market and similar accounts opened and maintained by
the Borrower or the relevant Subsidiary in the ordinary course of business, (f)
inchoate liens arising under ERISA to secure the contingent liability of the
Borrower or any Subsidiary permitted by Section 4.10 hereof, (g) liens held by
the Subordinated Lenders which have been subordinated to Lender in form and
substance acceptable to Lender, (h) liens on the Borrower's equipment in favor
of The Highlands Bank pursuant to that certain financing statement #19-32968
filed on August 3, 2004, in East Xxxxxxxxx Xxxxxx, Louisiana, and liens held as
of the date hereof on the Borrower's real property in favor of The Highlands
Bank, and (i) landlord's liens held by any landlord of the Borrower, any
Subsidiary, or any Guarantor on inventory or equipment.
24
Section 5.03 Investments, Loans and Advances. Neither the Borrower nor
any Subsidiary will make or permit to remain outstanding any loans or advances
to or investments in any Person, except that the foregoing restriction shall not
apply to:
(a) loans, advances or investments the material
details of which have been set forth in the Financial
Statements or have been otherwise disclosed to the Lender in
writing prior to the execution of this Agreement;
(b) investments in direct obligations of the United
States of America or any agency thereof;
(c) investments in certificates of deposit issued
by commercial banks in the United States having a combined
capital and surplus in excess of One Hundred Million Dollars
($100,000,000.00); and
(d) investments in commercial paper with the best
rating by Standard & Poor's, Xxxxx'x Investors Service, Inc.,
or any other rating agency satisfactory to the Lender issued
by companies in the United States with a combined capital and
surplus in excess of One Hundred Million Dollars
($100,000,000.00).
Section 5.04 Dividends, Distributions and Redemptions. Unless approved
in writing by Lender prior to such event, Borrower shall not declare or pay any
dividend, distribution, purchase, redeem or otherwise acquire for value any of
its ownership interests now or hereafter outstanding, return any capital to its
owners, or make any distribution of its assets to its Affiliates as such.
Notwithstanding the foregoing in this Section 5.04 so long as an Event of
Default has not occurred and is continuing, Borrower may make monthly
distributions or other payments to Affiliates in an aggregate amount equal to
the greater of: (i) $40,000.00; or (ii) 40% percent of Borrower's monthly Net
Income; provided, however, that the foregoing restriction on distributions and
other payments shall not apply to reimbursements made by Borrower to its
Affiliates for payments made by such Affiliates on behalf of Borrower for
expenses directly related to Borrower on or after the Effective Date hereof.
25
Section 5.05 Sale of Properties. Neither the Borrower nor any
Subsidiary or Guarantor will sell, transfer or otherwise dispose of all or any
substantial portion or integral part of its Properties except in the ordinary
course of business, or enter into any arrangement, directly or indirectly, with
any Person whereby the Borrower or any Subsidiary or Guarantor shall sell or
transfer any Property, whether now owned or hereafter acquired, and whereby the
Borrower or any Subsidiary or Guarantor shall then or thereafter rent or lease
as lessee such Property or any part thereof or other Property which the Borrower
or any Subsidiary or Guarantor intends to use for substantially the same purpose
or purposes as the Property sold or transferred.
Section 5.06 Nature of Business. The Borrower will not permit any
material change to be made in its ownership and/or senior management employment
or in the nature and/or character of its business as carried on at the date
hereof.
Section 5.07 Limitation on Leases. Except as identified on Schedule
5.07, neither the Borrower nor any Subsidiary will create, incur, assume or
suffer to exist any obligation for the payment of rent or hire of Property of
any kind whatsoever (real or personal), under leases or lease agreements,
without the prior written consent of Lender, except (i) leases and lease
agreements for equipment used in the operations of the Borrower in an aggregate
amount for the Borrower and all Subsidiaries (determined on a consolidated
basis) not to exceed $100,000.00 in any fiscal year of the Borrower, and (ii)
leases and lease agreements for the real properties listed on Schedule 5.07
attached hereto (collectively, the "Borrower's Facilities").
Section 5.08 Mergers, Consolidations, etc. Neither the Borrower nor
any Subsidiary will amend its articles of incorporation or other formation
documents, as applicable, or otherwise change its corporate or partnership name
or structure, or consolidate with or merge into or acquire any Person, or permit
any other Person to consolidate with or merge into or acquire the Borrower or
any Subsidiary or acquire the stock of any corporation or form any Subsidiary.
Section 5.09 ERISA Compliance. The Borrower will not at any time
permit any Plan maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction" as such
term is defined in Section 4975 of the Internal Revenue Code
of 1986, as amended;
(b) incur any "accumulated funding deficiency" as
such term is defined in Section 302 of ERISA; or
(c) terminate any such Plan in a manner which could
result in the imposition of a Lien on the Property of the
Borrower or any Subsidiary pursuant to Section 4068 of ERISA.
26
Section 5.10 Issuance of Stock. During the term of this Agreement,
Borrower will not issue any stock or admit any additional Person as a
shareholder of the Borrower without the written consent of Lender.
Section 5.11 Changes in Accounting Methods. The Borrower will not make
any change in its accounting method as in effect on the date of this Agreement
or change its fiscal year ending date from June 30, unless such changes have the
prior written approval of the Lender.
Section 5.12 Transactions With Affiliates. The Borrower will not,
directly or indirectly, enter into any transaction (including, but not limited
to, the sale or exchange of property or the rendering of any service) with any
Affiliate, other than in the ordinary course of its business and upon
substantially the same or better terms as it could obtain in an arm's length
transaction with a Person who is not an Affiliate.
Section 5.13 Use of Proceeds. The Borrower will not use the proceeds
of the Note for purposes other than those set forth in Section 3.13.
Section 5.14 RICO. The Borrower will not violate any applicable laws,
statutes or regulations, whether federal or state, for which forfeiture of a
material portion of its properties is a potential penalty, including, without
limitation, RICO.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall be considered
an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments. Default is
made in the payment or prepayment when due of any installment
of principal or interest on the Note or any other
Indebtedness; or
(b) Collections. Borrower shall divert any payments
away from the Blocked Account or shall accept any payments on
the Accounts from any account debtors which payments have not
been made to the Blocked Account; or
(c) Representations and Warranties. Any
representation or warranty made by the Borrower, any
Subsidiary or any Guarantor in any Security Instrument,
including this Agreement, proves to have been incorrect in
any material respect as of the date thereof; or any
representation, statement (including financial statements),
certificate or data furnished or made by the Borrower, any
Subsidiary or any Guarantor (or any officer, accountant or
attorney of the Borrower or any Subsidiary or any Guarantor)
under any Security Instrument, including this Agreement,
proves to have been untrue in any material respect, as of the
date as of which the facts therein set forth were stated or
certified; or
27
(d) Affirmative Covenants. Default is made in the
due observance or performance of any of the covenants or
agreements contained in Article IV of this Agreement; or
(e) Negative Covenants. Default is made in the due
observance or performance of any of the covenants or
agreements contained in Article V of this Agreement; or
(f) [INTENTIONALLY DELETED]; or
(g) Other Security Instrument Obligations. Default
is made in the due observance or performance by the Borrower,
any Subsidiary or any Guarantor of any of the covenants or
agreements contained in any Security Instrument other than
this Agreement, and such default continues unremedied beyond
the expiration of any applicable grace period which may be
expressly allowed under such Security Instrument; or
(h) Involuntary Bankruptcy Proceedings. A receiver,
conservator, custodian, liquidator, creditors' committee,
board of inspectors, or trustee of the Borrower, any
Subsidiary or any Guarantor, or of any of their Property, is
created, engaged, retained, procured, authorized, or
appointed in the United States or under any law of any
foreign country by the order or decree of any court or agency
or supervisory authority having jurisdiction; or the
Borrower, any Subsidiary or any Guarantor becomes a debtor
under the Bankruptcy Code of the United States or under the
law of any foreign country, or is the subject of an order for
relief, or becomes a bankrupt or insolvent; or any of the
Borrower's, any Subsidiary's or any Guarantor's Property is
sequestered, seized, or attached in the United States or
under any law of any foreign country by court order or
decree; or a complaint, petition, or similar pleading is
filed against the Borrower, any Subsidiary or any Guarantor
under any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution, or liquidation law of any
jurisdiction, in the United States or in any foreign country,
whether such law is now in existence or hereafter in effect;
or
(i) Voluntary Petitions. The Borrower, any
Subsidiary or any Guarantor files a petition in bankruptcy or
reorganization or seeks relief under any provision of any
bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution, or liquidation law of any jurisdiction, in the
United States or in any foreign country, whether such law is
now in existence or hereafter in effect, or the Borrower, any
Subsidiary or any Guarantor is the subject of an order for
relief or winding-up petition entered by any bankruptcy
court, or the Borrower or any Subsidiary or any Guarantor
consents to the filing of any petition against it under any
such law in the United States or in any foreign country; or
28
(j) Assignments, Conveyances, or Transfers for
Benefit of Creditors. The Borrower, any Subsidiary or any
Guarantor makes an assignment, conveyance, or transfer for
the benefit of its creditors, or for the purpose of enforcing
a lien against its Property, or admits in writing its
inability to pay its debts generally as they become due, or
is generally not paying its debts as such debts become due,
or consents to the appointment of a custodian, receiver,
trustee, assignee, or liquidator of all, substantially all,
less than substantially all, or any part of its Property for
the purpose of enforcing a lien against its Property; or
(k) Discontinuance of Business. The Borrower or any
Subsidiary or Guarantor discontinues its usual business; or
(l) Default on Other Debt or Security. The
Borrower, any Subsidiary or any Guarantor fails to make any
payment due on any indebtedness or security (as "security" is
defined in the Securities Act of 1933, as amended) or any
event shall occur or any condition shall exist in respect of
any indebtedness or security of the Borrower, any Subsidiary
or any Guarantor, or under any agreement securing or relating
to such indebtedness or security, the effect of which is (i)
to cause or to permit any holder of such indebtedness or
other security or a trustee to cause (whether or not such
holder or trustee elects to cause) such indebtedness or
security, or a portion thereof, to become due prior to its
stated maturity or prior to its regularly scheduled dates of
payment, or (ii) to permit a trustee or the holder of any
security (other than common stock or membership interest of
the Borrower or of any Subsidiary or Guarantor) to elect
(whether or not such holder or trustee does elect) a majority
of the managers or directors of the Borrower or of such
Subsidiary or Guarantor; or
(m) Undischarged Judgments. If judgment for the
payment of money in excess of Ten Thousand and No/100 Dollars
($10,000.00) is rendered by any court or other governmental
body against the Borrower, any Subsidiary or any Guarantor
and the Borrower, Subsidiary or Guarantor does not
immediately discharge the same or provide for its immediate
discharge in accordance with its terms, or procure a stay of
execution thereof within ten (10) days from the date of entry
thereof, and within said period of ten (10) days from the
date of entry thereof or such longer period during which
execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during
such appeal while providing such reserves therefor as may be
required under GAAP; or
(n) [INTENTIONALLY DELETED]; or
(o) Fraudulent Transfers. The Borrower or any
Guarantor shall have concealed, removed, or permitted to be
concealed or removed, any part of its Property, with intent
to hinder, delay or defraud its creditors or any of them, or
made or suffered a transfer of any of its Property which may
be fraudulent under any bankruptcy, fraudulent transfer or
similar law; or shall have made any transfer of its Property
to or for the benefit of a creditor at a time when other
creditors similarly situated have not been paid; or shall
have suffered or permitted, while insolvent, any creditor to
obtain a Lien upon any of its Property through legal
proceedings or distraint or other process which is not
vacated within sixty (60) days from the date thereof; or
29
(p) Forfeiture. The filing of formal charges under
a federal or state law for which forfeiture of Borrower's or
any of its Subsidiaries' or any Guarantors' Property is a
potential penalty.
Section 6.02 Remedies. Upon demand or the happening of any Event of
Default specified in Section 6.01, (i) the Lender may declare the entire
principal amount of all Indebtedness then outstanding including interest accrued
thereon to be immediately due and payable (provided, that the occurrence of any
event described in Subsections 6.01(h), 6.01(i), 6.01(j), 6.01(k) or 6.01(n)
shall automatically accelerate the maturity of the Indebtedness, without the
necessity of any action by the Lender) without presentment, demand, protest,
notice of protest or dishonor, notice of default, notice of intent to accelerate
the maturity thereof, notice of acceleration of the maturity thereof, or other
notice of any kind, all of which are hereby expressly waived by the Borrower,
each Subsidiary and each Guarantor; (ii) the Lender may enforce all of its
rights under the Security Instruments and under applicable law; and (iii) all
obligations, if any, of the Lender hereunder, including the Commitment, shall
immediately cease and terminate unless and until the Lender shall reinstate same
in writing.
Section 6.03 Prohibition of Transfer, Assignment and Assumption. This
Agreement pertains to the extension of debt financing and financial
accommodations for the benefit of the Borrower and the Subsidiaries and cannot
be transferred to, assigned to or assumed by any other person or entity either
voluntarily or by operation of law. In the event Borrower or any Subsidiary
becomes a debtor under the Bankruptcy Code of the United States or under the law
of any foreign country, any trustee or debtor in possession may not assume or
assign this Agreement nor delegate the performance of any provision hereunder.
Section 6.04 Right of Set-off. Upon the occurrence, and during the
continuance, of any Event of Default, or if the Borrower becomes insolvent,
however evidenced, unless Lender has called the Loan or accelerated the Note,
the Lender and any agent bank of the Lender is hereby authorized at any time and
from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Lender or any agent bank of the
Lender to or for the credit or the account of the Borrower against any and all
of the Indebtedness of the Borrower, irrespective of whether or not the Lender
shall have made any demand under this Agreement or the Note and although such
obligations may be unmatured. The Lender agrees promptly to notify the Borrower
after any such set-off and application, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of the Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have. The rights contained in this Section 6.04 shall inure to the benefit of
any participant in any loans made hereunder.
30
ARTICLE VII
CONDITIONS
The obligation of the Lender to make the loans to be evidenced by the
Note is subject to the accuracy of each and every representation and warranty of
the Borrower and its Subsidiaries made or referred to in each Security
Instrument, including this Agreement, or in any certificate delivered to the
Lender pursuant to or in connection with any Security Instrument, including this
Agreement, to the performance by the Borrower of its obligations to be performed
hereunder on or before the date of the Loan, and to the satisfaction of the
following further conditions which must be satisfied as of the date of this
Agreement or the respective advances under the Note.
Section 7.01 Closing. The delivery of all instruments and certificates
referred to in this Article VII not theretofore delivered and for the making of
the loans provided for in Article II of this Agreement shall occur on or before
November 15, 2004.
Section 7.02 Note. The Borrower shall have duly and validly issued,
executed and delivered the Note to the Lender.
Section 7.03 Organizational Documents. The Lender shall have received
a copy, certified as true by the Secretary or Assistant Secretary of the
Borrower or the Subsidiary, respectively, of the articles or certificate of
incorporation and the bylaws of the Borrower and any Subsidiary which is to
execute this Agreement or any Security Instrument pursuant to this Agreement.
Section 7.04 Secretary's Certificates. The Lender shall have received,
on or before the date of Closing, certificates of the Secretary of the Borrower
and any Subsidiary which is to execute any Security Instrument pursuant to this
Agreement setting forth (i) resolutions of its board of directors or managers in
form and substance satisfactory to the Lender with respect to the authorization
of the Note, this Agreement and any other Security Instruments provided herein
and the officers authorized to sign such instruments, and (ii) specimen
signatures of the officers so authorized.
Section 7.05 Opinion of Borrower's Counsel. The Lender shall have
received prior to the Closing from counsel for the Borrower and its
Subsidiaries, a favorable written opinion satisfactory to the Lender and its
counsel, as to the matters contained in Sections 3.01, 3.02, 3.03, 3.04 and 3.05
hereof, and as to such counsel's knowledge of pending or threatened material
litigation or governmental or regulatory proceedings against the Borrower or any
Subsidiary or any of the Property of the Borrower or any Subsidiary or
Guarantor; and as to the validity, creation, attachment and perfection of Liens
under any of the Security Instruments; and as to such other matters incident to
the transactions herein contemplated as the Lender or its counsel may request.
Section 7.06 Counsel of Lender. At the time of the loans hereunder,
all legal matters incident to the transactions herein contemplated shall be
satisfactory to counsel of the Lender.
Section 7.07 No Default. At the time of each loan hereunder, no
Default shall have occurred, and there shall not have occurred any condition,
event or act which constitutes, or with notice or lapse of time (or both) would
constitute a default or event of default under any loan agreement, note
agreement or trust indenture to which the Borrower or any Subsidiary or
Guarantor is a party.
31
Section 7.08 No Material Adverse Changes. Prior to each loan, there
shall have occurred, in the opinion of the Lender, no material adverse changes,
either in any case or in the aggregate, in the assets, liabilities, financial
condition, business, operations, affairs, management, control or circumstances
of the Borrower or any Subsidiary or Guarantor, from those reflected in the
Financial Statements (or, with respect to any Guarantor, the financial
statements of such Guarantor required to be delivered to the Lender) or by the
facts warranted or represented in any Security Instrument, including this
Agreement.
Section 7.09 Other Security Instruments and Information. The Borrower
shall have duly and validly executed and delivered, or caused to be executed and
delivered, to the Lender the following instruments, each in form and substance
satisfactory to the Lender, in sufficient executed counterparts for recording
purposes, as security for the Note and other Indebtedness and shall have
delivered the following documents containing information necessary to the
preparation and perfection of the liens created by such instruments:
(a) Security agreements covering all of the
Borrower's cash, accounts receivable, general intangibles,
inventory, unencumbered machinery and equipment, chattel
paper, intellectual property, instruments, and documents;
(b) Financing statements relating to the items
described in Subsection (a) and in Section 7.10;
(c) [INTENTIONALLY DELETED]; and
(d) The Blocked Account Agreement.
Section 7.10 Guaranties. The Guarantors shall have duly and validly
executed and delivered, or caused to be executed and delivered to the Lender, in
form and substance satisfactory to Lender, certain guaranty agreements and
certain security agreements granting Lender a lien on all of each Guarantor's
assets. The Validity Guarantors shall have duly and validly executed and
delivered, or caused to be executed and delivered to Lender, in form and
substance satisfactory to Lender, certain validity guaranties regarding the
Borrower's accounts receivable.
Section 7.11 Recordings. The Security Instruments described in Section
7.09 hereof, including financing statements, security agreements and other
notices related thereto, shall have been duly delivered to the appropriate
offices for filing, recording or registration, and the Lender shall have
received confirmations of receipt thereof from the appropriate filing, recording
or registration offices.
Section 7.12 [INTENTIONALLY DELETED].
32
Section 7.13 Closing Fee. Lender shall have received the Closing Fee
in immediately available funds.
Section 7.14 Additional Matters. The Lender shall have received all
exhibits, annexes and schedules herein referenced and such additional reports,
certificates, documents, statements, legal opinions, agreements and instruments,
in form and substance reasonably satisfactory to the Lender, as the Lender shall
have reasonably requested from the Borrower, Guarantors and their counsel.
Section 7.15 Revolving Credit Advances. Advances under the Note shall
further be subject to the following specific conditions:
(a) There shall have been no Default under this
Agreement or under any of the other Security Instruments;
(b) The Financial Statements and all other
financial information required by the Lender shall have been
furnished and shall be, as of the date of the requested
advance, true, correct, and complete;
(c) The financial condition of the Borrower, as
shown by the most recent Financial Statement described in
Section 4.01(b) hereof, shall be acceptable to the Lender, in
its sole discretion; and
(d) All of the representations and warranties made
by Borrower is this Agreement shall be true and correct as of
the date of the requested advance.
Section 7.16 Subordination Agreements. Lender shall have received
fully-executed Subordination Agreements under terms and conditions acceptable to
Lender from each of Borrower's subordinated lenders (collectively, the
"Subordinated Lenders"), including, without limitation, an agreement from ISSI
providing that, among other items, the intercompany payable of approximately
$5,100,000.00 owed by Borrower to ISSI shall not be paid by Borrower without
Lender's prior written consent, which consent may be refused at Lender's sole
discretion.
Section 7.17 [INTENTIONALLY DELETED]
Section 7.18 No Liens. Other than liens permitted under Section 5.02,
Borrower's Property shall be free of all liens, claims, and encumbrances.
Section 7.19 [INTENTIONALLY DELETED]
33
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All communications under or in connection with
this Agreement or the Note shall be in writing and shall be mailed by registered
or certified mail, return receipt requested, postage prepaid, or personally
delivered to an officer of the receiving party. All such communications shall be
mailed or delivered as follows:
(a) If to the Borrower, B&B ARMR Corporation, 00000
Xxxx Xxxxxx, Xxxxxxx, Xxxxxxxxx 00000, or to such other
address or to such individual's or department's attention as
it may have furnished the Lender in writing;
(b) If to the Lender, Briar Capital, L.P., 0000
Xxxx Xxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, or to
such other address or to such individual's or department's
attention as it may have furnished to the Borrower in
writing.
Any notice so addressed and mailed by registered or certified mail, return
receipt requested, shall be deemed to be given when so mailed, and any notice so
delivered in person shall be deemed to be given when receipted for by, or
actually received by, an authorized officer of the Borrower or the Lender, as
the case may be.
Section 8.02 Deviation from Covenants. The procedure to be followed by
the Borrower to obtain the consent of the Lender to any deviation from the
covenants contained in this Agreement or any other Security Instrument shall be
as follows:
(a) The Borrower shall send a written notice to the
Lender setting forth (i) the covenant(s) relevant to the
matter, (ii) the requested deviation from the covenant(s)
involved, and (iii) the reason for the requested deviation
from the covenant(s); and
(b) The Lender will within a reasonable time send a
written notice to the Borrower, signed by an authorized
officer of the Lender, permitting or refusing the request;
but in no event will any deviation from the covenants of this
Agreement or any other Security Instrument be effective
without the written consent of the Lender.
Section 8.03 Invalidity. In the event that any one or more of the
provisions contained in the Note, this Agreement or in any other Security
Instrument shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of the Note, this Agreement or any other Security
Instrument.
Section 8.04 Survival of Agreements. All representations and
warranties of the Borrower herein, and all covenants and agreements herein not
fully performed on or before the Effective Date of this Agreement, shall survive
such date.
34
Section 8.05 Successors and Assigns. All covenants and agreements
contained by or on behalf of the Borrower or any Subsidiary or any Guarantor in
the Note, this Agreement and any other Security Instrument shall bind its
successors and assigns or the heirs and personal representatives of any
individual Guarantor and shall inure to the benefit of the Lender and its
successors and assigns; except that neither the Borrower nor any Guarantor nor
any Person acting on behalf of any of them may assign any of their rights
hereunder without the prior written consent of Lender. In the event that the
Lender sells participations in the Note, or other Indebtedness of the Borrower
incurred or to be incurred pursuant to this Agreement, to other lenders, each of
such other lenders shall have the rights of set off against such Indebtedness
and similar rights or Liens to the same extent as may be available to the
Lender.
Section 8.06 Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Note or other Indebtedness shall apply with equal
force and effect to each and all promissory notes hereinafter executed which in
whole or in part represent a renewal, extension, increase or rearrangement of
any part of the Indebtedness originally represented by the Note or of any part
of such other Indebtedness. Any provision of this Agreement to be performed
during the "term of this Agreement," "term hereof" or similar language, shall
include any extension period.
Section 8.07 Waivers. No course of dealing on the part of the Lender,
its officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any right, power or privilege of the Lender
under the Note, this Agreement or any other Security Instrument shall operate as
a waiver thereof, except as otherwise provided in Section 8.02 hereof.
Section 8.08 Cumulative Rights. Rights and remedies of the Lender
under the Note, this Agreement and each other Security Instrument shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 8.09 Construction. This Agreement is, and each of the Note
will be, a contract made under and shall be construed in accordance with and
governed by the laws of the State of Texas.
Section 8.10 Interest. It is the intention of the parties hereto to
conform strictly to applicable usury laws now in force. Accordingly, if the
transactions contemplated hereby would be usurious under applicable law, then,
in that event, notwithstanding anything to the contrary in the Note, this
Agreement or in any other Security Instrument or agreement entered into in
connection with or as security for the Note, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under applicable law
that is contracted for, charged or received under the Note, this Agreement or
under any of the other aforesaid Security Instruments or agreements or otherwise
in connection with the Note shall under no circumstances exceed the maximum
amount of interest permitted by applicable law, and any excess shall be credited
on the Note by the holder thereof (or, if the Note shall have been paid in full,
refunded to the Borrower); (ii) determination of the rate of interest for
determining whether the loans hereunder are usurious shall be made by
amortizing, prorating, allocating and spreading, during the full stated term of
such loans, all interest at any time contracted for, charged or received from
the Borrower in connection with such loans, and any excess shall be cancelled,
credited or refunded as set forth in (i) herein; and (iii) in the event that the
maturity of the Note is accelerated by reason of an election of the holder
thereof resulting from any Default or Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than the maximum
amount permitted by applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be cancelled automatically as of the date of
such acceleration or prepayment and, if theretofore paid, shall be credited on
the Note (or, if the Note shall have been paid in full, refunded to the
Borrower).
35
Section 8.11 Multiple Originals. This Agreement may be executed in two
(2) or more copies; each fully executed copy shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Section 8.12 Exhibits and Schedules. All exhibits and schedules to
this Agreement are incorporated herein by this reference for all purposes. The
exhibits and schedules may be attached hereto, or bound together with or
separately from this Agreement, and such binding shall be effective to identify
such exhibits and schedules as if attached to this Agreement.
Section 8.13 No Triparty Loan. Texas Finance Code, Section 346.003 et
seq. (which regulates certain revolving loan accounts and revolving triparty
accounts) shall not apply to the loans evidenced by this Agreement or the Note.
Section 8.14 Applicable Rate Ceiling. Unless changed in accordance
with law, the applicable rate ceiling under Texas law shall be the indicated
(weekly) rate ceiling from time to time in effect as provided in Texas Finance
Code, Section 306.001 et seq.
Section 8.15 Performance and Venue/Jurisdiction/Choice of Law. The
obligations of Borrower contained herein are performable at Lender's offices in
Houston, Xxxxxx County, Texas.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE
OTHER SECURITY INSTRUMENTS TO WHICH THE BORROWER IS A PARTY MAY BE BROUGHT IN
THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES LOCATED IN XXXXXX
COUNTY, TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER
HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF THE BORROWER'S PROPERTY,
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY
SUCH ACTION OR PROCEEDING. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE BORROWER'S ADDRESS SET FORTH IN THE NOTICE PROVISIONS
HEREIN, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
36
THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH THE BORROWER
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN
THE COURTS REFERRED TO HEREINABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA.
Section 8.16 Negotiation of Documents. This Agreement, the Note and
all other Security Instruments have been negotiated by the parties at arm's
length, each represented by its own counsel, and the fact that the documents
have been prepared by the Lender's counsel, after such negotiation, shall not be
cause to construe any of such documents against the Lender.
Section 8.17 Notices Received by Lender. Any instrument in writing,
telex, telegram, telecopy or cable received by the Lender in connection with any
loan hereunder, which purports to be dispatched or signed by or on behalf of the
Borrower, shall conclusively be deemed to have been signed by such party, and
Lender may rely thereon and shall have no obligation, duty or responsibility to
determine the validity or genuineness thereof or authority of the Person or
Persons executing or dispatching the same.
Section 8.18 Debtor-Creditor Relationship. None of the terms of this
Agreement or of any other document executed in conjunction herewith or related
hereto shall be deemed to give the Lender the rights or powers to exercise
control over the business or affairs of the Borrower. The relationship between
the Borrower and the Lender created by this Agreement is only that of
debtor-creditor, and Lender does not owe Borrower any fiduciary duties. All
parties hereby acknowledge and agree that (i) at no time shall Lender be deemed
to be a fiduciary of Borrower or its Subsidiaries or Guarantors, (ii) no
fiduciary relationship shall exist as between Borrower or its Subsidiaries or
Guarantors and Lender as a result of the terms of this Agreement or any of the
Security Instruments or otherwise, (iii) at all times the relationship between
Borrower and Lender shall be that of debtor and creditor, and (iv) in connection
with the implementation of the terms of this Agreement and any applicable
Security Document, Lender shall be acting in its own self interest, which at
times may conflict with the best interests of the Borrower.
Section 8.19 No Third-Party Beneficiaries. This Agreement is for the
sole and exclusive benefit of the Borrower and Lender and their successors and
permitted assigns. This Agreement does not create, and is not intended to
create, any rights in favor of or enforceable by any other Person. This
Agreement may be amended or modified by the agreement of the Borrower and
Lender, without any requirement or necessity for notice to, or the consent of or
approval of any other Person.
37
Section 8.20 Release of Liability. To the maximum extent permitted by
law from time to time in effect, Borrower hereby knowingly, voluntarily and
intentionally (and after it has consulted with its own attorney) irrevocably and
unconditionally agrees that no claim may be made by Borrower against the Lender
or any of its affiliates, participants, partners, shareholders, directors,
officers, employees, attorneys, accountants, or agents or any of its or their
successors and assigns (each an "Indemnitee"), for any actual, direct, special,
indirect, consequential or punitive damages in respect of any breach or wrongful
conduct (whether the claim is based on contract, tort or statute) arising out
of, or related to, the transactions contemplated by any of this Agreement, the
Note, the other Security Instruments or any other related documents, or any act,
omission, or event occurring in connection herewith or therewith. In furtherance
of the foregoing, Borrower hereby waives, releases and agrees not to xxx upon
any claim for any such damages, whether or not accrued and whether or not known
or suspected to exist in its favor, and Borrower shall indemnify and hold
harmless each Indemnitee of and from any such claims. Upon the full payment of
the Indebtedness, and prior to Lender releasing any lien or security interest in
Property given to secure the Indebtedness, Borrower, each Subsidiary and the
Guarantors shall execute a release agreement, in form and substance satisfactory
to Lender, releasing each Indemnitee from any and all claims, demands, actions,
causes of action, costs, expenses and liabilities whatsoever, known or unknown,
at law or in equity, which the Borrower, each Subsidiary or the Guarantors may
have, as of the date of execution of such release or in the future, against the
Indemnitees arising out of or in connection with this Agreement or any related
documents. Without prejudice to the survival of any other obligations of
Borrower under this Agreement and under the other Security Instruments to which
Borrower is a party, the obligations of Borrower under this Section 8.20 shall
survive the termination of this Agreement and the other Security Instruments and
the payment of the Indebtedness.
Section 8.21 DTPA Waiver. BORROWER ACKNOWLEDGES AND AGREES, ON ITS OWN
BEHALF AND ON BEHALF OF ANY PERMITTED ASSIGNS AND SUCCESSORS HEREAFTER, THAT THE
DTPA IS NOT APPLICABLE TO THIS TRANSACTION. ACCORDINGLY, BORROWER'S RIGHTS AND
REMEDIES WITH RESPECT TO THE TRANSACTION CONTEMPLATED UNDER THIS AGREEMENT, AND
WITH RESPECT TO ALL ACTS OR PRACTICES OF THE LENDER, PAST, PRESENT OR FUTURE, IN
CONNECTION WITH SUCH TRANSACTION, SHALL BE GOVERNED BY LEGAL PRINCIPLES OTHER
THAN THE DTPA. IN FURTHERANCE THEREOF, BORROWER AGREES AS FOLLOWS:
BORROWER WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.,
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY
OF BORROWER'S OWN SELECTION, BORROWER VOLUNTARILY CONSENTS TO
THIS WAIVER.
38
Section 8.22 Waiver of Trial by Jury. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (I) ARISING UNDER THIS LOAN AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR THE TRANSACTIONS RELATED HERETO OR THERETO. IN EACH CASE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE,
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTIONS SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 8.23 Final Expression. THIS WRITTEN LOAN AGREEMENT, THE NOTE
AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES HERETO.
Section 8.24 Indemnification. Borrower agrees to indemnify and shall
indemnify each Indemnitee from, and hold each of them harmless against, any and
all losses, liabilities, claims or damages (including reasonable legal fees and
expenses) to which any of them may become subject, insofar as such losses,
liabilities, claims or damages arise out of or result from this Agreement or any
other Security Instrument to which Borrower is a party or any investigation,
litigation or other proceeding (including any threatened investigation or
proceeding) relating to the foregoing, and Borrower shall reimburse each
Indemnitee upon demand for any expenses (including legal fees) reasonably
incurred in connection with any such investigation or proceeding; but excluding
any such losses, liabilities, claims, damages or expenses incurred by reason of
the gross negligence, willful misconduct or unlawful acts of such Indemnitee.
WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT IS THE EXPRESS INTENTION OF
BORROWER THAT EACH INDEMNITEE SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ALL
SUCH LOSSES, LIABILITIES, CLAIMS OR DAMAGES ARISING OUT OF OR RESULTING FROM THE
SOLE, ORDINARY OR CONTRIBUTORY NEGLIGENCE OF SUCH INDEMNITEE, BUT NOT FROM THE
GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR UNLAWFUL ACTS OF SUCH INDEMNITEE.
Without prejudice to the survival of any other obligations of Borrower under
this Agreement and under the other Security Instruments to which Borrower is a
party, the obligations of Borrower under this Section 8.24 shall survive the
termination of this Agreement and the other Security Instruments and the payment
of all amounts owed pursuant to such Security Instruments, and/or the assignment
of the Security Instruments.
39
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
LENDER: BORROWER:
--------------------------- -----------------------
BRIAR CAPITAL, L.P., B&B ARMR CORPORATION, a
a Texas limited partnership Delaware corporation
By: Briar Capital General, LLC, a Texas
limited liability company, its By: /S/ Xxxxx Xxxxx
general partner ---------------------
Xxxxx Xxxxx, Chairman
By: /S/ Xxxxx Xxxxxxxx
-------------------
Xxxxx Xxxxxxxx, CEO
GUARANTORS: VALIDITY GUARANTORS:
--------------------------------- --------------------
INTEGRATED SECURITY SYSTEMS, INC.,
a Delaware corporation /S/ C.A. XXXXXXX, JR.
-------------------------------
C.A. XXXXXXX, JR., Individually
By: /S/ C.A. XXXXXXX, JR.
----------------------------------- /S/ XXXXX XXXXX
C.A. Xxxxxxx, Jr., Chairman and CEO -------------------------
XXXXX XXXXX, Individually
INTELLI-SITE, INC., a Texas corporation
/S/ XXX XXXXXXXXXX
----------------------------
By: /S/ C.A. XXXXXXX, JR. XXX XXXXXXXXXX, Individually
---------------------------
C.A. Xxxxxxx, Jr., Chairman
40
List of Schedules and Exhibits
Schedule 4.01(g) Form of Borrowing Base Certificate
Schedule 5.07 List of Leases
Exhibit 1.1A Form of Blocked Account Agreement
Exhibit 1.1B Form of Revolving Promissory Note
41
SCHEDULE "4.01(g)"
BORROWING BASE CERTIFICATE
In accordance with the Section 4.01(g) of that certain Loan Agreement
dated effective as of November 10, 2004, between Briar Capital, L.P. (the
"Lender"), and B&B ARMR Corporation (the "Borrower"), the undersigned chief
financial officer of the Borrower hereby certifies to Lender that:
1. He is the duly elected, qualified, and acting Chief Financial
Officer or agent of Borrower. He is familiar with the facts herein certified and
is duly authorized to certify such facts and make and deliver this Borrowing
Base Report for and on behalf of Borrower.
2. All representations and warranties made by Borrower in the Loan
Agreement (hereinafter defined) and in each of the other Security Instruments
are true and correct on and as of the date hereof as if such representations and
warranties had been made as of the date hereof.
3. No Default or Event of Default has occurred and is continuing.
4. The financial information contained on the Borrowing Base Report
attached hereto is true and correct in all respects.
5. Borrower has performed and complied with all agreements and
conditions required in the Security Instruments to be performed or complied with
by it on or prior to any further advances under the Loan Agreement.
6. After Briar funds the amount shown under "Requested Advance" on
the Borrowing Base Report attached hereto, the aggregate amount of the loan will
not exceed the lesser of (i) the Accounts Advance Amount plus the Inventory
Advance Amount as defined in the Loan Agreement or (ii) $3,000,000.
7. All information contained in this Borrowing Base Report is true,
correct and complete. Capitalized terms used but not otherwise defined herein
shall have the meanings assigned to them in the Loan Agreement (herein so
called) dated effective as of November 10, 2004, executed by Borrower and Briar,
as amended.
IN WITNESS WHEREOF, this Certificate is executed by the undersigned as of
_____________________, 20____.
By:
----------------------------------
Printed Name:
------------------------
Title: Chief Financial Officer of B&B
ARMR Corporation
42
SCHEDULE "5.07"
LIST OF LEASES
43
EXHIBIT "1.1A"
FORM OF BLOCKED ACCOUNT AGREEMENT
44
EXHIBIT "1.1B"
FORM OF REVOLVING PROMISSORY NOTE
45
