EXHIBIT 10.1
CREDIT AND SECURITY AGREEMENT
BETWEEN
COMPASS BANK
as Lender
and
BEST CIRCUIT BOARDS, INC.
as Borrower
and
XXXX XXXXXX
as Guarantor
October 28, 2005
TABLE OF CONTENTS
SECTION 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Borrower's Representations, Warranties and Covenants . . . 7
SECTION 3. Bank's Agreement to Make Loans . . . . . . . . . . . . . . 10
SECTION 4. Inspection of Records; Further Assurance . . . . . . . . . 12
SECTION 5. Security Interest of Bank in Collateral . . . . . . . . . . 12
SECTION 6. Collection of Accounts . . . . . . . . . . . . . . . . . . 14
SECTION 7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . 15
SECTION S. Negative Covenants . . . . . . . . . . . . . . . . . . . . 18
SECTION 9. Events of Default; Acceleration . . . . . . . . . . . . . . 20
SECTION 10. Power of Sell or Collect Collateral; Remedies Cumulative . 21
SECTION 11. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 12. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 13. Expenses; Proceeds of Collateral . . . . . . . . . . . . . 23
SECTION 14. Durable; Extension . . . . . . . . . . . . . . . . . . . . 23
SECTION 15. General . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBITS
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Exhibit "A" List of Equipment
Exhibit "B" Compliance Certificate
CREDIT AND SECURITY AGREEMENT
THIS CREDIT AND SECURITY AGREEMENT ("Agreement") is executed this ___
day of ____________, 2005, by and among BEST CIRCUIT BOARDS, INC., a Texas
corporation ("Borrower"), XXXX XXXXXX ("Guarantor"); sometimes referred to
jointly with Borrower as "Obligors"), and COMPASS BANK, a bank organized
under the laws of the State of Alabama ("Bank").
WHEREAS, Bank has heretofore granted Borrower a revolving line
of credit (the "Revolving Line") not to exceed an aggregate principal
amount at any one time outstanding of Two Million and No/100 Dollars
($2,000,000.00); and
WHEREAS, the indebtedness owed by Borrower to Bank under the Revolving
Line is evidenced by a revolving Promissory Note dated ____________ __, 2005
(the "Revolving Note") in an amount equal to the Revolving Line, secured by
a security interest in Borrower's Accounts Receivable and Inventory (as
hereinafter defined) and further evidenced by one or more loan agreements
relating to the Revolving Line (collectively the "Revolving Line Loan
Agreement"); and
WHEREAS, Borrower has requested that Bank make a term loan to Borrower
(the "Term Loan"); and Bank has agreed to grant such request and to continue
extending credit to Borrower under the Revolving Line, all on the terms and
subject to the conditions set forth herein;
WHEREAS, this Agreement supersedes, and amends and restates in its
entirety the Revolving Line Loan Agreement;
NOW, THEREFORE, in consideration of the premises, the credit to be
extended hereunder, the mutual agreements of the parties as set forth herein
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound
hereby, agree as follows:
SECTION 1. Definitions.
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1.1 "Account" and "Account Receivable" shall mean all of Borrower's now
owned or hereafter acquired (a) "accounts" (as such term is defined in the
Uniform Commercial Code as presently or hereafter in effect in the State of
Texas) and other receivables, whether arising out of goods sold or services
rendered or from any other transaction; (b) rights in, to and under all
purchase orders or receipts for goods or services; (c) rights to any
goods represented or purported to be represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods);
(d) moneys due or to become due to Borrower under all purchase orders and
contracts for the sale of goods or the performance of services or both by
Borrower (whether or not yet earned by performance on the part of Borrower),
including the proceeds of the foregoing; (e) any notes, drafts, letters of
credit, insurance proceeds or other instruments, documents and writings
evidencing or supporting the foregoing; and (f) all collateral security
and guarantees of any kind given by any other person with respect to any
of the foregoing.
1.2 "Account Debtor" shall mean the party who is obligated on or under
any Account or contract right.
1.3 "Borrower's Loan Account" shall mean the account on the books of
Bank with respect to Borrower in which Bank will record advances under the
Revolving Line, payments received thereon and other appropriate debits and
credits as provided by this Agreement.
1.4 "Collateral" shall mean any and all personal, real or intangible
property of Borrower in which Bank, by this Agreement or any other
agreement, now or hereafter acquires a security interest or other rights
or interests as security for the Borrower's Liabilities, including, without
limitation, Borrower's obligations under the Revolving Note, the Term Note
and this Agreement.
1.5 "Debt" means (i) all indebtedness for borrowed money; (ii)
obligations to pay the deferred purchase price of property or services;
(iii) obligations under leases which are required to be accounted for as
capital leases under GAAP; (iv) outstanding non-contingent obligations of
Borrower to reimburse any other Person in respect of a letter of credit or
similar instrument, (v) debt secured by a lien on any asset of Borrower,
whether or not Borrower has personal liability for the repayment of such
debt, and (vi) all other obligations which constitute indebtedness under
GAAP.
1.6 "Debt Service of Borrower" for any calculation period shall mean
the sum of (i) the current maturities of Debt and (ii) the interest expense
of Borrower, in each case for such calculation period.
1.7 "Debt to EBITDA Ratio" shall be defined as the ratio of (a)
Borrower's total Debt excluding Subordinated Debt to (b) Borrower's EBITDA.
1.8 "Default Rate" shall mean the lesser of the Maximum Rate and five
percentage points (5%) in excess of the Compass Bank Index Rate.
1.9 An "Eligible Account" shall mean an Account which meets each of
the following requirements:
(a) it arises from the sale of goods or from services rendered,
such goods have been shipped or delivered to the Account Debtor under
such Account and such services have been fully performed and have
been accepted by the Account Debtor, and the Borrower's full right
to payment for all sums due from such Account Debtor with respect
to such Account shall have been earned and then be due and payable;
(b) it is a valid and legally enforceable obligation of the
Account Debtor thereunder according to its express terms, and is not
subject to any offset, counterclaim, cross-claim, or other defense on
the part of such Account Debtor denying liability thereunder in whole
or in part;
(c) it is not subject to any mortgage, lien, security interest,
or similar adverse rights or interests whatsoever other than the
security interest in favor of Bank hereunder;
(d) it is evidenced by an invoice, dated the date of shipment
and having payment terms acceptable to Bank, rendered to such Account
Debtor, and not evidenced by an instrument or chattel paper;
(e) it is not owing by an Account Debtor whose obligations Bank,
acting in its sole discretion, shall have notified Borrower are not
deemed to constitute an Eligible Account;
(f) it is not due from an affiliated corporation or entity,
subsidiary corporation or entity, parent corporation or entity,
stockholder, officer, director or employee of Borrower or any such
affiliate, subsidiary, or parent corporation or entity; or any
individual or entity affiliated or related to any of the foregoing,
whether by blood, marriage, or otherwise;
(g) it does not constitute retainages, progress xxxxxxxx, or
deferred payments under a contract not fully performed;
(h) it does not constitute, in whole or in part, interest or
finance charges on outstanding balances;
(i) it is an Account with respect to which no return,
repossession, rejection, cancellation, or repudiation shall have
occurred or have been threatened;
(j) it is an Account with respect to which the Borrower continues
to be in full conformity with the representations, warranties, and
covenants of Borrower made with respect thereto;
(k) it is not subject to any sales terms, trial terms,
sales-or-return terms, consignment terms, guaranteed sales performance
or warranties or representations relating to minimum sales volume,
C.O.D. terms, or similar terms or conditions;
(l) it is not an Account subject, in whole or in part, to any
"xxxx and hold" or similar arrangement pursuant to which the invoice
is delivered prior to the actual delivery of the sold or leased goods
or the performance of the services;
(m) it is not an Account with respect to which ninety (90) days
or more shall have passed since the invoice date;
(n) it is not owed by any Account Debtor with respect to which
ten percent (10%) or more of its total Accounts owing to the Borrower
remain unpaid after ninety (90) days from the due date;
(o) it is not owed by an Account Debtor that is not an individual
residing in the United States or a corporation or partnership organized
and validly existing under the laws of a state within the United
States, unless payment is secured by a letter of credit or other
credit support acceptable to Bank;
(p) it is not an Account as to which Borrower or any other party
to such Account is in default or is likely to become in default in the
performance or observance of any of the terms thereof;
(q) it is not an Account owed by an Account Debtor whose account
balance exceeds twenty-five percent (25%) of the total of Borrower's
aggregate accounts receivable, except to the extent of the Eligible
Accounts of such Account Debtor that do not exceed twenty-five percent
(25%) of the total of Borrower's aggregate accounts receivable, or
except as expressly permitted from time to time by Bank in its sole
discretion;
(r) it is not an Account in which the Account Debtor is
the United States of America or any department, agencies, or
instrumentality thereof, unless Borrower assigns its rights to
payment of such Account to Bank, in form and substance satisfactory
to Bank, and so as to comply with all requirements of the law.
1.10 "Eligible Inventory" shall mean Borrower's Inventory, located in
Texas, meeting each of the following requirements:
(a) it is not private label or styled type or otherwise subject
to special marketing conditions or marketability limitations judged by
the Bank, in its sole discretion, to be unacceptable;
(b) it does not include any shipping or packaging materials nor
work in process;
(c) it is not slow-moving, defined as inventory which turns less
than once in three hundred sixty-five (365) days;
(d) it is not materials or supplies used or to be used, or
consumed or to be consumed in the normal course of business of
Borrower;
(e) it is new and unused, is free of defects and is not obsolete;
(f) it is owned by Borrower; and
(g) it is not subject to any lien or security interest whatsoever
other than the security interest in favor of Bank hereunder.
The value of all Eligible Inventory shall be determined on the basis
of any and all factors and criteria as the Bank (in its sole discretion
and without reference to any standards of reasonableness) shall deem
appropriate, including, without limitation, that unless the Bank shall
determine that some other basis is more appropriate, such value shall
be determined on the basis of the lower of cost or market value, net
of all handling charges, taxes, assessments, and interest and finance
charges.
1.11 "Equipment" shall mean any "equipment" as such term is defined
in Section 9.109(2) of the Texas Business and Commerce Code, as in effect
from time to time, now owned or hereafter acquired by Borrower and, in any
event, shall include, without limitation, the items described in Exhibit A
attached hereto and made a part hereof and all other machinery, equipment,
furnishings, fixtures, leasehold improvements, vehicles and computers and
other electronic data processing and other office equipment now owned or
hereafter acquired by Borrower and any and all additions, substitutions and
replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon
or affixed thereto.
1.12 "EBITDA" shall mean, for the twelve month period preceding any
date of determination, net income (or net loss) plus the sum of (i) net
interest expense, (ii) income tax expense, (iii) depreciation expense,
(iv) amortization expense, (v) non-cash write downs or write-offs of assets
(to the extent such items are included in the determination of net income);
(vi) pre-tax losses on the sale of assets, and (vii) losses attributable to
any unconsolidated Operating Affiliate less the sum of (i) pre-tax gain on
the sale of assets, (ii) non-cash write-ups of assets (to the extent such
items are included in the determination of net income), (iii) losses
properly attributable to minority interests, if any, in any Operating
Affiliate, (iv) equity interest in earnings attributable to any
unconsolidated Operating Affiliate, and (v) income tax benefits.
1.13 "Fixed Charge Coverage Ratio" means with respect to the Borrower
for any calculation period, the ratio of (i) EBITDA plus interest and rent
expense for the calculation period,less any dividends or other distributions
made by Borrower during the calculation period to (ii) Total Debt Service
for such period.
1.14 "GAAP" shall mean generally accepted accounting principles,
consistently applied.
1.15 "General Intangibles" shall mean all general intangibles of
Borrower, whether now owned or hereafter created or acquired, including,
without limitation, all choses in action, causes of action, corporation or
other business records, deposit accounts, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, rights to royalties,
blueprints, drawings, confidential information, catalogs, sales literature,
video tapes, consulting agreements, employment agreements, customer lists,
tax refund claims, computer programs, insurance policies, deposits with
insurers, all claims under guaranties, security interests or other
security held by or granted to Borrower to secure payment of any of the
Accounts by an Account Debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Accounts).
1.16 "Guarantor" shall mean Xxxx Xxxxxx.
1.17 "Highest Lawful Rate" means the maximum non-usurious interest rate
(computed on the basis of a year of 365 or 366 days, as applicable) that at
any time or from time to time may be contracted for, taken, reserved,
charged or received on amounts due to Bank, under laws applicable to Bank
that are presently in effect or, to the extent allowed by law, under such
applicable laws which allow a higher maximum non-usurious rate than
applicable laws now allow.
1.18 "Insolvency" of any Obligor or any other person or entity shall
mean that there shall have occurred with respect to that person or entity
one or more of the following events: death, dissolution, termination of
existence, liquidation, insolvency, appointment of a receiver, liquidator,
fiscal agent, or trustee of any part of the property of assignment for the
benefit of creditors by or against such person or entity, or institution
of any action or proceeding with respect to such person or entity under or
pursuant to any insolvency laws relating to the relief of debtors by or
against any such person or entity, institution of proceedings in bankruptcy
or with respect to the readjustment of indebtedness, reorganization,
composition, or extension by or against such person or entity (including,
without limitation, under or pursuant to the United States Bankruptcy Code,
as amended, or under any similar law at any time enacted).
1.19 "Inventory" shall mean inventory (as defined in the Uniform
Commercial Code as enacted in the State of Texas, or in any other applicable
jurisdiction), wherever located, including, without limitation, all and
related merchandise and other personal property now owned or hereafter
acquired by Borrower which are held for sale or lease, or are furnished or
to be furnished under a contract of service or are raw materials, work in
process, or materials or supplies used or to be used, or consumed or to be
consumed, in Borrower's business, and all shipping and packaging materials
relating to any of the foregoing.
1.20 "Liabilities" shall mean any and all liabilities, obligations,
and indebtedness of Borrower to Bank of every kind and description, direct
or indirect, absolute or contingent, matured or unmatured, primary or
secondary, whether as principal obligor or guarantor, liquidated or
unliquidated, due or to become due, now existing or hereafter arising, and
whether arising directly or acquired from others, regardless of how such
Liabilities arise or by what agreement or instrument they may be evidenced
or whether the foregoing Liabilities include obligations to perform acts and
refrain from taking actions as well as obligations to pay money. Without
limiting the foregoing, Liabilities specifically include Borrower's
obligations evidenced by the Revolving Note and the Term Note.
1.21 "Loans" shall mean the advances made by Bank to Borrower pursuant
to the Revolving Line and the Term Loan.
1.22 "Notes" shall mean, collectively, the Revolving Note and the Term
Note.
1.23 "Operating Affiliates" means each Affiliate of the Borrower in
the businesses of manufacturing or fabricating circuit boards or other
electronic components.
1.24 "Person" shall mean any individual, partnership, joint venture,
association, corporation, trust or other entity.
1.25 "Proceeds" shall mean all forms of payment received by or due
to the Borrower from the collection of Accounts or sale, lease, exchange,
collection, or other disposition of inventory or other property constituting
Collateral hereunder and any and all claims against any third party for
loss or damage to any Collateral, including insurance claims, and further,
without limiting the generality of the foregoing, Proceeds shall include all
Accounts, checks, cash, money orders, drafts, chattel paper, instruments.
notes, or other documents evidencing payment obligations to the Borrower
for sale or exchange of Collateral.
1.26 "Security Documents" shall mean this Agreement, the Guaranty and
any other document securing the payment of any of the Liabilities.
1.27 "Subordinated Debt" shall mean all debt of Borrower to its
subordinated creditors that has been subordinated to the Liabilities
pursuant to a subordination agreement or agreements between Bank and
such subordinated creditors satisfactory to Bank in form and content.
1.28 "Total Debt Service" shall mean, with respect to any calculation
period, the sum of (i) current maturities of Debt and (ii) the interest
expense of Borrower (excluding interest on Subordinated Debt) in each case
for such calculation period.
1.29 "Term Note" shall mean the promissory note evidencing the Term
Loan.
1.30 "Working Capital" shall mean Borrower's total current assets less
Borrower's total current liabilities, determined in accordance with GAAP.
Any terms used to describe Bank's security interest hereunder not
specifically defined herein shall have the meaning and definition given
those terms under the Texas Uniform Commercial Code as in effect from
time to time.
SECTION 2. Borrower's Representations. Warranties. and Covenants.
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To induce Bank to enter into this Agreement, Borrower represents,
warrants, and covenants as follows:
2.1 Borrower (a) is a duly organized corporation, which is validly
existing under the laws of the State of Texas, (b) is duly qualified (and
will remain so qualified) in Texas and in every other state in which it is
doing business or in which the failure so to qualify would or could have a
material adverse effect on its business or properties or Bank, and (c) has
all necessary power and authority to own its assets and conduct its business
as now conducted or presently proposed to be conducted.
2.2 The execution, delivery, and performance hereof and of all other
agreements or instruments contemplated hereby are within Borrower's
corporate powers, have been duly authorized, and are not in contravention
of the law or the terms of Borrower's articles of incorporation or other
formation papers. The execution, delivery, and performance hereof and of
all other agreements or instruments contemplated hereby are not in
contravention of any indenture. agreement, or undertaking to which any
Obligor is a party or by which any Obligor or any of its properties is
bound. This Agreement, the Revolving Note, the Term Note, the Guaranty
executed by Guarantor and all other agreements and instruments executed
by each of the Obligors in connection herewith or in connection with the
Loans have been validly executed and delivered by each, as applicable, and
constitute legal, valid, and binding obligations of each of the Obligors
enforceable against each in accordance with their respective terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws at the time in effect affecting the rights of creditors
generally.
2.3 Except for the security interest granted hereby or by any other
document executed in favor of Bank, Borrower is and, as to Accounts,
Inventory, Equipment and other Collateral arising or to be acquired after
the date hereof, shall be the sole and exclusive owner of the Accounts,
Inventory, Equipment and each and every other item of Collateral, free from
any lien, security interest, or encumbrance, and Borrower shall defend its
Accounts, Inventory, Equipment and each and every other item of Collateral,
and all Proceeds and products thereof, against all claims and demands of all
persons at any time claiming the same or any interest therein adverse to
Bank.
2.4 Borrower will promptly pay all taxes or charges levied on or with
respect to the Collateral, and will at all times keep the Accounts,
Inventory, Equipment and each and every other item of Collateral free and
clear of all liens, claims, charges, security interests, and encumbrances
whatsoever, other than the security interest granted hereby or by any other
document executed in favor of Bank. Borrower agrees to take all actions that
Bank may request to establish and maintain a valid security interest in the
Accounts, Inventory, Equipment, and each and every other item of Collateral,
free and clear of all other liens, claims, charges, security interests, and
encumbrances whatsoever. If such taxes or other assessments remain unpaid
after the date fixed for the payment of same, or if any lien, charge, claim,
security interest, or encumbrance shall arise, or be claimed or asserted
with respect to the Accounts, Inventory, Equipment, or any other item
of Collateral, Bank may, without notice to Borrower, pay such taxes,
assessments, charges, or claims, and take any and all other actions
(including the payment of money) deemed desirable by Bank to remove any
such lien, charge, claim, security interest, or encumbrance, and Borrower
agrees that the amounts thereof shall be charged to Borrower's Loan Account
created hereby and shall bear interest at the rate of interest then borne by
Borrower's obligations under the Revolving Note. Notwithstanding the other
provisions of this Section 2.4, nothing herein shall require the payment or
discharge of any such taxes or assessments so long as Borrower (a) shall, in
good faith, and at its own expense, contest the same or the validity thereof
by appropriate legal proceedings diligently pursued; and (b) shall, at
Bank's option, post a bond or provide other security deemed equivalent
by Bank to cover or secure payment of such taxes or assessments.
2.5 Borrower will not sell, transfer, lease, otherwise dispose of or
suffer to exist any lien, charge, claim, security interest, or encumbrance
(except for those in favor of Bank) with respect to any of the Collateral
or any interest therein (or any of the Proceeds thereof, whether money,
checks, money orders, drafts, notes, instruments, documents, chattel paper,
Accounts, returns, or repossessions), except for the sale of Inventory in
the ordinary course of business, without Bank's prior written consent.
2.6 At the time any Account becomes subject to a security interest in
favor of Bank, said Account shall be a good and valid Account representing
an undisputed, bona fide indebtedness incurred by the Account Debtor named
therein, for merchandise theretofore shipped or delivered pursuant to a
purchase order issued by such Account Debtor; there shall be no set-offs,
counterclaims, or disputes against any such Account; and Borrower shall be
the lawful owner of all such Account and shall have good right to subject
the same to a security interest in favor of Bank. No such Account shall be
sold, assigned, or transferred to any person other than Bank or in any way
encumbered except to Bank, and Borrower shall defend the same against the
lawful claims and demands of all persons. If any Account shall be in
violation of any one or more of the warranties expressed in this section,
it shall not be deemed an Eligible Account or constitute an Event of Default
for purposes of this Agreement.
2.7 At the time Borrower pledges, sells, assigns, or transfers to
Bank any instrument, document of title, security, chattel paper, or other
property, or any interest therein, Borrower shall be the lawful owner
thereof and shall have good right to pledge, sell, assign, or transfer
the same; none of such property shall have been pledged, sold, assigned,
or transferred to any person other than Bank or in any way encumbered, and
Borrower shall defend the same against the lawful claims and demands of all
persons.
2.8 The office of Borrower at which Inventory and other tangible
Collateral is located and records of Borrower pertaining to Accounts are
kept is 000 Xxxxxxx Xxxx, Xxxxx, Xxxxx 00000. Borrower shall not change
such office without Bank's written consent, which shall not be unreasonably
withheld, conditioned or delayed, and, prior to making such change,
Borrower agrees to execute any additional financing statements or other
documents or notices that Bank may require.
2.9 Subject to any limitations stated therein or in connection
therewith, (a) all balance sheets, earnings statements, and other financial
data which have been or may hereafter be furnished to Bank to induce it to
enter into this Agreement, or otherwise furnished in connection herewith, do
or shall fairly represent the financial condition and results of operations
of Borrower (or other entity, as applicable), as of the dates and for the
periods for which the same are furnished, in accordance with generally
accepted accounting principles consistently applied, (b) all balance sheets,
income statements and other financial data of the other Obligors which have
been or may hereafter be furnished to Bank do or shall fairly represent the
financial condition of such Obligors as of the date and for the period for
which the same are furnished, and (c) all other information, reports, and
other papers and data furnished to Bank shall be accurate, as of the
relevant date, and correct in all material respects and complete insofar
as completeness may be necessary to give Bank a true and accurate knowledge
of the subject matter.
2.10 There are no actions, suits, or proceedings pending or, to the
knowledge of the Borrower, threatened against the Obligors at law, or in
equity, or by or before any governmental department, commission, board,
bureau, agency, or instrumentality, or any arbitrator, that are not at
least eighty percent (80%) covered by insurance or which involve in the
aggregate as to any one Obligor more than Twenty Five Thousand Dollars
($25,000.00).
2.11 Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying "margin" stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System (12
C.F.R. Part 221), as amended from time to time ("Regulation U"). No funds
borrowed pursuant to this Agreement shall be used for the purpose, whether
immediate, incidental, or ultimate, of purchasing or carrying within the
meaning of Regulation U, any "margin stock" as defined therein, unless
exempt under Regulation U.
2.12 Each of the Obligors is solvent, having assets of a value that
exceeds the amount of its or his respective liabilities. Borrower
anticipates, and to Borrower's knowledge each other Obligor anticipates,
that it or he will be able to meet its or his debts as they mature.
Borrower has adequate capital to conduct the business in which it is
engaged. The acceptance by Borrower of advances hereunder shall be deemed
to be a representation and warranty to Bank that Borrower and Guarantor are
solvent at the time of such advance, and otherwise that the representations
and warranties of Borrower in this Agreement as amended from time to time
are true and correct as if made again on the date of such advance.
2.13 Neither this Agreement nor any document, certificate, or statement
furnished to Bank by or on behalf of Obligors pursuant to or in connection
with this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein and therein not misleading. There is no fact known to Borrower that
materially and adversely affects, or will materially and adversely affect,
the assets, business, operations, or condition of Obligors that has not been
specifically set forth in this Agreement or otherwise disclosed by Obligors
to Bank in writing.
2.14 Borrower will give Bank thirty (30) days prior written notice of
any change of any of Borrower's name and will execute and deliver to Bank
all financing statement amendments and other documents requested by Bank
prior to such name chance becoming effective.
SECTION 3. Bank's Agreement to Make Loan.
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3.1 Subject to the terms and conditions of this Agreement, and so long
as no Event of Default or event which with notice or the passage of time
would constitute an Event of Default, as defined below or under any other
document or instrument executed in connection herewith shall have occurred
or be continuing:
(a) Bank shall make the Term Loan to Borrower promptly following
the full execution of this Agreement.
(b) From the date hereof until October 31, 2006, or such future
date to which the expiration date of the Revolving Note may be extended
(the "Revolving Line Termination Date"), Bank agrees to extend to
Borrower an open-end credit line on the basis of the following advance
formula (the "Borrowing Base"):
(i) eighty percent (80%) of the value of Borrower's
Eligible Accounts; plus
(ii) fifty percent (50%) of Borrower's Eligible Inventory,
provided, however, that in no event shall the aggregate sum of all advances
made by Bank to Borrower under the Revolving Line exceed the Revolving Line
Limit as set forth in Subsection 3.1(b). Within such limits, Borrower may
borrow, repay, and reborrow under the Revolving Line from the date of this
Agreement until the Revolving Line Termination Date.
(c) The Revolving Line Limit shall be Two Million and No/100
Dollars ($2,000,000.00).
(d) Each such request by a Borrower for an advance under the
Revolving Lineshall be in an amount not less than $15,000 and shall
be received by a duly authorized representative of Bank not later than
12:00 p.m., Dallas, Texas time, on the date of the requested advance,
which shall be on a Business Day. Further, each such request for
advance shall specify: (i) the amount of the requested advance and
(ii) the proposed date of the advance (which shall be a Business Day).
On the date specified for each advance hereunder, subject to the terms
and conditions of this Agreement (including, without limitation, that
no Event of Default has occurred and is then existing and that no
representation or warranty set forth in this Agreement as amended from
time to time is then false or untrue), Bank shall make such advances
available to the requesting Borrower by depositing the same in
immediately available funds, in an account of Borrower maintained with
Bank, or by such other means as is acceptable to Bank and Borrower.
"Business Day" shall mean a day, other than Saturday or Sunday, when
Bank is open for conducting its normal business activities.
3.2 All borrowings under the Revolving Line shall be evidenced by the
Revolving Note and by entering such advances as debits to Borrower's Loan
Account. Bank also shall record in Borrower's Loan Account other charges,
expenses, and items properly chargeable to Borrower hereunder, all payments
made by Borrower on account of its indebtedness hereunder, and other
appropriate debits and credits. The debit balance of Borrower's Loan
Account shall reflect the amount of Borrower's indebtedness under the
Revolving Line from time to time hereunder. Notwithstanding the foregoing,
no failure by Bank to properly reflect any advance actually made or any such
charge. expense, or item actually incurred in Borrower's Loan Account shall
relieve Borrower from its true and correct obligations with respect thereto.
At least once each month, Bank shall render a statement of account for
Borrower's Loan Account. Each such statement shall be considered correct
and accepted by Borrower and conclusively binding upon Borrower except to
the extent that Bank receives a written notice of Borrower's exceptions
within thirty (30) days after such statement has been mailed by ordinary
mail to Borrower.
3.3 If at any time the outstanding balance of Borrower's Loan Account
exceeds the lesser of (i) its Borrowing Base or (ii) the Revolving Line
Limit, then Borrower shall remit to Bank, within five (5) days after Bank
makes demand therefor, immediately available funds sufficient to eliminate
such excess. If Borrower fails to remit to Bank good funds sufficient to
eliminate such excess within such time period, Bank may, without further
notice to or demand on Borrower, at Bank's option (in addition to and
without waiving any and all other rights and remedies of Bank) apply against
such excess (x) any collections on and Proceeds from Accounts forwarded to
Bank and/or in Bank's possession; (y) any other property of Borrower and the
Proceeds thereof now or hereafter held by Bank: (whether for safekeeping,
custody, pledge, transmission, collection or otherwise); and (z) Borrower's
deposit balances (general or special) and credits with Bank. Borrower shall
repay to Bank on the Revolving Line Termination Date the aggregate amount in
Borrower's Loan Account at the close of business on the Revolving Line
Termination Date.
3.4 In the event that the availability of advances under the Revolving
Note expires by the terms of this Agreement, or by the terms of any
agreement extending the expiration date of this Agreement, Bank may, in
its sole discretion, make requested advances; however, it is expressly
acknowledged and agreed that, in such event, Bank shall have the right,
in its sole discretion, to decline to make any requested advance and may
require payment in full of Borrower's Loan Account without prior notice to
Borrower and the making of any such advances shall not be construed as a
waiver of such right by Bank.
3.5 All funds borrowed under the Revolving Note shall be used for
working capital and general corporate purposes. All funds borrowed pursuant
to the Term Loan shall be used to refinance certain indebtedness of Borrower
to Inwood Bank and to reduce the present balance of principal and accrued
interest owing under the Revolving Note.
3.6 Borrower shall pay interest on the principal amount of the
Revolving Line and the Term Note from time to time at the per annum interest
rate set forth in the Revolving Note or the Term Note, as applicable, but in
no event shall the interest rate exceed the Maximum Rate. All payments of
principal and interest that are past due shall, at the option of Bank, bear
interest at a per annum interest rate equal to the Default Rate.
3.7 In consideration of Bank's commitment to make the Term Loan in
accordance with the terms of this Agreement and Bank's incurring certain
administrative expenses, Borrower agrees to and shall pay to Bank on the
date hereof in good and immediately available funds, a nonrefundable $1,500
commitment/administrative fee. Nothing in this Section shall be deemed to
extend the duration of the Loans beyond the times noted in Section 14
hereof.
SECTION 4. Inspection of Records: Further Assurance.
-----------------------------------------
4.1 Borrower shall, prior to the funding of the Term Loan or any
advance pursuant to the Revolving Line, and as requested by Bank thereafter,
but in no event more often than once every twelve (12) calendar months,
allow Bank, by or through any of its officers, agents, employees, attorneys,
or accountants (i) to examine, inspect, or make extracts from Borrower's
books and records; (ii) to analyze financial statements; and (iii) to
arrange for verification of Accounts and other Collateral under reasonable
procedures, directly with Account Debtors or by other methods (all the
foregoing collectively referred to as "Audits"). Audits by Bank may be at
any time during normal business hours after at least one Business Day after
Borrower's receipt of notice of such Audit. Borrower shall pay Bank
reasonable audit fees and expenses to compensate Bank for its costs
associated with Bank's audits, not to exceed $2,000.00.
4.2 Borrower shall do, make, execute and deliver all such additional
and further acts, things, deeds, assurances and instruments which Bank may
require more completely to vest in and assure to Bank its rights hereunder
or in any Collateral.
SECTION 5. Security Interest of Bank in Collateral.
----------------------------------------
5.1 Subject to the provisions of Section 5.5 below, as security for the
payment and performance of all Liabilities, Bank shall have and is hereby
granted a continuing lien on, a security interest in and a right of set-off
against the following Collateral:
(a) all Accounts of Borrower, whether now or hereafter existing,
created, arising or acquired;
(b) all Equipment of Borrower, whether now or hereafter existing,
created, arising or acquired;
(c) all Inventory of Borrower, whether now or hereafter existing,
created, arising or acquired;
(d) all General Intangibles of Borrower, whether now or hereafter
existing, created, arising, or acquired;
(e) all contract rights, chattel paper, documents, documents of
title, warehouse receipts, bills of lading, notes, and notes receivable
instruments of Borrower, whether now or hereafter existing, created,
arising, or acquired;
(f) all goods, instruments, notes, notes receivable, documents,
documents of title, warehouse receipts, bills of lading, certificates
of title, policies and certificates of insurance, securities, chattel
paper, deposits, cash and other property now or hereafter owned by
Borrower or in which it now or hereafter has an interest, which are now
or may hereafter be in the possession of or deposited with Bank, or
which are otherwise assigned to Bank, or as to which Bank may now or
hereafter control possession by documents of title or otherwise;
(g) all books and records now owned and hereafter acquired
relating to any other Collateral and all files, correspondence,
computer programs, tapes, disks and related data processing software
owned by Borrower or in which Borrower has an interest that contains
information concerning or relating to any of the other Collateral or
any item thereof; and
(h) all Proceeds and products of all of the foregoing, including,
without limitation, insurance proceeds.
No submission by Borrower to Bank of any schedule or other particular
identification of Collateral shall be necessary to vest in Bank a security
interest in each and every item of Collateral now existing or hereafter
acquired, but rather, such security interest shall vest in Bank immediately
upon the creation or acquisition of any item of Collateral, without the
necessity for any other or further action by Borrower or Bank.
5.2 To the extent applicable, the Texas Business and Commerce Code
governs the security interests provided for herein. In connection therewith
Borrower shall take such steps and execute and deliver such financing
statements and other papers as Bank may from time to time request.
5.3 If, by reason of location of Collateral or otherwise, the creation,
validity, or perfection of security interests provided for herein are
governed by the law of a jurisdiction other than Texas, Borrower shall take
such steps and execute and deliver such papers as Bank may from time to time
request to comply with the Uniform Commercial Code or any other applicable
law. Borrower hereby appoints and empowers Bank, or any employee of Bank
which Bank may designate for the purpose. as attorney-in-fact, to execute on
its behalf any financing statements which, in Bank's sole judgment, are
necessary to be filed in order to perfect or preserve the perfection of
Bank's security interests granted hereby.
5.4 As additional security for the payment and performance of the Term
Note, Guarantor shall guarantee the payment and performance of the Term Note
pursuant to the provisions of, and subject to the limitations set forth in,
the Guaranty executed by Guarantor contemporaneously with the execution
hereof.
5.5 Notwithstanding anything to the contrary contained in Section 5.1:
(a) the Collateral described in subsections (a), (c), (d), (e) and (f) of
Section 5.1, the items described in subsection (g) of Section 5.1 relating
thereto and the Proceeds thereof (collectively, the "Revolving Line
Collateral") shall secure only the indebtedness under the Revolving Line
and related documents and (b) the Collateral described in subsection (b) of
Section 5.1, the items described in subsection (g) of Section 5.1 relating
thereto and the Proceeds thereof (collectively, the "Term Note Collateral")
shall secure only the indebtedness under the Term Note and related
documents. Any and all enforcement rights of Bank under any of the Loan
Documents relating to the "Collateral" shall only refer to the enforcement
rights of Bank to the Revolving Line Collateral after an Event of Default
relating to the Revolving Line, or the enforcement rights of Bank to the
Term Note Collateral after an Event of Default relating to the Term Loan.
SECTION 6. Collection of Accounts.
-----------------------
6.1 (a) Upon the occurrence and during the continuance of any Event
of Default (a "Default Period"), Bank may require Borrower to establish a
Special Remittance Account at Bank and shall cause all of the Accounts
Receivable to be paid by the Account Debtors into such Special Remittance
Account. In the event any payments on the Accounts Receivable are made
to Borrower during a Default Period, Borrower shall notify Bank of such
collections as are received and shall hold the Proceeds received from such
collections in trust for Bank without commingling the same with other funds
of Borrower and shall turn the same over to Bank immediately upon receipt
in the identical form received. Proceeds so transmitted to Bank shall be
deposited into the Special Remittance Account.
(b) Bank may apply against the outstanding balance of Borrower's
Loan Accountor the outstanding balance of the Term Note from time to time
any collections on and Proceeds from Accounts Receivable forwarded to Bank
and/or in Bank's possession (including, without limitation, any such
collections and Proceeds in any lock-box, the Special Remittance Account
or any operating or other account maintained or to be maintained by or for
Borrower at Bank). Nothing herein shall be deemed to diminish or limit any
of Bank's rights or remedies under applicable law or Section 3.3, Section
10, Section 11, or any other Section of this Agreement or otherwise. If no
Event of Default has occurred or is continuing hereunder and if there is no
excess outstanding balance in Borrower's Loan Account required to be paid by
Borrower under Section 3.3 hereof, Bank may, at its option, deposit any or
all collections on and Proceeds from Accounts Receivable in Bank's
possession into Borrower's operating account maintained and to be maintained
at Bank. Bank shall not be required to credit Borrower's Loan Account with
the amount of any check or other instrument constituting provisional payment
until Bank has received final payment thereof at its office in cash or
solvent credits accepted by Bank.
(c) Borrower shall provide notice to all Account Debtors to remit
payments during any Default Period to the Special Remittance Account. Upon
the occurrence of an Event of Default, Borrower shall notify the Account
Debtors of the security interest of Bank in the Accounts and shall instruct
Account Debtors to remit payments directly to Bank, and Bank may itself so
notify Account Debtors.
6.2 Borrower agrees that no court action or other legal proceeding or
garnishment, attachment, repossession of property, or any other attempt to
repossess any merchandise covered by an Account shall be attempted by
Borrower except by or under the direction of competent legal counsel.
Borrower hereby agrees to indemnify and hold the Bank harmless for any
loss or liability of any kind or character which may be asserted against
Bank by virtue of any suit filed, process issued, or any repossession or
attempted repossession done or attempted by Borrower or by virtue of any
other endeavors which Borrower may make to collect any Accounts or repossess
any such merchandise.
SECTION 7. Affirmative Covenants.
----------------------
Until all indebtedness of Borrower to Bank has been paid and all
Liabilities have been satisfied, Borrower shall furnish or cause to be
furnished to Bank:
7.1 (a) As soon as available, and in any event within 30 days
following the end of each calendar quarter, internally prepared financial
statements for Borrower, signed by a duly authorized representative, and
showing the results of its operations during such calendar quarter, which
statements shall include, but shall not be limited to, an income statement
and a balance sheet, and such other statements as Bank may reasonably
request.
(b) As soon as available and in any event within 30 days from the
end of each calendar quarter, a Compliance Certificate in the form attached
to this Agreement as Exhibit "B" for the calendar quarter having then ended.
(c) As soon as available, and in any event within 30 days
following the end of each calendar month, an inventory report as of the last
day of the preceding month in form acceptable to Bank and reports (including
agings) in form acceptable to Bank of the accounts receivable and the
accounts payable of Borrower as of the last day of the immediately preceding
calendar month, showing the period of time which has elapsed with respect
to such accounts receivable and accounts payable since the invoice date with
respect thereto.
(d) Together with each request for an advance, or if not
previously furnished, within 30 days following the end of each calendar
month, a Borrowing Base Report in form approved by Bank, as of the last day
of the immediately preceding calendar month signed by an authorized officer
of Borrower.
(e) As soon as available, and in any event, within 90 days
following the end of each calendar year, a personal financial statement for
Guarantor, showing his financial condition at the close of such year, which
financial statement shall be signed by Guarantor, shall be complete and
correct in all material respects, and shall include, but shall not be
limited to, a balance sheet, a statement of contingent liabilities; and
such other statements as Bank may request.
(f) As soon as available, and in any event within 30 days after
the filing thereof, a copy of the federal income tax returns of all Obligors
and all requests for extensions to the filing thereof.
(g) As soon as available, and in any event within 120 days
following the end of Borrower's fiscal year, a financial statement for
Borrower, prepared by a firm of independent and certified public accountants
reasonably acceptable to Bank, showing the financial condition of Borrower
at the close of such fiscal year and the results of its operations during
such fiscal year, which financial statement shall be materially complete
and correct, prepared in accordance with generally accepted accounting
principles consistently applied, and shall include, but shall not be limited
to, an operating statement, income statement, balance sheet, reconciliation
of equity amounts, a source and application of funds report, and such other
matters as Bank may reasonably request.
(h) Such other documents, instruments, data, or information of
any type reasonably requested by Bank.
7.2 Borrower shall (a) have and maintain at all times general
liability insurance and workers' compensation insurance and, with respect
to Collateral and other substantial assets of Borrower, "all risk" property
insurance and insurance against other risks customarily insured against by
companies engaged in similar business to that of Borrower, in each case
containing such terms, in such form and amount, for such periods, and
written by such companies as may be satisfactory to Bank; (b) furnish
to Bank, upon request, certificates evidencing the foregoing insurance
coverage; and (c) cause Bank, to be named as (i) an additional insured
on all of Borrower's liability insurance policies, and (ii) loss payee as to
all property insurance pursuant to mortgagee or loss payable endorsements in
form acceptable to Bank. All insurance proceeds, payments and other amounts
paid to or received by Bank under or in connection with any and all such
policies may be retained by Bank in whole or part as additional Collateral
for the Liabilities and/or, at Bank's option, be applied in whole or part
to the payment of such of the Liabilities as shall then be due, and/or,
at Bank's option, be held (in the Special Remittance Account or another
special account in which neither Borrower nor any Guarantor shall have an
interest) for application to Liabilities not yet due and be applied to such
Liabilities as and when the same shall come due, in such order as Bank may
determine in its sole discretion. All insurance policies shall provide for
a minimum of ten (10) days' written cancellation notice to Bank and, at
Bank's request, all such policies shall be delivered to and held by Bank.
In the event of failure to provide and maintain insurance required by this
Agreement, Bank may, at its option, provide such insurance and charge
the costs and expenses incurred to Borrower. Bank is hereby made
attorney-in-fact for Borrower to (i) obtain, adjust and settle, in its
sole discretion, such insurance, and (ii) endorse any drafts or checks
issued in correction with such insurance.
7.3 Borrower shall maintain with Bank its primary operating and
depository accounts ("Depository Accounts"), and Bank, at Bank's option,
may make all advances hereunder into Borrower's Depository Accounts, and
Borrower expressly agrees that Bank may, following an Event of Default
or an event which following notice or the passing of a cure period would
constitute an Event of Default, debit against any such Depository Accounts
any and all sums, amounts, charges. and payments due under or in
connection with the Loans and/or the Notes.
7.4 Borrower does and shall at all times comply with all present
and future laws, ordinances, rules, and regulations (of any governmental
authority or entity) applicable to, governing or affecting Borrower,
its operations, its property, the Collateral, or any part of any of the
foregoing, and shall immediately notify Bank of any and all alleged or
asserted violations of any such law, ordinance, or regulation.
7.5 Obligors shall at the time of their first knowledge or notice
immediately notify Bank in writing of (i) the occurrence of any event or the
existence of any event, circumstance, or condition which constitutes or upon
notice or lapse of time would constitute an Event of Default under the terms
of this Agreement and (ii) any other information that may adversely affect
in any material manner the assets of Obligors including, but not limited to,
the filing of any lawsuit against or involving Obligors.
7.6 BORROWER SHALL INDEMNIFY AND HOLD BANK AND ALL OFFICERS.
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, ATTORNEYS-IN FACT, AND AFFILIATES
OF BANK (EACH SUCH PERSON AN "INDEMNITEE ") HARMLESS FROM ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS. JUDGMENTS,
SUITS, COSTS, EXPENSES, AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER,
INCLUDING, WITHOUT LIMITATION. REASONABLE ATORNEYS' FEES AND DISBURSEMENTS,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN ANY
WAY CONNECTED WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF
THIS AGREEMENT OR ANY OTHER SECURITY DOCUMENT, (ii) THE PERFORMANCE BY
THE PARTIES TO THE SECURITY DOCUMENTS OF THEIR RESPECTIVE OBLIGATIONS
THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
OR (iii) THE ENFORCEMENT OF THIS AGREEMENT OR THE OTHER SECURITY DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, ANY MATTER ARISING BY REASON OF ANY DEFENSE,
SET-OFF, COUNTERCLAIM, RECOUPMENT, OR REDUCTION OF LIABILITY WHATSOEVER OF
THE OBLIGOR UNDER ANY CONTRACT, AGREEMENT, INTEREST, OR OBLIGATION WHICH
GIVES RISE TO ANY ACCOUNT CONSTITUTING PART OF THE COLLATERAL, AS THE
RESULT OF A BREACH BY BORROWER OF ANY OBLIGATION THEREUNDER OR OF ANY OTHER
AGREEMENT, INDEBTEDNESS, OR LIABILITY AT ANY TIME OWING TO OR IN FAVOR
OF ANY SUCH OBLIGOR FROM BORROWER, SUCH OBLIGATIONS OF BORROWER BEING
ENFORCEABLE AGAINST AND ONLY AGAINST BORROWER AND NOT AGAINST BANK (ALL
THE FOREGOING IN THIS SECTION, COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"),
INCLUDING, WITHOUT LIMITATION, INDEMNIFIED LIABILITIES ARISING FROM THE
NEGLIGENCE OF ANY INDEMNITEE; PROVIDED THAT BORROWER SHALL NOT HAVE
OBLIGATION UNDER THIS SUBSECTION TO ANY INDEMNITEE WITH RESPECT TO
INDEMNIFIED LIABILITIES THAT HAVE RESULTED FROM THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR FROM THE BREACH BY SUCH
INDEMNITEE OF ITS OBLIGATIONS UNDER ANY SECURITY DOCUMENT. THE
OBLIGATIONS OF BORROWER UNDER THIS SUBSECTION SHALL SURVIVE THE
SATISFACTION OF ALL LIABILITIES, THE TERMINATION OF THIS AGREEMENT,
AND THE NON-ASSUMPTION OF THIS AGREEMENT IN A CASE COMMENCED UNDER TITLE
11 OF THE UNITED STATES CODE OR OTHER SIMILAR LAW OF THE UNITED STATES,
THE STATE OF TEXAS, OR ANY OTHER JURISDICTION AND BE BINDING UPON BORROWER
AND ANY TRUSTEE, RECEIVER, OR LIQUIDATOR OF BORROWER APPOINTED IN ANY SUCH
CASE.
Nothing in this Section shall be deemed to extend the duration of the
Loans beyond the times noted in Section 14 hereof.
SECTION 8. Negative Covenants.
-------------------
8.1 Borrower shall not change (or permit to be changed) its principal
office or move any of the Collateral, except in the ordinary course of
business, without (i) at least thirty (30) days prior written notice to
Bank, and (ii) prior to making any such change, executing and delivering
to Bank any additional financing statements or other documents that Bank
may request.
8.2 Borrower shall not sell, transfer, lease, otherwise dispose of, or
suffer to exist, or permit to be sold, transferred, leased, or to exist, any
Lien (except as otherwise expressly provided herein) with respect to any of
the Accounts, Inventory, Equipment and the other Collateral or any interest
therein (or any of the Proceeds thereof, whether money, checks, money
orders, drafts, notes, instruments, documents, chattel paper, Accounts,
returns, or repossessions) or of any other property of Borrower, except for
(i) the sale of Inventory in the ordinary course of business; (ii) Liens for
taxes, assessments or governmental charges not yet payable; (iii) Liens of
landlords and vendors arising in the ordinary course of business for sums
not yet due; and (iv) Liens granted to Bank herein.
8.3 Borrower shall not materially change accounting practices, methods,
or standards or the reporting format for any information furnished Bank
under the terms and provisions of this Agreement which accounting practices
shall conform with generally accepted accounting principles, consistently
applied, throughout the term of this Agreement.
8.4 Borrower shall not incur, create, issue, assume, guarantee, endorse
or permit to exist any indebtedness for borrowed money (collectively,
"Indebtedness") except:
(a) Indebtedness of Borrower to Bank provided for in this
Agreement;
(b) any Subordinated Debt to which Bank consents in writing (the
Bank's consent is hereby given for the Subordinate Indebtedness, as
defined in the Subordination Agreement executed between the parties
of even date herewith);
(c) accrued expenses and trade payables incurred in the ordinary
course of business; and
(d) capital leases and operating leases, including, without
limitation, equipment leases, provided that the covenants contained
in Section 8.8, 8.9, 8.10 and 8.11 have not, or shall not after the
execution and performance of any of the foregoing leases, be violated.
8.5 Borrower shall not declare, make or pay any dividends, bonuses,
or other distributions to any Affiliate, partner or shareholder upon its
outstanding shares, if an Event of Default or an event, which following
notice or the passage of a cure period, would constitute an Event of Default
has occurred, or if the declaration, making or payment of dividends, bonuses
or other distribution would cause an Event of Default or an event, which
following notice or the passage of time, would constitute an Event of
Default to occur. "Affiliate" shall mean any person or entity controlling,
controlled by or under common control with, Borrower.
8.6 Borrower shall not purchase or acquire, directly or indirectly,
any shares of stock, evidences of indebtedness, or other securities of any
person, corporation, or other entity, except in settlement of customers'
Accounts, without the prior written consent of Bank.
8.7 Borrower shall not (i) liquidate, or discontinue or materially
reduce its normal operations with intention to liquidate, or (ii) merge
or consolidate with or into any corporation, partnership, or other entity
without prior written consent of Bank, (iii) sell, lease, transfer, or
otherwise dispose of all or any substantial part of its assets, or (iv)
acquire any corporation, partnership, or other entity (or any interest
therein), whether by stock or asset purchase or acquisition or otherwise
without prior written consent of Bank. Borrower shall not cause, allow, or
suffer to occur a change in the nature of Borrower or in the ownership, or
senior management of Borrower. Borrower shall not change its name or
identity without notifying Bank of such change in writing at least thirty
(30) days prior to the effective date of such change and Borrower shall
take all steps necessary prior to any such change to maintain at all times
the validity, perfection, and priority of all Liens contemplated by and
created in this Agreement and in the other Security Documents.
8.8 Borrower shall not make any payment upon any outstanding
Subordinated Debt, except that Borrower may make payments of accrued
interest on the Subordinated Debt so long as no Event of Default has
occurred and is continuing.
8.9 Borrower shall not cause, allow, or suffer to occur its Working
Capital to be less than $1,500,000.00 at any time.
8.10 Borrower shall not cause, allow, or suffer to occur its Debt to
EBITDA Ratio calculated as of the end of each quarter, based on Borrower's
total Debt and EBITDA for such calendar quarter and the three preceding
calendar quarters, to be more than 3.25 to 1.0.
8.11 Borrower shall not cause, allow, or suffer to occur its Fixed
Charge Coverage Ratio calculated as of the end of each quarter with respect
to the prior twelve months to be less than 1.25 to 1.0.
In computing Borrower's EBITDA for purposes of Sections 8.10 and 8.11,
Bank shall give consideration to any reasonable request made by Borrower for
the exclusion of non-recurring expenses incurred by Borrower.
Nothing in this Section shall be deemed to extend the duration of the
Loans beyond the times noted in Section 14 hereof.
SECTION 9. Events of Default: Acceleration.
--------------------------------
After the expiration of thirty (30) days following the receipt of
notice by both Borrower and Guarantor, if such event is not cured by such
time, then any or all of the liabilities of Borrower to Bank, including,
without limitation, the Notes and the Liabilities, shall all be, at the
option of Bank and notwithstanding any time or credit allowed by any
instrument evidencing a Liability, immediately due and payable without
further notice or demand, and the obligation of Bank to make advances
hereunder shall immediately cease and terminate upon the occurrence of
any of the following, which shall be considered Events of Default:
(a) default in the payment or performance, when due or payable,
of any Liability of Borrower (including, without limitation, the
Revolving Note or the Term Note), or of any other Liability or
obligation of any Obligor to Bank;
(b) failure by any Obligor to perform any act or obligation
imposed hereby, or in any other agreement to which Bank and any Obligor
are parties;
(c) unless contested as provided herein, failure of Borrower to
pay when due any taxes, including without limitation federal income and
FICA taxes and state and local sales and property taxes, each with the
appropriate taxing authorities and as required by law;
(d) if any warranty or representation contained herein shall
prove false or misleading or if Borrower or any other Obligor makes any
other misrepresentation to Bank for the purpose of obtaining credit or
any extension of credit;
(e) failure of Borrower or any other Obligor, after request by
Bank, to furnish financial information or to permit the inspection of
the books or records or Collateral of Borrower or such Obligor, and
such failure continues for fifteen (15) days following the giving of
written notice thereof by Bank to Borrower or such Obligor, as
applicable;
(f) issuance of an attachment against any property of Borrower;
(g) calling of a meeting of creditors, appointment of a committee
of creditors or liquidation agents, or offering of a composition or
extension to creditors by, for or of Borrower or of any other Obligor;
(h) bankruptcy or Insolvency of Borrower or of any other Obligor;
(i) any material change in the control, nature, or executive
management of Borrower or its business withoutthe prior written consent
of Bank;
(j) Borrower's failure to maintain any insurance required
hereunder or pay any premium on (i) any insurance policy assigned to
Bank, or (ii) any insurance covering any Collateral;
(k) if a judgment against any of the Obligors remains unpaid,
unstayed, or undismissed for a period of more than thirty (30) days,
unless such judgment becomes final or otherwise enforceable prior
thereto;
(l) violation of any affirmative or negative covenant recited in
Section 7 or Section 8 hereof or violation and such violation or
failure continues fifteen (15) days following the giving of notice by
Bank to Borrower;
(m) if Borrower discontinues doing business without the prior
written consent of Bank; or
(n) if any event occurs that, under any agreement to which
any of the Obligors is a party, grants the option to the holder of
indebtedness of such Obligor to accelerate such indebtedness.
SECTION 10. Power to Sell or Collect Collateral: Remedies Cumulative.
---------------------------------------------------------
10.1 Subject to the provisions of Section 5.5 of this Agreement, upon
the occurrence of any one or more of the above Events of Default and at any
time thereafter, Bank shall have, in addition to all other rights and
remedies, the remedies of a secured party under the Texas Business and
Commerce Code (regardless of whether the Uniform Commercial Code has been
enacted in the jurisdiction where rights or remedies are asserted),
including, without limitation, the right to take possession of the
Collateral, and for that purpose Bank may, so far as Borrower can give
authority therefor, enter upon any premises on which the Collateral may be
situated and remove the same therefrom or take possession of same and store
same on such premises pending disposition under the terms of this Agreement
or applicable law. Bank may require Borrower to assemble the Collateral and
make it available to Bank at a place designated by Bank which is reasonably
convenient to both parties. Unless the Collateral is perishable or
threatens to decline speedily in value or is to a type customarily sold
on a recognized market, Bank shall give to Borrower at least ten (10) days'
written notice of the time and place of any public sale of Collateral or of
the time after which any private sale or any other intended disposition is
to be made, which time period shall be deemed for all purposes to be
commercially reasonable. Bank may, at any time in its discretion, transfer
any securities or other property constituting Collateral into its own name
or that of its nominee, and receive the income thereon and hold the same as
security for the Liabilities or apply it on principal or interest due on
Liabilities. Insofar as Collateral shall consist of Accounts, insurance
policies, instruments, chattel paper, choses in action, or the like, Bank
may demand, collect, receipt for, settle, compromise, adjust, xxx for,
release, extend the time of payment, make allowances and adjustments,
foreclose, or realize upon Collateral as Bank may determine, whether or not
Liabilities or Collateral are then due, and for the purpose of realizing
Bank's rights therein, Bank may receive, open, and dispose of mail addressed
to Borrower and endorse notes, checks, drafts, money orders, documents of
title, or other evidences of payment, shipment, or storage or any form of
Collateral on behalf of and in the name of Borrower.
10.2 No right, power, or remedy conferred in this Agreement, the
Revolving Note, the Term Note, or any other agreement executed in connection
herewith or any other document or agreement to which any Obligor and Bank
are parties, or now or hereafter existing at law or in equity by statute or
otherwise, shall be exclusive, and each such right, power, or remedy, shall,
to the full extent permitted by law, be cumulative and in addition to every
other such right, power, or remedy.
10.3 The sale by Bank of less than the whole of the Collateral shall
not exhaust the rights of Bank hereunder, and Bank is specifically empowered
to make successive sales hereunder until the whole of the Collateral shall
be sold. If the proceeds of any sale of less than the whole of the
Collateral shall be less than the aggregate of the Liabilities, this
Agreement and the security interests created hereby shall remain in full
force and effect as to the unsold portion of the Collateral just as though
no sale had been made, provided, however, that Borrower shall never have any
right to require sale of less than the whole of the Collateral but Bank
shall have the right, at its sole election, to sell less than the whole
of the Collateral.
10.4 Bank may resort to any security given by this Agreement or to any
other security now existing or hereafter given to secure the payment of
Borrower's Liabilities, in whole or in part, and in such portions and in
such order as may seem best to Bank in its sole discretion, and any such
action shall not in any way be considered as a waiver of any of the rights,
benefits, or security interests evidenced by this Agreement.
10.5 Bank may, at all times, subject to the terms of the Loan Documents
(including without limitation, the Guaranty) proceed directly against any
Obligors to enforce payment of Borrower's Liabilities and shall not be
required first to enforce its rights in the Collateral or any other security
granted to it. Bank shall not be required to take any action of any kind to
preserve, collect, or protect Borrower's rights in the Collateral or any
other security granted to it.
SECTION 11. Deposits.
---------
Bank, any participant, and any other holder of all or any part of the
Liabilities are hereby
given a continuing lien as additional security for
all Liabilities hereunder upon any and all moneys.
Securities, and other property
of Borrower, and the Proceeds thereof,
now, or hereafter held or
received by or in transit to Bank, such
participant, or such holder from or for Borrower, whether for
safekeeping, custody, pledge, transmission, collection,
or otherwise, and also upon any and all
deposit balances (general or special) and
credits of Borrower with, and any and all claims of
Borrower against Bank, such participant, or such holder
at any time existing, and upon an event of
default hereunder, Bank, such participant,
or such holder may apply or set off the same against the
Liabilities and indebtedness hereby secured,
without notice and without liability. Borrower agrees
that any other person or entity purchasing a participation
from Bank may exercise all its rights of
payment (including the right of set-off) with
respect to such participation as fully as if such person
or entity was the direct creditor of Borrower
in the amount of such participation.
SECTION 12. Waivers.
--------
Except as otherwise provided in the Loan Documents, Borrower and each
Obligor, Guarantor, accommodation party, surety, endorser, or other person
or entity liable for the payment or collection of the Liabilities expressly
waive demand, presentment for payment, notice of protest, notice of intent
to accelerate, notice of acceleration, notice of acceptance of this
Agreement, and notice of loans made, credit extended, Collateral received
or delivered, or other action taken in reliance hereon and all other demands
and notices of any description. With respect both to the Liabilities and
Collateral, Obligors consent to any extension or postponement of the time
of paymentor any other indulgence, to any substitution, exchange, or release
of any or all of the Collateral, to the addition or release of any party or
person primarily or secondarily liable, to the acceptance of partial
payments thereon and the settlement, compromise, or adjustment of any
thereof, all in such manner and at such time or times as Bank may deem
advisable. Bank shall have no duty as to the collection or protection of any
or all of the Collateral or any income thereon, nor as to the preservation
of any rights pertaining thereto beyond the safe custody of Collateral
without resorting or regard to other collateral or sources of reimbursement
for the Liabilities. Bank shall not be deemed to have waived any of its
rights upon or under any of the Liabilities or Collateral unless such waiver
be in writing and signed by Bank. No course of dealing and no delay or
omission on the part of Bank in exercising any right shall operate as a
waiver of such right or any other right. A waiver on any one occasion shall
not be construed as a bar to or waiver of any right on any further occasion.
All rights and remedies of Bank with respect to Liabilities or Collateral,
whether evidenced hereby or by any other instrument or paper, shall be
cumulative and may be exercised singly or concurrently.
SECTION 13. Expenses: Proceeds of Collateral.
---------------------------------
Borrower shall pay all expenses, including, without limitation,
reasonable legal expenses, incurred by Bank from time to time in connection
with the preparation, administration, amendment, or modification of this
Agreement, the Revolving Note, the Term Note, and other documents executed
in connection with the creation of the Loans, all costs and expenses
associated with the perfection and creation of the security interests
granted pursuant hereto, or associate with any waiver or consent sought
or granted hereunder. Borrower has been advised and acknowledges that Bank
may, if it elects to do so, impose fees in connection with any renewal or
extension of the Liabilities, any modification of this Agreement, the
Revolving Note, the Term Note or the other Security Documents, or any
waiver or consent requested by Borrower or any other Obligor. Borrower
shall pay to Bank on demand any and all expenses and costs of collection,
including, without limitation, reasonable counsel fees, incurred or paid
by Bank in protecting or enforcing, its rights upon or with respect to
any of the Liabilities or the Collateral. After deducting all of said
expenses, the residue of any proceeds of collection or sale of Liabilities
or Collateral shall be applied to the payment of principal or interest on
Liabilities in such order or preference as Bank may determine, proper
allowance for interest on Liabilities not then due being made, and any
excess shall be returned to Borrower, and Borrower shall remain liable
for any deficiency.
SECTION 14. Duration: Extension.
--------------------
The Revolving Line shall terminate on the Revolving Line Termination
Date; however, the parties recognize that they may wish to extend the
expiration date by mutual agreement. The termination or expiration of the
Revolving Line shall in no way affect any transactions entered into or
rights created or obligations incurred prior to such termination or
expiration; rather, such rights and obligations shall be fully operative
until the same are fully disposed of, concluded, and/or liquidated. Without
limiting the generality of the foregoing, such termination or expiration
shall not release nor diminish any of the Obligors' obligations and
agreements hereunder until payment in full of all of the Liabilities under
this Agreement and all other sums and amounts payable under or pursuant to
this Agreement. This Agreement shall be a continuing agreement in every
respect. No modification or amendment of this Agreement or extension of the
Revolving Line Termination Date shall be effective unless placed in writing
and duly executed by Bank and Borrower.
SECTION 15. General.
--------
15.1 Any demand upon or notice to a party shall be effective upon
delivery if such notice is given personally, or upon dispatch if deposited
in the mails or overnight delivery service addressed to the other party at
the mailing address shown below or, if a party has notified the other party
in writing of a change of address, to the party's last address so notified.
Demands or notices addressed to Borrower's address at which Bank customarily
communicates with Borrower also shall be effective.
If to Bank:
-----------
Compass Bank
0000 Xxxxxxx Xxxx
Xxxxxx, Xxxxx 00000-0000
Attention: Xxxxx Xxxxxxxx
Vice President
except that all notices sent to Bank pursuant to Sections 9-208 through
9-210, 9-213 and 9-216 of the Texas Uniform Commercial Code shall be
sent to:
Compass Bank
P. O. Box 11830
Xxxxxxxxxx, Xxxxxxx 00000
If to Borrower:
---------------
Best Circuit Boards, Inc.
000 Xxxxxxx Xxxx
Xxxxx, Xxxxx 00000
If to Guarantor:
----------------
Xxxx Xxxxxx
000 Xxxxxxx Xxxx
Xxxxx, Xxxxx 00000
15.2 If at any time or times by assignment or otherwise Bank transfers
any of the Liabilities (either separately or together with the Collateral
therefor), such transfer shall carry with it Bank's powers and rights under
this Agreement with respect to the Liabilities and Collateral transferred,
and the transferee shall become vested with said powers and rights whether or
not they are specifically referred to in the transfer. If and to the extent
Bank retains any other of the Liabilities or Collateral, Bank will continue
to have the rights and powers herein set forth with respect thereto.
15.3 This Agreement and all rights and obligations hereunder, including
matters of construction, validity, and performance, shall be governed by the
laws of the State of Texas, except that the Texas Finance Code, Section 346,
of Vernon's Texas Codes Annotated, which regulates certain revolving credit
loan accounts and revolving tri-party accounts, shall not apply to this
Agreement, the Revolving Note, the Revolving Line, the Term Note, or any
transaction contemplated hereby. Unless changed in accordance with law, the
applicable rate under Texas law shall be the indicated rate ceiling from
time to time in effect as provided in Tex. Rev. Civ. Stat. Xxx. art. 5069-
1D.001.
15.4 This Agreement is performable in Collin County, Texas, and any
action brought for the enforcement or construction of any term of this
Agreement, the Revolving Note, the Term Note or other instruments executed
in connection herewith shall be brought in a court of appropriate
jurisdiction in Collin County, Texas.
15.5 It is the intention of Bank and the Obligors to conform strictly
to any applicable usury laws. Accordingly, if the transactions contemplated
hereby would be usurious under any applicable law, then, in that event,
notwithstanding anything to the contrary in this Agreement, the Revolving
Note, the Term Note or any other agreement or instrument entered into in
connection with or as security for or guaranteeing this Agreement, the
Revolving Note or the Term Note, it is agreed as follows: (i) the aggregate
of all consideration that constitutes interest under applicable law-that is
contracted for, taken, reserved, charged, or received by Bank under this
Agreement, the Revolving Note, the Term Note or under any other agreement
entered into in connection with or as security for or guaranteeing this
Agreement, the Revolving Note or the Term Note shall under no circumstances
exceed the Highest Lawful Rate, and any excess shall be canceled
automatically and, if theretofore paid, shall, at the option of Bank, be
credited by Bank on the principal amount of any indebtedness owed to Bank
by Borrower or refunded by Bank to Borrower, and (ii) in the event that
the maturity of the Revolving Note, the Term Note or any other of the
Liabilities are accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to Bank may never include more than the Highest Lawful Rate and
excess interest, if any, provided for in this Agreement, the Revolving Note
or the Term Note or otherwise shall be canceled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of Bank, be credited by Bank on the principal amount of any
indebtedness owed to Bank by Borrower or refunded by Bank to Borrower.
15.6 Notwithstanding anything herein to the contrary, in no event will
interest payable to Bank exceed the maximum amount permitted by the law
applicable to Bank (after taking into account all charges payable to Bank
that constitute interest under such applicable law), but if any amount
referred to in any of this Agreement, the Revolving Note, the Term Note, or
any other agreement or instrument to which Bank and Borrower are parties
that would be payable to Bank but for the applicability of usury or other
laws limiting the consideration payable to Bank is not paid to Bank as a
result of the applicability of such laws, then interest on the outstanding
principal balance of the Liabilities payable to Bank shall, to the extent
permitted by law, accrue at the Highest Lawful Rate (after taking into
account all charges payable to Bank that constitute interest under
applicable law) until the total amount received by Bank equals the amount it
would have received had no such laws been applicable.
15.7 This Agreement and the documents delivered hereunder or in
connection herewith contain the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements relating to the subject matter hereof and thereof. In the event
of actual conflict in the terms and provisions of this Agreement and any of
such documents or any other instrument or agreement executed in connection
with this Agreement or described or referred to in this Agreement, the terms
and provisions of this Agreement shall control. No modification, consent,
amendment or waiver or any provision of this Agreement, nor consent to any
departure by Obligors therefrom, shall be effective unless the same shall be
in writing and signed by Bank, and then shall be effectively only in the
specific instance and for the purpose for which given. This Agreement is
binding upon Obligors, their heirs, successors and assigns, and inures to
the benefit of Bank, its successors and assigns. All representations and
warranties of Obligors herein, and all covenants and agreements herein or
in any document delivered hereunder or in connection herewith that are not
fully performed before the effective date of this Agreement, shall survive
such date until such date as the Loans have been paid in full.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BORROWER:
BEST CIRCUIT BOARDS, INC.,
a Texas corporation
By:___________________________________________
Xxxx Xxxxxx, President
GUARANTOR:
______________________________________________
Xxxx Xxxxxx
BANK:
COMPASS BANK,
a bank organized under the laws of the State
of Alabama
By:___________________________________________
Xxxxx Xxxxxxxx, Vice President
