1
EXHIBIT 10.72
LOAN AGREEMENT
among
B&B ELECTROMATIC, INC
and
XXXXXXX COMPANY, INC.
each as a Borrower,
INTEGRATED SECURITY SYSTEMS, INC.
INTELLI-SITE, INC.
TRI-COASTAL SYSTEMS, INC.
each as a Guarantor,
and
THE FROST NATIONAL BANK
Dated effective as of January 22, 1999
2
TABLE OF CONTENTS
ARTICLE I -- GENERAL TERMS 1
Section 1.01 Terms Defined Above.............................................................1
Section 1.02 Certain Definitions.............................................................1
Section 1.03 Accounting Principles..........................................................11
ARTICLE II -- AMOUNT AND TERMS OF LOANS.......................................................................11
Section 2.01 The Loans and Commitment. .....................................................11
Section 2.02 Interest Rate..................................................................14
Section 2.03 Notice and Manner of Borrowing.................................................14
Section 2.04 Application of Cash Sums.......................................................15
Section 2.05 Computation....................................................................15
Section 2.06 Voluntary Prepayments and Reborrowings.........................................15
Section 2.07 Mandatory Prepayments..........................................................16
Section 2.08 Cross-collateralization and Default............................................16
Section 2.09 Termination of Commitment......................................................16
Section 2.10 Prepayment in Full.............................................................16
Section 2.11 [Reserved].....................................................................17
Section 2.12 Closing Fee....................................................................17
Section 2.13 Quarterly Facility Fee.........................................................17
Section 2.14 Accounts Purchase Agreement....................................................17
ARTICLE III -- REPRESENTATIONS AND WARRANTIES.................................................................17
Section 3.01 Corporate Existence............................................................17
Section 3.02 Corporate Power and Authorization..............................................17
Section 3.03 Binding Obligations............................................................18
Section 3.04 No Legal Bar or Resultant Lien.................................................18
Section 3.05 No Consent.....................................................................18
Section 3.06 Financial Condition............................................................18
Section 3.07 Investments and Guaranties.....................................................18
Section 3.08 Issuance of Stock..............................................................19
Section 3.09 Liabilities....................................................................19
Section 3.10 Taxes; Governmental Charges....................................................19
Section 3.11 Titles, etc....................................................................19
Section 3.12 Defaults.......................................................................19
Section 3.13 Use of Proceeds; Margin Stock..................................................19
Section 3.14 Compliance with the Law........................................................20
Section 3.15 ERISA..........................................................................20
Section 3.16 Related Parties................................................................20
Section 3.17 Direct Benefit From Loans......................................................20
Section 3.18 RICO...........................................................................20
ARTICLE IV -- AFFIRMATIVE COVENANTS...........................................................................21
Section 4.01 Financial Statements and Reports...............................................22
Section 4.02 Compliance with Laws; Payment of Taxes and Other Claims........................22
Section 4.03 Maintenance....................................................................23
Section 4.04 Further Assurances.............................................................23
i
3
Section 4.05 Performance of Obligations.....................................................23
Section 4.06 Reimbursement of Expenses......................................................24
Section 4.07 Insurance......................................................................24
Section 4.08 Right of Inspection............................................................24
Section 4.09 Notice of Certain Events.......................................................25
Section 4.10 ERISA Information and Compliance...............................................26
Section 4.11 Lockbox and Blocked Accounts...................................................26
Section 4.12 Environmental Requirements.....................................................26
Section 4.13 Securities Filings.............................................................26
Section 4.14 Compliance Certificate.........................................................26
Section 4.15 Capital Retention..............................................................27
Section 4.16 Aggregate Funding..............................................................27
ARTICLE V -- NEGATIVE COVENANTS...............................................................................27
Section 5.01 Debts, Guaranties and Other Obligations........................................27
Section 5.02 Liens..........................................................................28
Section 5.03 Investments, Loans and Advances................................................29
Section 5.04 Dividends, Distributions, Redemptions, Restricted Payments.....................29
Section 5.05 Sale of Properties.............................................................30
Section 5.06 Nature of Business.............................................................30
Section 5.07 Limitation on Leases...........................................................30
Section 5.08 Mergers, Consolidations, etc...................................................30
Section 5.09 ERISA Compliance...............................................................31
Section 5.10 Issuance of Stock..............................................................31
Section 5.11 Tangible Net Worth.............................................................31
Section 5.12 Fixed Charge Coverage Ratio....................................................31
Section 5.13 [Reserved].....................................................................32
Section 5.14 Changes in Accounting Methods..................................................32
Section 5.15 Transactions With Affiliates...................................................32
Section 5.16 Payments to IST Partners, Ltd..................................................32
Section 5.17 Use of Proceeds................................................................32
Section 5.18 RICO...........................................................................32
Section 5.19 Capital Expenditures...........................................................32
ARTICLE VI -- EVENTS OF DEFAULT...............................................................................33
Section 6.01 Events.........................................................................33
Section 6.02 Remedies.......................................................................35
Section 6.03 Prohibition of Transfer, Assignment and Assumption.............................36
Section 6.04 Right of Set-off...............................................................36
ARTICLE VII -- CONDITIONS.....................................................................................36
Section 7.01 Closing........................................................................36
Section 7.02 Notes..........................................................................36
Section 7.03 Charter; By-laws...............................................................37
Section 7.04 Secretary's Certificates.......................................................37
Section 7.05 Opinion of Borrowers' Counsel..................................................37
Section 7.06 Counsel of Lender..............................................................37
Section 7.07 No Default.....................................................................37
ii
4
Section 7.08 No Material Adverse Changes....................................................37
Section 7.09 Other Security Instruments and Information.....................................37
Section 7.10 Guaranties.....................................................................38
Section 7.11 Recordings.....................................................................38
Section 7.12 Landlord's Waivers; Mortgagee's Waivers........................................39
Section 7.13 Closing Fee....................................................................39
Section 7.14 [Reserved].....................................................................39
Section 7.15 Validity Guaranties............................................................39
Section 7.16 Subordination Agreement........................................................39
Section 7.17 Releases.......................................................................39
Section 7.18 Additional Matters.............................................................39
Section 7.19 Initial Inventory Loans and Term Loan A Advances...............................39
Section 7.20 Term Loan B Advances and Inventory Loan Reloads................................40
Section 7.21 Term Loan C Advances...........................................................40
ARTICLE VIII -- MISCELLANEOUS.................................................................................42
Section 8.01 Notices........................................................................42
Section 8.02 Deviation from Covenants.......................................................42
Section 8.03 Invalidity.....................................................................42
Section 8.04 Survival of Agreements.........................................................42
Section 8.05 Successors and Assigns.........................................................43
Section 8.06 Renewal, Extension or Rearrangement............................................43
Section 8.07 Waivers........................................................................43
Section 8.08 Cumulative Rights..............................................................43
Section 8.09 Construction...................................................................43
Section 8.10 Interest.......................................................................43
Section 8.11 Multiple Originals.............................................................44
Section 8.12 Exhibits.......................................................................44
Section 8.13 No Triparty Loan...............................................................44
Section 8.14 Applicable Rate Ceiling........................................................44
Section 8.15 Performance and Venue..........................................................44
Section 8.16 Negotiation of Documents.......................................................44
Section 8.17 Joint and Several Liability....................................................44
Section 8.18 Notices Received by Lender.....................................................44
Section 8.19 Debtor-Creditor Relationship...................................................45
Section 8.20 No Third-Party Beneficiaries...................................................45
Section 8.21 Release of Liability...........................................................45
Section 8.22 DTPA Waiver....................................................................45
Section 8.23 Waiver of Trial by Jury........................................................46
Section 8.24 Reversal of Payments...........................................................46
Section 8.25 Injunctive Relief..............................................................47
Section 8.26 Indemnification................................................................47
Section 8.27 Governing Law..................................................................48
Section 8.28 Counterparts...................................................................48
Section 8.29 Final Expression...............................................................48
iii
5
LOAN AGREEMENT
THIS AGREEMENT is made and entered into as of the 22nd day of January, 1999, by
and between B&B ELECTROMATIC, INC., a Delaware corporation, and XXXXXXX COMPANY,
INC., a Texas corporation, each with principal offices and mailing addresses at
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000 (hereinafter each called a
"Borrower" and collectively called the "Borrowers"), joined by each of the
Guarantors defined below, and THE FROST NATIONAL BANK, a national banking
association doing business as FROST CAPITAL GROUP, a Texas corporation, with
offices at 0000 Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000
(hereinafter called "Lender").
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 Borrowers
and Lender agree as follows:
ARTICLE I
GENERAL TERMS
Section 1.01 Terms Defined Above. As used in this Agreement, the terms
"Borrower," "Borrowers", and "Lender" shall have the meanings indicated above.
Section 1.02 Certain Definitions. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"AAC" means Automatic Access Controls, a Maryland corporation,
and wholly-owned subsidiary of ISSI.
"Accounts Purchase Agreements" means each of the certain Cash
AcceleratorTM Agreements dated as of the date of this Agreement, in
each case between Lender, as purchaser, and a Borrower, as client and
seller, providing for the outright sale and transfer to Lender, from
time to time, of certain accounts of each such Borrower, subject to and
on the terms provided therein, and any and all agreements and
instruments executed in connection therewith, in each case as may be
renewed, extended, modified, amended or restated from time to time.
"Adjusted Net Earnings From Operations" with respect to a
Person for any fiscal period means the consolidated net earnings (or
loss) of such Person after provision for income taxes for such fiscal
period, but excluding (a) any gain arising from the sale of capital
assets, (b) any gain arising from any write-up of assets, (c) any gain
arising from the acquisition of any securities, (d) any gain or loss
arising from extraordinary or non-recurring items and (e) net earnings
of any business entity, other than a subsidiary, in which such Person
has an ownership or profit interest unless such net earnings have
actually been received by such Person in the form of cash.
1
6
"Affiliate" means 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, the Borrowers, Guarantors, and each of
their respective Subsidiaries shall be deemed to be Affiliates of one
another.
"Agreement" means this Loan Agreement, as the same may from
time to time be amended or supplemented.
"Applicable Margin" means, for the period from the date of
this Agreement through the end of the calendar month in which Lender
receives the Borrowers' and Guarantors' consolidated audited financial
statements for the fiscal year ending June 30, 1999, required by
Section 4.01(a), three percent (3.0%), subject to adjustment from time
to time thereafter as provided below to the percentage specified
corresponding to Consolidated EBITDA as follows:
==========================================================
Consolidated EBITDA Applicable Margin
less Capital Expenditures
----------------------------------------------------------
Greater than or equal to 1.50%
$2,300,000
----------------------------------------------------------
Less than $2,300,000 3.00%
==========================================================
For the purpose of determining the Applicable Margin, Consolidated EBITDA
shall be determined based upon the Borrowers' consolidated annual
audited financial statements as required by Section 4.01(a), and any
resulting change, if any, in the Applicable Margin, shall become
effective as of the first day of the calendar month following the month
in which such financial statements are delivered to Lender.
"Borrowers' Agent" means, at any time, the President of ISSI
at such time, acting as agent for the Borrowers.
"Business Day" means any day on which the Reference Bank is
open for the conduct of general banking business.
"Capital Expenditures" means expenditures made and liabilities
incurred (including capitalized lease obligations) for the acquisition
of any fixed assets or improvements, replacements, substitutions or
additions which have a useful life of more than one year, including the
direct or indirect acquisition of such assets by way of capitalized
research and development expenses, increased product or service
charges, offset items, or otherwise.
2
7
"Closing" means the date and time for closing the transaction
contemplated hereby, described in Section 7.01 hereof.
"Closing Fee" means the fee payable by each Borrower as
described in Section 2.12 hereof.
"Commitment" means the obligation of Lender, subject to the
terms of this Agreement, to make Loans to the Borrowers pursuant to
Section 2.01 hereof, up to the maximum amount therein stated.
"Compliance Certificate" means a certificate of the Borrowers
signed by an authorized officer of each Borrower, containing the
information required by Section 4.14.
"Consolidated EBITDA" for any period means net income before
extraordinary items and gain on sale of assets for such period plus
each of the following to the extent deducted in the determination of
net income for such period: (i) interest expense, (ii) income taxes and
(iii) depreciation and amortization expense, determined for Borrowers
and Guarantors on a consolidated basis.
"Default" means 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.
"Distribution" in respect of any corporation means and
includes: (a) the payment of any dividends or other distributions on
capital stock of such corporation (except distributions made in stock
or contingent equity rights) and (b) the redemption or acquisition of
such corporation's capital stock (or any rights, warrants or options
relating to the acquisition of such corporation's capital stock) unless
made contemporaneously from the net proceeds of the sale of such
corporation's securities.
"Drawdown Termination Date" means December 31, 2001, provided
that, at the expiration of such term, in the event the Borrowers have
not given Lender sixty (60) days' prior written notice of their intent
to pay in full the Notes then, at the sole discretion of Lender, the
Drawdown Termination Date may be extended for a like period of one (1)
year; and at the end of such one (1) year extension, the Drawdown Date
may be again extended, from year to year, in the same fashion.
"DTPA" means the Texas Deceptive Trade Practices-Consumer
Protection Act, Subchapter E of Chapter 17 of the Texas Business and
Commerce Code.
"Eligible Inventory" as to any Borrower means an amount equal
to the value of all Inventory of such Borrower in which Lender has a
perfected, first
3
8
priority lien or security interest and which is acceptable to Lender in
its discretion and with respect to which all landlord's and mortgagee's
waivers required by this Agreement have been obtained, valued at the
lesser of cost or current market value. Without limiting the foregoing,
unless otherwise agreed by Lender in its discretion, "Eligible
Inventory" shall not include (a) Inventory that is consigned by a
Borrower to another Person, (b) Inventory which is held by a Borrower
on consignment from another Person, (c) Inventory located outside the
continental United States, (d) Inventory which is slow-moving,
obsolete, damaged, spoiled or otherwise not in good saleable condition
and (e) Inventory which is accounted for on a Borrower's books as
burden or other indirect costs allocated to Inventory.
"Eligible M&E" as to any Borrower means at any time all
Equipment owned by such Borrower consisting of machinery and equipment
which is acceptable to Lender in its discretion for inclusion as
Eligible M&E and in which Lender has a perfected first, prior and
exclusive security interest pursuant to documentation satisfactory to
Lender.
"Eligible RE" as to any Borrower means at any time all real
property, and improvements thereon, owned by such Borrower which is
acceptable to Lender in its discretion for inclusion as Eligible RE and
in which Lender has a perfected first, prior and exclusive deed of
trust lien or mortgage pursuant to documentation satisfactory to
Lender.
"Equipment" means all goods which are used or bought for use
primarily in business, including without limitation all machinery and
equipment used or bought for use for such purpose.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" means 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.
"Fair Market Value" means, as to any Eligible RE, the value
thereof on a fair market value basis as determined by a current
appraisal, in form satisfactory to Lender, prepared by a credentialed
appraiser acceptable to Lender pursuant to such valuation methods as
are acceptable to Lender.
"Financial Statements" means the consolidated and
consolidating financial statement or statements of the Borrowers and
the Guarantors described or referred to in Section 3.06 hereof.
"Fixed Charge Coverage Ratio" means, for any period, the ratio
for ISSI of (a) consolidated Adjusted Net Earnings From Operations for
such period plus consolidated amortization expense and consolidated
depreciation expense for such
4
9
period (to the extent deducted in the calculation of consolidated
Adjusted Net Earnings From Operations), plus consolidated Interest
Expense for such period, less consolidated unfinanced Capital
Expenditures made during such period, to (b) consolidated Interest
Expense during such period plus principal payments, scheduled and
unscheduled, on consolidated Funded Indebtedness during such period,
plus Non-Compete Payments, plus Distributions paid during such period,
if any.
"Forced Liquidation Value" means, as to any Eligible M&E, the
value thereof on an auction liquidation basis as determined by a
current appraisal, in form satisfactory to Lender, prepared by a
credentialed appraiser acceptable to Lender pursuant to such valuation
methods as are acceptable to Lender.
"Funded Indebtedness" means consolidated indebtedness for
money borrowed which in accordance with generally accepted accounting
principles would be included in the determination of total liabilities
as shown on the liability side of a balance sheet, including
capitalized lease obligations.
"Guarantor" means each of ISSI, ISI TCS and, if the fair
market value of its assets ever exceeds $100,000, AAC individually and
"Guarantors" means all of them, collectively.
"Indebtedness" means any and all amounts owing or to be owing
by the Borrowers, or either of them, to Lender in connection with the
Notes, this Agreement, the Security Instruments and other liabilities
of the Borrowers to 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, and all amounts owing or to be owing by the
Borrowers to any agent bank of Lender pursuant to any letter of credit
agreement, overdraft agreement or other agreement or financial
accommodation.
"Interest Expense" means for any period interest charges paid
or accrued during such period (including imputed interest on
capitalized lease obligations, but excluding amortization of debt
discount and expense) on Funded Indebtedness.
"Inventory" means any new goods held by a Borrower for sale or
lease and shall not include used or surplus goods or goods held on
consignment or goods which Lender, in its sole discretion, deems not
acceptable.
"Inventory Loan" means the loans made pursuant to Section
2.01(a), and any renewals or extensions thereof.
"Inventory Loan Advance Amount" means, with respect to any
Borrower and determined as of the time of any Inventory Loan, an amount
equal to the
5
10
lesser of (i) $300,000 or (ii) thirty-seven and one-half percent
(37.5%) of the aggregate cost value of Eligible Inventory of such
Borrower as of such time, provided that the maximum amount includable
at such time in the Inventory Loan Advance Amount of such Borrower in
respect of Eligible Inventory consisting of raw materials and finished
goods shall not cause the aggregate amount included in the Inventory
Loan Advance Amount of all Borrowers at such time in respect of
Eligible Inventory consisting of raw materials and finished goods to
exceed an amount equal to thirty percent (30.0%) of the aggregate
unpaid principal balance of Inventory Loans under this Agreement plus
the Purchased Accounts Balance owing by all Borrowers; Lender shall
have the right at any time, and from time to time, in its discretion,
to revise this percentage.
"Inventory Loan Amortization Amount" means, with respect to
any Inventory Loan Note (i) on and after the date of this Agreement and
prior to any Inventory Loan Reload under such Note, an amount equal to
the stated face amount of such Inventory Loan Note divided by 24 or
(ii) on and after any Inventory Loan Reload under such Note, an amount
equal to the resulting unpaid principal balance under such Note
determined as of funding such Inventory Loan Reload divided by the
number of Inventory Amortization Dates remaining as of the date of such
funding.
"Inventory Loan Amortization Dates" means, with respect to any
Inventory Loan Note, the first day of each calendar month beginning
February 1, 1999 and continuing thereafter until all amounts under such
Inventory Loan Note have been paid in full.
"Inventory Loan Limit" means the lesser of (i) $300,000 or
(ii) thirty-seven and one-half percent (37.5%) of the aggregate cost
value of Eligible Inventory of the Borrowers as of such time
"Inventory Loan Reload" has the meaning defined for such term
in Section 2.01(a).
"Inventory Loan Note" means the promissory note of a Borrower
evidencing the loan to such Borrower under the Inventory Loan as
described in Subsection 2.01(a) hereof and being in the form of note
attached as Exhibit "A" hereto, and all renewals, extensions,
modifications and rearrangements thereof.
"ISI" means Intelli-Site, Inc., a Texas corporation and wholly
owned Subsidiary of ISSI, with its principal place of business and
mailing address located at 0000 Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx,
Xxxxx 00000.
"ISSI" means Integrated Security Systems, Inc., a Delaware
corporation and owner of all of the shares of each Borrower, ISI, TCS
and AAC, respectively, with its principal place of business and mailing
address located at 0000 Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxx
00000.
6
11
"Lien" means 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 Borrowers 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.
"Maximum Nonusurious Interest Rate" means 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.
"Non-Compete Payments" means payments made by any Borrower or
Guarantor to Xxx X. Xxxxxxx or any other Person in respect of any
non-competition agreement.
"Notes" means the promissory note or notes (whether one or
more) of the Borrowers described in Section 2.01 hereof, together with
any and all renewals, extensions, increases or rearrangements thereof.
The "Notes" shall include, without limitation, each Inventory Loan Note
and each Term Note.
"Orderly Liquidation Value" means, as to any Eligible M&E, the
value thereof on an orderly liquidation basis as determined by a
current appraisal, in form satisfactory to Lender, prepared by a
credentialed appraiser acceptable to Lender pursuant to such valuation
methods as are acceptable to Lender.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, trustee,
unincorporated organization, government or any agency or political
subdivision thereof, or any other form of entity.
"Plan" means any Plan subject to Title IV of ERISA and
maintained by the Borrowers or any Subsidiary, or any such plan to
which the Borrowers or any Subsidiary is required to contribute on
behalf of its employees.
"Prime Rate" means that 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
7
12
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. The Prime Rate shall never be less than
seven percent (7%) per annum. In the event that Reference Bank does not
have a rate designated by it as its "prime rate," then the "Prime Rate"
hereunder shall be deemed to be the variable rate of interest per annum
which is the general reference rate designated by Reference Bank as its
"reference rate," "base rate" or other similar rate and which is
comparable to the "Prime Rate" as described above. In the event that
Reference Bank shall cease to have any of the rates described in the
preceding sentence, then the prime rate shall be that variable rate of
interest per annum established by any one of the following-described
institutions as its "prime rate," subject to the factors described
hereinabove, which institution may be chosen by Lender in its sole
discretion, and changed by Lender in its sole discretion from time to
time; such institutions shall include: Citibank, N.A., The Chase
Manhattan Bank, N.A., Chemical Bank, Manufacturers Hanover Trust
Company and Banker's Trust Company. Such institution may be changed at
Lender's discretion, such change to be effective at the end of any
month.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Purchased Accounts Balance" means, at any time in respect of
accounts purchased by Lender from a Borrower under an Accounts Purchase
Agreement, the aggregate unpaid balance of such accounts at such time.
"Reference Bank" means The Frost National Bank, a national
banking association, and its successors and assigns.
"RICO" means the Racketeer Influenced and Corrupt Organization
Act of 1970, as amended.
"Security Instruments" means this Agreement, the agreements or
instruments described or referred to in Sections 7.09, 7.10 and 7.12
hereof, any and all other agreements or instruments now or hereafter
executed and delivered by any Borrower, Guarantor or Subsidiary or any
other Person (other than solely by Lender and/or any bank or creditor
participating in the benefits of loans evidenced by the Notes or any
collateral or security therefor) in connection with, or as security for
the payment or performance of, the Notes or this Agreement, and in
addition also includes the Accounts Purchase Agreements.
"Subsidiary" means 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 Borrowers and/or any one of them and/or
one or more of their subsidiaries and/or
8
13
one or more shareholders of the Borrowers; provided, that any such
corporation of which more than fifty percent (50%) of such securities
is owned by the shareholder of the Borrowers, and none of which
securities are owned by the Borrowers or any subsidiary of the
Borrowers, shall not be deemed a Subsidiary hereunder.
"Subordinated Debt" means indebtedness which is subordinated
to the Indebtedness by terms satisfactory to Lender, in its sole
discretion
"Tangible Net Worth" means as of any date with respect to a
Person, the amount by which (a) such Person's assets less (i) patents,
copyrights, trademarks, trade names, franchises, goodwill, capitalized
software development costs, experimental expenses and other similar
intangibles net of accumulated amortization; (ii) unamortized debt
discount and expense; (iii) assets located, and notes and accounts
receivable due from obligors domiciled, outside the United States of
America; and (iv) obligations due from shareholders or other related
parties, as of such date, exceeds (b) such Person's liabilities less
Subordinated Debt as of such date.
"TCS" means Tri-Coastal Systems, Inc., a Delaware corporation
and wholly owned Subsidiary of ISSI, with its principal place of
business and mailing address located at 0000 Xxxxxxxxxx Xxxxx, Xxxxx
000, Xxxxxx, Xxxxx 00000.
"Term Loan" means any one or more of Term Loan A, Term Loan B
or Term Loan C, or all of them, as the context may require.
"Term Loan A" means the Term Loan A made available to the
Borrowers pursuant to Section 2.01(b)(i).
"Term Loan A Credit Limit" means two hundred twelve thousand
five hundred dollars ($212,500).
"Term Loan A Borrower Amount" as to any Borrower at any time
means an amount equal to the lesser of (i) $212,500 or (ii) fifty
percent (50.0%) of the Forced Liquidation Value of Eligible M&E of such
Borrower.
"Term Loan B" means the Term Loan B made available to the
Borrowers pursuant to Section 2.01(b)(ii).
"Term Loan B Credit Limit" means one million dollars
($1,000,000).
"Term Loan B Conditions" means confirmation satisfactory to
Lender of (a) receipt by the Borrowers and Guarantors, or any of them,
prior to June 30, 1999, of not less than $2,000,000 of net cash as
proceeds from the issuance and sale of newly issued preferred shares or
other equity securities which are junior to the interests of Lender and
(b) that all such proceeds have been retained by Borrower and used
solely for working capital purposes in the ordinary course of business.
9
14
"Term Loan B Borrower Amount" as to any Borrower at any time
means an amount equal to the lesser of (i) $1,000,000 or (ii) seventy
five percent (75.0%) of the Orderly Liquidation Value of Eligible M&E
of such Borrower.
"Term Loan C" means the Term Loan C made available to the
Borrowers pursuant to Section 2.01(b)(iii).
"Term Loan C Credit Limit" means two million dollars
($2,000,000).
"Term Loan C Conditions" means each of the following: (i)
confirmation satisfactory to Lender of receipt by the Borrowers and
Guarantors, or any of them, of not less than $2,000,000 of net cash as
proceeds from the issuance and sale of newly issued preferred shares or
other equity securities which are junior to the interests of Lender and
(ii) receipt by Lender of the audited financial statements for the
fiscal year ending June 30, 1999 required by Section 4.01(a), therein
demonstrating to Lender's satisfaction that Consolidated EBITDA less
Capital Expenditures of Borrowers and Guarantors determined on a
consolidated basis for such period equals or exceeds $2,300,000.
"Term Loan C Borrower Amount" as to any Borrower at any time
means an amount equal to the lesser of (i) $2,000,000 or (ii) the sum
of (a) one hundred percent (100.0%) of the Orderly Liquidation Value of
Eligible M&E of such Borrower and (b) eighty percent (80.0%) of the
Fair Market Value of Eligible RE of such Borrower.
"Term Note" means any one or more of Term Note A, Term Note B
or Term Note C, as the context may require, and all renewals,
extensions, modifications and rearrangements thereof.
"Term Note A" means the promissory note of a Borrower
evidencing the loan to such Borrower under Term Loan A as described in
Subsection 2.01(b)(i) hereof and being in the form of note attached as
Exhibit "B-1" hereto, and all renewals, extensions, modifications and
rearrangements thereof.
"Term Note B" means the promissory note of a Borrower
evidencing the loan to such Borrower under Term Loan B as described in
Subsection 2.01(b)(ii) hereof and being in the form of note attached as
Exhibit "B-2" hereto, and all renewals, extensions, modifications and
rearrangements thereof.
"Term Note C" means the promissory note of a Borrower
evidencing the loan to such Borrower under Term Loan C as described in
Subsection 2.01(b)(iii) hereof and being in the form of note attached
as Exhibit "B-3" hereto, and all renewals, extensions, modifications
and rearrangements thereof.
10
15
Section 1.03 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 generally accepted accounting principles, consistently applied, except
where such principles are inconsistent with the requirements of this Agreement.
ARTICLE II
AMOUNT AND TERMS OF LOANS
Section 2.01 The Loans and Commitment. Subject to the terms
and conditions and relying on the representations and warranties contained in
this Agreement, Lender agrees to make the following loans to the Borrowers:
(a) Inventory Loans. Subject to the terms of this
Agreement, on the date of this Agreement or at such time that all applicable
conditions have been satisfied, whichever is later, Lender will make a loan to
each Borrower, to the extent requested by such Borrower as of such date, in the
original principal amount of the Inventory Loan Advance Amount applicable to
such Borrower, provided, that the aggregate amount funded under the Inventory
Loan shall not exceed the Inventory Loan Limit. To evidence the loan(s) made by
Lender under the Inventory Loan pursuant to this Section 2.01(a), each Borrower
who requests a loan under the Inventory Loan will issue, execute and deliver to
Lender an Inventory Loan Note evidencing such loan, in the face amount of such
loan and dated as of the date of this Agreement. Upon satisfaction of each of
the Term Loan B Conditions and provided that no Default or Event of Default
shall have occurred, and subject to all other terms of this Agreement, any
Borrower that executed and delivered to Lender an Inventory Loan Note pursuant
to this Section 2.01(a) may reborrow a loan thereunder (the funding of any such
reborrowing, an "Inventory Loan Reload") in an amount such that the resulting
unpaid principal balance of such Inventory Loan Note, as of the time of funding
such reborrowing, shall not exceed the lesser of the stated face amount of such
Inventory Loan Note or the Inventory Loan Advance Amount applicable to such
Borrower determined as of the time of such funding, provided that the aggregate
unpaid principal balance under all Inventory Loan Notes resulting from funding
of any such reborrowing shall not exceed the Inventory Loan Limit. Interest on
the unpaid principal balance from time to time under each such Inventory Loan
Note shall accrue at the rate, and as provided, in Section 2.02. Principal and
accrued interest under each such Inventory Loan Note shall be due and payable ON
DEMAND or, if no demand is made and for so long as no demand is made, then in
monthly payments in an amount equal to the Inventory Loan Amortization Amount
plus accrued interest, which shall be paid on the first day of each month
beginning February 1, 1999, and continuing thereafter, and one final payment of
all unpaid principal and accrued unpaid interest on December 1, 2000.
(b) Term Loans.
(i) Term Loan A. Subject to the terms of this
Agreement, on the date of this Agreement or at such time that all
applicable conditions have been satisfied,
11
16
whichever is later, Lender will make a loan to each Borrower, to the
extent requested by such Borrower as of such date, in the original
principal amount of the Term Loan A Borrower Amount applicable to such
Borrower, provided, that the aggregate amount funded under Term Loan A
shall not exceed the Term Loan A Credit Limit. To evidence the Term
Loan A loan(s) made by Lender pursuant to this Section 2.01(b)(i), each
Borrower who requests a loan under Term Loan A will issue, execute and
deliver to Lender a Term Note A evidencing such loan, in the face
amount of such loan and dated as of the date of this Agreement.
Principal of each such Term Note A shall be due and payable in twenty
three (23) monthly installments, the first twenty two (22) of which
shall be in the amount of $8,855.00 each, on the first day of each
month during its term beginning February 1, 1999, and one final
installment of all unpaid principal and accrued unpaid interest on
December 1, 2000. Accrued interest under each such Term Note A, at the
rate provided in Section 2.02 hereof, shall be due and payable monthly
in arrears on the first day of each month during its term in addition
to any payment of principal which may be due on such date.
Notwithstanding the foregoing, the entire principal balance of each
such Term Note A, and all accrued interest thereon, shall automatically
be and become due and payable immediately upon the maturity of any
Inventory Note, whether by demand or otherwise, however such maturity
may occur or be brought about.
(ii) Term Loan B. Upon satisfaction of each of the
Term Loan B Conditions and provided that no Default or Event of Default
shall have occurred, and subject to all other terms of this Agreement,
on or before June 30, 1999 Lender will make a loan to each Borrower, to
the extent requested by such Borrower, in the original principal amount
of the Term Loan B Borrower Amount applicable to such Borrower,
provided, that the aggregate amount funded under Term Loan B (together
with any remaining balance (if any) of Term Loan A following
application of the proceeds of Term Loan B as provided herein) shall
not exceed the Term Loan B Credit Limit. To evidence the Term Loan B
loan(s) made by Lender pursuant to this Section 2.01(b)(ii), each
Borrower who requests a loan under Term Loan B will issue, execute and
deliver to Lender a Term Note B evidencing such loan, in the face
amount of such loan and dated as of the date of funding thereof.
Principal of each such Term Note B shall be due and payable in
forty-eight (48) monthly installments, the first forty-seven (47) of
which shall be in the amount of $20,833 each, on the first day of each
month during its term beginning on the first day of the calendar month
next occurring after such funding, and one final installment of all
unpaid principal and accrued unpaid interest on the date that is the
fourth (4) anniversary of the date thereof. Accrued interest under each
such Term Note B, at the rate provided in Section 2.02 hereof, shall be
due and payable monthly in arrears on the first day of each month
during its term in addition to any payment of principal which may be
due on such date. Notwithstanding the foregoing, the entire principal
balance of each such Term Note B, and all accrued interest thereon,
shall automatically be and become due and payable immediately upon the
maturity of any Inventory Note, whether by demand or otherwise, however
such maturity may occur or be brought about. Any request for a loan
under Term Loan B shall be made as provided by Section 2.03. The
proceeds of each loan to a Borrower under Term Loan B shall be applied
first to renew and refinance (but not extinguish) any outstanding
unpaid principal then owing by such Borrower under Term Loan A.
12
17
(iii) Term Loan C. Upon satisfaction of each of the
Term Loan C Conditions and provided that no Default or Event of Default
shall have occurred, and subject to all other terms of this Agreement,
on or before December 31, 1999 Lender will make a loan to each
Borrower, to the extent requested by such Borrower, in the original
principal amount of the Term Loan C Borrower Amount applicable to such
Borrower, provided, that the aggregate amount funded under Term Loan C
(together with any remaining balance (if any) of Term Loan A and/or
Term Loan B following application of the proceeds of Term Loan C as
provided herein) shall not exceed the Term Loan C Credit Limit. To
evidence the Term Loan C loan(s) made by Lender pursuant to this
Section 2.01(b)(iii), each Borrower who requests a loan under Term Loan
C will issue, execute and deliver to Lender a Term Note C evidencing
such loan, in the face amount of such loan and dated as of the date of
funding thereof. Principal of each such Term Note C shall be due and
payable in seventy-two (72) monthly installments, the first seventy-one
(71) of which shall be in the amount of $27,778 each, on the first day
of each month during its term beginning on the first day of the
calendar month next occurring after such funding, and one final
installment of all unpaid principal and accrued unpaid interest on the
date that is the sixth (6) anniversary of the date thereof. Accrued
interest under each such Term Note C, at the rate provided in Section
2.02 hereof, shall be due and payable monthly in arrears on the first
day of each month during its term in addition to any payment of
principal which may be due on such date. Notwithstanding the foregoing,
the entire principal balance of each such Term Note C, and all accrued
interest thereon, shall automatically be and become due and payable
immediately upon the maturity of any Inventory Note, whether by demand
or otherwise, however such maturity may occur or be brought about. Any
request for a loan under Term Loan B shall be made as provided by
Section 2.03. The proceeds of each loan to a Borrower under Term Loan C
shall be applied first to renew and refinance (but not extinguish) any
outstanding unpaid principal then owing by such Borrower under Term
Loan A and then to any outstanding unpaid principal then owing by such
Borrower under Term Loan B.
Notwithstanding the foregoing, it is understood that Lender will
reserve the amount of $62,500 from the maximum amount otherwise available for
borrowing by Xxxxxxx Company, Inc. under the Term Loan until such time as each
of the existing financing statements filed by USL Capital Corp. against such
Borrower shall have been terminated to Lender's satisfaction or lapsed under
applicable law, at which time, on request by such Borrower and subject to all
other conditions of this Agreement, such reserved amount shall be made available
to it provided no Event of Default shall have occurred.
Section 2.02 Interest Rate. The Notes shall bear interest at the
following rates:
(a) The Notes shall bear interest from the date thereof until
maturity at a varying rate per annum equal to the sum of the Applicable
Margin plus the daily Prime Rate as the same may change from day to
day, calculated as of the last day of each month (but in no event to
exceed the Maximum Nonusurious Interest Rate).
13
18
(b) Upon the occurrence of a Default or an Event of
Default and in any event at all times following any demand for payment
made by Lender, principal and past due interest (to the extent
permitted by law) in respect of the Notes shall bear interest at a rate
which is two percent (2%) 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).
(c) Notwithstanding the foregoing, if at any time the
sum of the Applicable Margin plus the daily Prime Rate exceeds the
Maximum Nonusurious Interest Rate, the rate of interest to accrue on
any Note shall be limited to the Maximum Nonusurious Interest Rate, but
any subsequent reductions in the Prime Rate shall not reduce the rate
of interest to accrue on such Note below the Maximum Nonusurious
Interest Rate until the total amount of interest accrued on such Note
equals the amount of interest which would have accrued if a varying
rate per annum equal to the sum of the Applicable Margin plus the daily
Prime Rate had at all times been in effect.
(d) If at maturity or final payment of any Note the
total amount of interest paid or accrued on such Note in accordance
with Subsections 2.02 (a), (b) and (c) hereinabove is less than the
total amount of interest which would have accrued if a varying rate per
annum equal to the sum of the Applicable Margin plus the daily Prime
Rate had at all times been in effect, then, to the extent allowed by
law, the Borrowers agree to pay to Lender an amount equal to the
difference between (i) the lesser of (A) the amount of interest which
would have accrued on such Note if the Maximum Nonusurious Interest
Rate had at all times been in effect and (B) the amount of interest
which would have accrued if a varying rate per annum equal to the sum
of the Applicable Margin plus the daily Prime Rate had at all times
been in effect and (ii) the amount of interest paid or accrued on such
Note in accordance with Subsections 2.02 (a), (b) and (c) hereinabove.
Section 2.03 Notice and Manner of Borrowing. In order to receive any
loan, a Borrower shall notify Lender of a request for such loan by means of a
notice on behalf of such Borrower acceptable to Lender, therein designating the
amount of the loan requested and the date on which funding is requested. Each
such request for a loan shall be delivered to Lender by such Borrower not later
than 11:00 a.m. (Central Standard Time or Central Daylight Time, whichever is in
effect at such time) at least one (1) Business Day prior to the Business Day on
which funding of such loan is requested (but in any event so as to allow Lender
a reasonable opportunity to verify and confirm that all conditions for such loan
have been satisfied). Such notice may be made in any manner prescribed by
Section 8.01, provided that for this purpose each Borrower irrevocably
authorizes Lender to rely upon any Person whom Lender believes to be an
authorized officer of such Borrower and for purposes of this Agreement any such
officer shall be deemed to be authorized to request any such loan on behalf of
such Borrower. Any such notice shall be irrevocable upon receipt by Lender.
Without limiting the other terms and conditions of this Agreement, at the time
of each borrowing hereunder, all conditions and requirements of Article VII
shall have been satisfied.
14
19
Section 2.04 Application of Cash Sums. All net cash sums paid to and
received by any Borrower on account of any Inventory, Equipment, real property
or other fixed non-working capital assets shall immediately be paid to Lender
for application to the Term Loans, in such manner as Lender may determine in its
discretion. All cash sums paid to and received by Lender on account of any other
Property upon which Lender has a Lien (i) shall be immediately applied by any
Borrower on the Indebtedness whether or not such Indebtedness shall have, by its
terms, matured, such application to be made to principal or interest or expenses
as Lender may elect; provided, however, Lender need not apply or give credit for
any item included in such sums until Lender has received final credit therefor
from its bank in accordance with normal banking practices (provided that, in any
event, at least two (2) Business Days shall be allowed for collection of all
items through normal banking channels) or has received solvent credits accepted
as such by Lender; provided, further, however, Lender's failure to so apply any
such sums shall not be a waiver of Lender's right to so apply such sums or any
other sums at any time, or (ii) prior to the happening of any Default or Event
of Default, at the option of Lender, may be released to the Borrowers for use in
the Borrowers' business.
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.
Section 2.06 Voluntary Prepayments and Reborrowings. The unpaid
principal balance of the Notes of any Borrower at any time shall be the total
amounts loaned or advanced thereunder by Lender, less the amount of payments or
prepayments of principal made thereon by or for the account of such Borrower. It
is contemplated that by reason of prepayments thereon there may be times when no
Indebtedness is owing under any Inventory Note; but notwithstanding such
occurrences, such Inventory Note shall remain valid and be in full force and
effect as to loans made pursuant to any Inventory Loan Reload thereunder and
under the terms thereof subsequent to such occurrence. All loans or advances and
all payments or prepayments made 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
Borrowers 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 the entries made in such account or accounts shall be conclusive
evidence of the existence and amounts of the obligations of the Borrowers
therein recorded.
Section 2.07 Mandatory Prepayments. If at any time the outstanding
principal balance under the Inventory Note of a Borrower exceeds the Inventory
Loan Advance Amount of such Borrower, then the Borrowers jointly and severally
agree to forthwith prepay the amount of such excess for application towards
reduction of the outstanding principal balance of such Inventory Note. Said
prepayment shall be without premium or penalty, and shall be made together with
the payment of accrued interest on the amount prepaid.
15
20
Section 2.08 Cross-collateralization and Default. The Security
Instruments, including this Agreement, the Notes, the Accounts Purchase
Agreements and any other instrument given in connection with, or as security
for, any Indebtedness of any Borrower or any Subsidiary, shall serve as security
one for the other, and an event of default under the Notes or any such
instrument shall constitute an event of default under all such other Notes and
instruments, provided, that the enumeration of any Event of Default under this
Agreement, any of such Notes or of any event of default under any of such other
instruments shall not impair the nature of the Indebtedness evidenced by the
Inventory Notes as being payable on demand as provided by Section 2.01(a).
Section 2.09 Termination of Commitment. Notwithstanding anything to the
contrary contained herein, in the Notes or in any other instrument or agreement
executed in connection with or as security for the Indebtedness, Lender may, at
any time, and from time to time, in its sole discretion, upon giving the
Borrowers' Agent at least sixty (60) days' prior notice, at any time terminate
its Commitment to advance funds to the Borrowers hereunder and under the Notes
and all other obligations, if any, of Lender hereunder. The rights of Lender
under this Section 2.09 are in addition to the rights of Lender to terminate the
Commitment pursuant to Section 6.02 hereof.
Section 2.10 Prepayment in Full. In the event the Borrowers desire to
prepay in full the loans evidenced by the Notes at any time on or before one
year prior to the Drawdown Termination Date, as the same may be extended, the
Borrowers will give Lender sixty (60) days' written notice of the Borrowers'
intention to do so and will pay to Lender, as liquidated damages and not as a
penalty, an amount equal to the percentage specified below for the period in
which such prepayment in full is made multiplied by the sum of (i) $2,700,000
(being the maximum aggregate amount of unpaid accounts under the Account
Purchase Agreements), plus (ii) $300,000 (being the Inventory Loan Limit) plus
(ii) the Term Loan A Credit Limit if the Term Loan B Conditions have not been
satisfied, the Term Loan B Credit Limit if the Term Loan B Conditions have been
satisfied but the Term Loan C Conditions have not been satisfied or the Term
Loan C Credit Limit if the Term Loan C Conditions have been satisfied, as the
case may be:
Period Percentage
More than 2 years before
Drawdown Termination Date 3.0%
More than 1 year before Drawdown
Termination Date but less than
or equal to 2 years before
Drawdown Termination Date 2.0%
Equal to or less than one year before
Drawdown Termination 1.0%
In the event any such notice of prepayment has been given by the
Borrowers, the Commitment shall immediately terminate, and all other
obligations, if any, of Lender, shall
16
21
terminate on the expiration of said sixty (60) day notice period, and the entire
principal amount of the Notes, together with all accrued interest thereon, and
any other Indebtedness, shall be due and payable on such date.
Section 2.11 [Reserved]
Section 2.12 Closing Fee. Upon execution of this Agreement, the
Borrowers shall pay to Lender a closing fee in an amount equal to one and
one-half percent (1.5%) multiplied by the sum of the Inventory Loan Limit plus
the Term Loan A Credit Limit. Upon the funding of any Inventory Loan Reload, the
Borrowers shall pay to Lender a closing fee in an amount equal to one and
one-half percent (1.5%) multiplied by the aggregate amount of reborrowing funded
pursuant to such Inventory Loan Reload. Upon the funding of Term Loan B, the
Borrowers shall pay to Lender a closing fee in an amount equal to one and
one-half percent (1.5%) multiplied by the Term Loan B Credit Limit less the Term
Loan A Credit Limit. Upon the funding of Term Loan C, the Borrowers shall pay to
Lender a closing fee in an amount equal to one and one-half percent (1.5%)
multiplied by the Term Loan C Credit Limit less the Term Loan B Credit Limit.
Section 2.13 Quarterly Facility Fee. The Borrowers shall pay to Lender
a quarterly facility fee in an aggregate amount equal to one percent (1.0%) of
the sum of the aggregate daily average outstanding principal balance of
Inventory Loans under Section 2.01(a) and Term Loans under Section 2.01(b). Each
such quarterly payment shall be payable on the first (1st) day of each January,
April, July and October, calculated and determined for the previous fiscal
quarter commencing on January 1, 1999 and ending on the date, if any, when the
Term Loan B Conditions are satisfied.
Section 2.14 Accounts Purchase Agreement. Each Borrower irrevocably
authorizes Lender to make any advance under the Accounts Purchase Agreement and
direct and apply the proceeds thereof for either Borrower's account in timely
payment of any Indebtedness owing to Lender by such Borrower.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, the Borrowers
represent and warrant to Lender (which representations and warranties will
survive the delivery of the Notes and the making of the loans thereunder) that:
Section 3.01 Corporate Existence. Each Borrower and each Guarantor is a
corporation duly organized, legally existing and in good standing under the laws
of the jurisdiction in which it is incorporated and is duly qualified as a
foreign corporation in all jurisdictions wherein it maintains a place of
business.
Section 3.02 Corporate Power and Authorization. Each Borrower is duly
authorized and empowered to create and issue the Notes; and each Borrower and
each Guarantor is duly
17
22
authorized and empowered to execute, deliver and perform the Security
Instruments, including this Agreement, to which it is a party; and all corporate
action on the Borrowers' or any Guarantor's part requisite for the due creation
and issuance of the Notes and for the due execution, delivery and performance of
the Security Instruments, including this Agreement, to which any Borrower or any
Guarantor is a party has been duly and effectively taken. The Board of Directors
of each Borrower acting pursuant to a duly called and constituted meeting, after
proper notice, or pursuant to valid and unanimous consent, has determined (i)
that entry into and performance of this Agreement and each of the other
documents to which each Borrower is a party, directly or indirectly benefits
each Borrower and (ii) that adequate and fair consideration and reasonably
equivalent value has been received by each 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 Notes
and other Security Instruments to which any Borrower and any Guarantor are
parties upon their creation, issuance, execution and delivery will, constitute
valid and binding obligations of the Borrower or the Guarantor, as the case may
be, enforceable in accordance with their terms.
Section 3.04 No Legal Bar or Resultant Lien. The Notes and the Security
Instruments, including this Agreement, to which any Borrower or any Guarantor is
a party, do not and will not violate any provisions of the articles or
certificates of incorporation or bylaws of any such Borrower or any such
Guarantor, or any contract, agreement, law, regulation, order, injunction,
judgment, decree or writ to which such Borrower or such Guarantor is subject, or
result in the creation or imposition of any Lien upon any Properties of such
Borrower or such Guarantor, other than those contemplated by this Agreement.
Section 3.05 No Consent. The execution, delivery and performance of the
Notes and the Security Instruments, including this Agreement, to which such
Borrower or any 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.
Section 3.06 Financial Condition. The unaudited consolidated and
consolidating financial statements of the Borrowers and the Guarantors dated
November 30, 1998, which have been delivered to Lender, are complete and correct
in all material respects, have been prepared in accordance with generally
accepted accounting principles, consistently applied, and fully and accurately
reflect the financial condition and results of the operations of the Borrowers
and the Guarantors in all material respects as at the date or dates and for the
period or periods stated (subject only to normal year-end audit adjustments with
respect to any unaudited interim statements). No material adverse change, either
in any case or in the aggregate, has since occurred in the condition, financial
or otherwise, of any Borrower or any Guarantor, except as disclosed to Lender in
writing.
Section 3.07 Investments and Guaranties. Neither any Borrower nor any
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
Lender in writing.
18
23
Section 3.08 Issuance of Stock. Except as set forth on Schedule 3.08
hereto, there are no outstanding subscriptions, warrants, options, calls,
commitments, convertible securities or other agreements to which any Borrower or
Guarantor is a party or by which it is bound, calling for the issuance of any
capital stock or securities convertible into capital stock of such Borrower or
Guarantor.
Section 3.09 Liabilities. Except for liabilities incurred in the normal
course of business, no Borrower nor any 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 Lender in writing.
Except as described in the Financial Statements, or as otherwise disclosed to
Lender in writing, there is no litigation, legal or administrative proceeding,
investigation or other action of any nature pending or, to the knowledge of any
Borrower or Guarantor, threatened against or affecting any Borrower or any
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 any Borrower or any Guarantor or their ability to carry on
business as now conducted.
Section 3.10 Taxes; Governmental Charges. Each Borrower, Subsidiary and
Guarantor has filed all tax returns and reports required to be filed and has
paid all taxes, assessments, fees and other governmental charges levied upon it.
Section 3.11 Titles, etc. Each Borrower, Subsidiary and Guarantor has
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.
Section 3.12 Defaults. No Borrower, 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 any
Borrower, Subsidiary or Guarantor is a party or by which any Borrower,
Subsidiary or Guarantor is bound, except as disclosed to Lender in writing. No
Default hereunder has occurred and is continuing.
Section 3.13 Use of Proceeds; Margin Stock. The proceeds of the Notes
will be used by the Borrowers for the following purposes: Working capital and
general corporate purposes not prohibited by this Agreement.
None of such proceeds will be used for, and neither the Borrowers nor
any Guarantor are engaged in, the business of extending credit for the purpose
of purchasing or carrying any "margin stock" as defined in Regulation 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
Regulation U. No part of the proceeds of the loans evidenced by the Notes 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
Notes 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
19
24
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 Borrowers nor any Guarantor nor any Person acting on
behalf of any Borrower or any Guarantor have taken or will take any action which
might cause the Notes or any of the Security Instruments, including this
Agreement, to violate Regulation 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.
Section 3.14 Compliance with the Law. Neither the Borrowers nor any
Guarantor:
(a) are in violation of any law, ordinance, or governmental
rule or regulation to which any Borrower or any Guarantor 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;
(b) have 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 violation or failure might adversely affect the
business, prospects, profits, Properties or condition (financial or
otherwise) of any Borrower or any Guarantor.
Section 3.15 ERISA. The Borrowers and the Guarantors 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 any Borrower or any Guarantor.
Section 3.16 Related Parties. Borrowers and Guarantors represent that
(i) there are no Subsidiaries of ISSI other than Borrowers, ISI, TCS and AAC,
(ii) there are no Subsidiaries of Borrowers, ISI or TCS and (iii) the fair
market value of the assets of AAC does not exceed $100,000.
Section 3.17 Direct Benefit From Loans. Each 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. No Borrower or Guarantor is in violation of any
laws, statutes or regulations, including, without limitation, RICO, which
contain provisions which could potentially override Lender's security interest
in the Collateral (as that term is defined in the Security Instruments).
20
25
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 Lender. Without the prior
written consent of Lender, the Borrowers and Guarantors 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 Notes or the Commitment is outstanding.
Section 4.01 Financial Statements and Reports. The Borrowers,
Guarantors and their respective Subsidiaries will promptly furnish to Lender
from time to time upon request such information regarding the business and
affairs and financial condition of the Borrowers and Guarantors and their
respective Subsidiaries as Lender may reasonably request, and will furnish to
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 Borrowers, the audited consolidated and unaudited consolidating
balance sheets of the Borrowers, Guarantors and their respective
Subsidiaries as at the end of such year and the audited consolidated
and unaudited consolidating operating statements of the Borrowers,
Guarantors and their respective Subsidiaries as at the end of such year
(showing income, expenses, cash flow and surplus), setting forth in
each case in comparative form figures for the previous fiscal year, all
prepared in accordance with generally accepted accounting principles
and accompanied by the opinion of an independent certified public
accountant acceptable to Lender;
(b) Monthly Financial Statements. As soon as available and in
any event within thirty (30) days after the end of each calendar month,
the consolidated and unaudited consolidating balance sheets of the
Borrowers, Guarantors and their respective Subsidiaries as at the end
of such month and the consolidated and unaudited consolidating
operating statements of the Borrowers, Guarantors and their respective
Subsidiaries for such month (showing income, expenses, cash flow 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
generally accepted accounting principles, certified by the principal
financial officer of the Borrowers;
(c) Accounts Agings. As soon as available and in any event
within ten (10) days after the end of each calendar month, consolidated
and consolidating agings of all accounts payable and accounts
receivable of the Borrowers, showing each such account which is thirty
(30), sixty (60), ninety (90) and over ninety (90) days past due;
(d) Inventory Report. As soon as available and in any event
within ten (10) days after the end of each calendar month, a schedule
of Inventory of the
21
26
Borrowers, indicating product type and location and a reconciliation of
Inventory using cost of sales analysis;
(e) Eligible Inventory Report. As soon as available and in any
event within ten (10) days after the end of each calendar month, a
report in such form as Lender may reasonably request, reflecting the
Eligible Inventory of the Borrowers as of the previous Business Day and
invoice registers, invoice copies and cash receipt journals which back
up such report. Such report shall also reflect such other information
as Lender may reasonably request; and
(f) Weekly Reporting. On or before the first Business Day of
each week, a report in such form as Lender may reasonably request,
reflecting the Eligible Accounts (as defined in the Accounts Purchase
Agreements) of Borrowers as of the previous week and calculating the
Eligible Accounts (as defined in the Accounts Purchase Agreements)
based thereon, together with invoice journals, invoice copies and cash
receipt journals, check copies, support for any miscellaneous
debit/credit adjustments, all of which backup such report. Such report
shall also reflect the amount of sales and receipts of Borrowers during
the proceeding week and such other information as Lender may reasonably
request.
All such balance sheets and other financial statements
referred to in this Section 4.01 above shall be in such detail as
Lender may reasonably request and shall conform to generally accepted
accounting principles applied on a basis consistent with those of the
Financial Statements, except only for such changes in accounting
principles or practice with which independent certified public
accountants concur; provided, that there shall not in any event be any
change in reporting to Lender under this Agreement until Lender,
Borrowers and Guarantors shall agree pursuant to written amendment of
this Agreement.
Section 4.02 Compliance with Laws; Payment of Taxes and Other Claims.
The Borrowers and Guarantors 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 the condition,
financial or otherwise, of Borrowers or Guarantors; and (b) pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
any Borrower, Guarantor or any of their Subsidiaries or upon the income or any
Property of any Borrower, Guarantor or such 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 any Borrower,
Guarantor or any of their Subsidiaries; provided, however, that, subject to the
written approval of Lender, no Borrower or Guarantor nor any of their
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability
22
27
or validity thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted and if the Borrowers or any such Guarantor or
Subsidiary shall have set up reserves therefor adequate under generally accepted
accounting principles.
Section 4.03 Maintenance. Each Borrower and Guarantor 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 generally accepted accounting principles,
consistently applied, of all dealings and transactions in relation to its
business and activity.
Section 4.04 Further Assurances. Each Borrower and Guarantor will, and
will cause each Subsidiary, to cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Security
Instruments, including this Agreement. The Borrowers and Guarantors at their
expense will promptly execute and deliver to Lender upon request all such other
and further documents, agreements and instruments to effectuate the agreements
of any Borrower or Guarantor or any of their Subsidiaries in the Security
Instruments, including in this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Notes, 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.
Without limiting any of the foregoing, if at any time the fair market value of
the assets of AAC, exceeds $100,000, the Borrowers and Guarantors agree to
promptly execute and deliver, or cause AAC to promptly execute and deliver, as
the case may be, all documents, instruments, certificates and agreements that
are required to be delivered by the Guarantors under Sections 7.03, 7.04, 7.05,
7.10, 7.16, 7.17 and 7.18 of this Agreement.
Section 4.05 Performance of Obligations. The Borrowers will pay the
Notes according to the reading, tenor and effect thereof; and the Borrowers and
Guarantors will do and perform every act and discharge all of the obligations
provided to be performed and discharged by the Borrowers or Guarantors under
23
28
the Security Instruments, including this Agreement, at the time or times and in
the manner specified, and cause each of their respective 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 Borrowers and Guarantors
jointly and severally agree to pay all reasonable legal fees incurred by Lender
in connection with the preparation, amendment, interpretation, administration
and enforcement of this Agreement and any and all other Security Instruments
contemplated hereby. The Borrowers and Guarantors will, upon request, promptly
reimburse Lender for all amounts expended, advanced or incurred by Lender to
satisfy any obligation of the Borrowers or Guarantors under this Agreement or
any other Security Instrument, or to protect the Properties or business of any
Borrower, Guarantor or any Subsidiary or to collect the Notes, or to enforce the
rights of Lender under this Agreement, the Notes, or any other Security
Instrument, which amounts include, without limitation, all court costs,
attorneys' fees, fees of auditors and accountants, and investigation expenses
reasonably incurred by Lender in connection with any such matters, together with
interest at either (i) the post-maturity rate specified in Section 2.02(b) on
each such amount from the date that the same is expended, advanced or incurred
by Lender until the date of reimbursement to Lender, or (ii) if no Default shall
have occurred and be continuing, the prematurity rate specified in Section
2.02(a) on each such amount from the date that the same is expended, advanced or
incurred by Lender until the date of written demand or request by 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 Lender.
Section 4.07 Insurance. Each Borrower and Guarantor and each of their
respective Subsidiaries 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
corporations engaged in the same or similar businesses and similarly situated
but in any event, all fixed assets of the Borrowers, Guarantors and such
Subsidiaries shall be insured for an amount at least equal to the unpaid
principal balance of the Notes, from time to time outstanding. All such policies
shall name Lender as loss payee. Upon request of Lender, the Borrowers and
Guarantors will furnish or cause to be furnished to Lender from time to time a
summary of the insurance coverage of the Borrowers, Guarantors and their
respective Subsidiaries in form and substance satisfactory to Lender and if
requested will furnish Lender copies of the applicable policies.
Section 4.08 Right of Inspection. The Borrowers and Guarantors will
permit, and will cause each of its Subsidiaries to permit, any officer, employee
or agent of Lender to visit and inspect any of the Properties of any Borrower,
Guarantor or any such Subsidiary, examine any Borrower's, Guarantor's or any
24
29
such Subsidiary's books of record and accounts, take copies and extracts
therefrom, and discuss the affairs, finances and accounts of any Borrower,
Guarantor or any such Subsidiary with the Borrower's, Guarantor's or
Subsidiary's current and former officers, employees, accountants and auditors,
during normal business hours no more than four times during any fiscal year of
the Borrowers and Guarantors unless there is a Default or an Event of Default,
then at such times and as often as Lender may desire. The Borrowers and
Guarantors jointly and severally agree to pay or reimburse Lender for all
out-of-pocket costs and expenses associated with such inspections plus a per
diem fee of $700 per person per day.
Section 4.09 Notice of Certain Events. Each of the Borrowers and
Guarantors shall promptly notify Lender if it learns of the occurrence of (i)
any event which constitutes a Default, together with a detailed statement by a
responsible officer of the Borrowers and Guarantors 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 Guarantor or their
respective Subsidiaries or of any security (as defined in the Securities Act of
1933, as amended) of any Borrower, Guarantor or such Subsidiary with respect to
a claimed default, together with a detailed statement by a responsible officer
thereof specifying the notice given or other action taken by such holder and the
nature of the claimed default and what action such Borrower, Guarantor or
Subsidiary is taking or proposes to take with respect thereto; or (iii) any
legal, judicial or regulatory proceedings affecting any Borrower, Guarantor or
any of their Subsidiaries or any of the Properties of any Borrower or any
Subsidiary 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 any Borrower, Guarantor or
any such Subsidiary; or (iv) any dispute between any Borrower, Guarantor or such
any Subsidiary and any governmental or regulatory body or any other Person
which, if adversely determined, might materially interfere with the normal
business operations of any Borrower, Guarantor or any such Subsidiary; or (v)
any material adverse changes, either in any case or in the aggregate, in the
assets, liabilities, financial condition, business, operations, affairs or
circumstances of any Borrower, Guarantor or any such Subsidiary, from those
reflected in the Financial Statements or by the facts warranted or represented
in any Security Instrument, including this Agreement.
Section 4.10 ERISA Information and Compliance. The Borrowers and
Guarantors will promptly furnish to Lender (i) if requested by 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
25
30
connection with any Plan or any trust created thereunder, a written notice
signed by the president or the principal financial officer of each Borrower and
Guarantor specifying the nature thereof, what action the Borrowers, Guarantors
or any of their 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 Borrowers and Guarantors will fund, or will cause their
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 Borrowers, Guarantors or any of their Subsidiaries,
and comply with all applicable provisions of ERISA.
Section 4.11 Lockbox and Blocked Accounts. All collections, payments
and other proceeds of accounts purchased by Lender pursuant to the Accounts
Purchase Agreements shall be processed and applied as provided therein. All
collections, payments and other proceeds of any collateral at any time received
by Borrowers or Guarantors shall be delivered forthwith to Lender in the form
received for deposit to a blocked collection account under the sole control of
Lender, and applied to the Indebtedness in Lender's discretion at such time as
Lender has received final credit therefor in accordance with normal banking
practices (at least two (2) Business Days shall be allowed for collection of all
items through normal banking channels).
Section 4.12 Environmental Requirements. The Borrowers and Guarantors
shall comply with all federal laws, state statutes, municipal ordinances and all
other governmental standards, rules and regulations applicable to Borrowers,
Guarantors or to their Property in respect to occupational health and safety,
hazardous waste and substances and environmental matters. The Borrowers and
Guarantors 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. The
Borrowers and Guarantors shall indemnify and hold Lender harmless from all loss,
cost, damages, claim and expense incurred by Lender on account of any failure to
perform the obligations of this Section.
Section 4.13 Securities Filings. Each Borrower and Guarantor, and their
respective Subsidiaries, will promptly provide Lender with a copy of each and
any report or filing made with, or pursuant to requirements of the Securities
and Exchange Commission, including without limitation 10-K annual reports and
10-Q quarterly reports.
Section 4.14 Compliance Certificate. At the time that the Borrowers and
Guarantors provide the financial statements pursuant to Section 4.01 for any
month that is the last month of a fiscal quarter of the Borrowers, the Borrowers
and Guarantors shall also provide a Compliance Certificate which (i) sets forth
as of the end of such fiscal quarter or fiscal year, as the case may be, the
calculations required to establish whether or not the Borrowers and Guarantors
are in
26
31
compliance with the requirements of Section 5.11, Section 5.12 and Section 5.19,
as of the end of each respective period, (ii) states that the information on any
and all schedules to this Agreement is complete and accurate as of the date of
such certificate or, if such is not the case, attaches to such certificate
updated schedules, and (iii) states that, based on a reasonably diligent
examination, no Event of Default, or event or condition which with the passage
of time or the giving of notice, or both, would constitute an Event of Default,
has occurred or exists, or, if such is not the case, specifies such Event of
Default, or such event or condition, and its nature, when it occurred, whether
it is continuing and the steps taken or being taken by Borrowers and Guarantors
with respect thereto.
Section 4.15 Capital Retention. All cash proceeds received by any
Borrower or Guarantor in satisfaction of the Term Loan B Conditions or the Term
Loan C Conditions shall be retained at all times as capital by such Borrower or
Guarantor, as the case may be, and may be used only for working capital purposes
in the ordinary course of business.
Section 4.16 Aggregate Funding. At all times following initial funding
of the Inventory Notes and continuing until termination of the Accounts Purchase
Agreements, subject to availability under the Accounts Purchase Agreements and
the Notes, the aggregate amount funded and remaining unpaid under the Notes plus
the Purchased Accounts Balance shall not be less than $1,000,000.
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 Lender. Without the prior
written consent of Lender, the Borrowers and Guarantors 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 Notes or the Commitment is outstanding.
Section 5.01 Debts, Guaranties and Other Obligations. Neither the
Borrowers, Guarantors nor any of their Subsidiaries 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 Borrowers, Guarantors
nor any such Subsidiary 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 shall not apply to:
27
32
(a) the Notes or other Indebtedness to Lender;
(b) liabilities, direct or contingent, of the Borrowers,
Guarantors and their Subsidiaries existing on the date of this
Agreement which are reflected in the Financial Statements or have been
disclosed to Lender in writing, but not any increases, refundings,
renewals or 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) Subordinated Debt; and
(h) other indebtedness, liabilities and obligations that do
not exceed $10,000 in the aggregate.
Section 5.02 Liens. Neither the Borrowers, Guarantors nor any of their
Subsidiaries will create, incur, assume or permit to exist any Lien on any of
its Properties (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness to Lender;
(b) Liens for taxes, assessments, or other governmental
charges not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such
reserve as shall be required by generally accepted accounting
principles shall have been made therefor;
(c) Liens of landlords, vendors, carriers, warehousemen,
mechanics, laborers and materialmen arising by law in the ordinary
course of business for sums not yet due or, subject to the written
approval of Lender, being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by generally accepted accounting principles shall have been
made therefor;
(d) Liens existing on Property owned by any Borrower,
Guarantor or any such Subsidiary on the date of this Agreement which
have been disclosed to Lender in writing but not any increases,
refundings, renewals or extensions thereof;
28
33
(e) pledges or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance, social security and other like laws; and
(f) inchoate liens arising under ERISA to secure the
contingent liability of any Borrower or any Subsidiary permitted by
Section 4.10 hereof.
Section 5.03 Investments, Loans and Advances. Neither the Borrowers ,
Guarantors nor any of their Subsidiaries 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 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);
(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 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);
(e) loans or advances to a Borrower or a Guarantor; and
(f) loans or advances to Affiliates other than Borrowers and
Guarantors that do not in the total aggregate amount exceed Five
Thousand Dollars ($5,000).
Section 5.04 Dividends, Distributions, Redemptions, Restricted
Payments. Neither the Borrowers, Guarantors nor any of their Subsidiaries will
declare or pay any dividend, purchase, redeem or otherwise acquire for value any
of its stock now or hereafter outstanding, return any capital to its
stockholders, or make any distribution of its assets to its stockholders as
such, except that the Borrowers, Guarantors or such Subsidiaries may declare and
deliver stock dividends. Neither the Borrowers, Guarantors nor any of their
Subsidiaries will make any redemption or prepayment or other retirement, prior
to the stated maturity thereof or prior to the due date of any regularly
scheduled installment or amortization payment with respect thereto, of any
indebtedness for borrowed money owing to any Person other than Lender or of any
indebtedness that is junior and subordinate to the Indebtedness, except, in the
case of any such junior and subordinate indebtedness, as may be expressly
allowed by the terms of any subordination agreement governing same. Neither the
Borrowers, Guarantors nor any of their
29
34
Subsidiaries will make any payment of any management, consulting or similar fee
or of any principal, interest or fees on any indebtedness (other than trade debt
incurred in the ordinary course of business), owing to any officer, shareholder
or other equity holder of any Borrower, Guarantor, such Subsidiary or to any
Affiliate or any officer, shareholder or other equity holder of any such
Affiliate if any Default or Event of Default exists at the time of any such
payment or would exist as a result of making any such payment.
Section 5.05 Sale of Properties. Neither the Borrowers, Guarantors nor
any of their Subsidiaries will sell, transfer or otherwise dispose of any
Property that is collateral under any Security Instrument other than sales of
inventory in the ordinary course of business. Neither the Borrowers, Guarantors
nor any of their Subsidiaries will sell, transfer or otherwise dispose of all or
any substantial portion or integral part of any other of their Properties except
in the ordinary course of business, or enter into any arrangement, directly or
indirectly, with any Person whereby any Borrower, Guarantor or any such
Subsidiary shall sell or transfer any Property, whether now owned or hereafter
acquired, and whereby any Borrower, Guarantor or any such Subsidiary shall then
or thereafter rent or lease as lessee such Property or any part thereof or other
Property which any Borrower, Guarantor or any such Subsidiary intends to use for
substantially the same purpose or purposes as the Property sold or transferred.
Section 5.06 Nature of Business. Neither the Borrowers, Guarantors nor
any of their Subsidiaries will permit any material change to be made in the
character of its business as carried on at the date hereof.
Section 5.07 Limitation on Leases. Neither the Borrowers, Guarantors
nor any of their Subsidiaries 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 office operations of the Borrowers, Guarantors and such Subsidiaries in an
aggregate amount for the Borrowers, Guarantors and all such Subsidiaries
(determined on a consolidated basis) not to exceed $200,000 in any fiscal year
of the Borrowers, and (ii) leases and lease agreements for real property at 0000
Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxx 00000 (the "Springwood Location") or,
upon expiration of the existing leases and lease agreements for the Springwood
Location any lease and lease agreement for a replacement location that is on
substantially similar terms as the existing leases and lease agreements for the
Springwood Location.
Section 5.08 Mergers, Consolidations, etc.. Neither the Borrowers,
Guarantors nor any of their Subsidiaries will (a) amend its certificate or
articles of incorporation or otherwise change its corporate name or structure if
such amendment to its certificate or articles of incorporation or its change in
corporate name or structure will cause a material adverse change, either in any
case or in the aggregate, in the assets, liabilities, financial condition,
business, operations, collateral, affairs or circumstances of any Borrower,
Guarantor or any of their Subsidiaries from those reflected in the Financial
Statements or by the facts warranted or represented in any Security Instrument,
including this Agreement, or (b) consolidate with or merge into or acquire any
Person, or permit any other Person to consolidate with or merge into or acquire
any Borrower, Guarantor or any such Subsidiary or acquire the stock of any
corporation or form any Subsidiary.
30
35
Section 5.09 ERISA Compliance. The Borrowers and Guarantors will not at
any time permit any Plan maintained by it or any of their Subsidiaries 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 any Borrower or any
Subsidiary pursuant to Section 4068 of ERISA.
Section 5.10 Issuance of Stock. During the term of this Agreement, the
Borrowers, Guarantors and their Subsidiaries will not issue any additional
shares of stock without the written consent of Lender except as may be permitted
pursuant to the terms of that certain Subordination Agreement of even date
herewith executed by Borrowers, Guarantors, Renaissance Capital Growth & Income
Fund III, Inc. and Renaissance US Growth & Income Trust PLC to and for the
benefit of the Lender.
Section 5.11 Tangible Net Worth. During the term of this Agreement, as
of the last day of each calendar month, the Tangible Net Worth of ISSI on a
consolidated basis shall not be less than the amounts, throughout the periods,
indicated below:
Period Minimum Tangible Net Worth
------ --------------------------
01/01/1999 through 06/30/1999 $2,500,000
07/01/1999 through 06/30/2000 $3,100,000
07/01/2000 and thereafter $3,600,000
Such determination shall be made monthly.
Section 5.12 Fixed Charge Coverage Ratio. (a) from the date hereof
through April 30, 1999, ISSI's consolidated Interest Expense during such period
plus principal payments, scheduled and unscheduled, on consolidated Funded
Indebtedness during such period, plus Non-Compete Payments, plus Distributions
paid during such period, if any, shall not exceed $225,000 during the calendar
month of January, 1999 and $125,000 during any other calendar month during such
period, and (ii) $600,000 in the aggregate during such period; and (b)
thereafter, the Fixed Charge Coverage Ratio of ISSI on a consolidated basis, as
of the last day of any month, shall not be less than the ratio indicated for
such month, determined for the relevant periods, as specified as follows:
31
36
Month Relevant Period Ratio
----- --------------- -----
May, 1999 Preceding 6 months 0.30 to 1.00
June, 1999 Preceding 6 months 0.50 to 1.00
July, 1999 Preceding 6 months 0.83 to 1.00
August, 1999 Preceding 6 months 1.10 to 1.00
September, 1999 Preceding 6 months 1.25 to 1.00
Monthly thereafter Preceding 6 months 1.25 to 1.00
Section 5.13 [Reserved].
Section 5.14 Changes in Accounting Methods. The Borrowers and
Guarantors, and their consolidated Subsidiaries, will not make any change in
their accounting method as in effect on the date of this Agreement or change
their fiscal year ending date from June 30, unless such changes have the prior
written approval of Lender.
Section 5.15 Transactions With Affiliates. The Borrowers, Guarantors
and their Subsidiaries 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 their business and upon substantially the same or better terms as they
could obtain in an arm's length transaction with a Person who is not an
Affiliate.
Section 5.16 Payments to IST Partners, Ltd.. The Borrowers and the
Guarantors will not at any time make any payments or other transfer of funds or
stock to or for the benefit of IST Partners, Ltd. without the prior consent of
Lender.
Section 5.17 Use of Proceeds. The Borrowers, Guarantors and their
Subsidiaries will not use the proceeds of the Notes for purposes other than
those set forth in Section 3.13.
Section 5.18 RICO. The Borrowers, Guarantors and their Subsidiaries
will not violate any laws, statutes or regulations, whether federal or state,
for which forfeiture of its properties is a potential penalty, including,
without limitation, RICO.
Section 5.19 Capital Expenditures. The Borrowers and Guarantors will
not, and will not permit any of their respective Subsidiaries to, directly or
indirectly, make or incur any Capital Expenditures in the aggregate in excess of
the amount set forth below for the fiscal year of Borrowers and Guarantors set
forth opposite such amount:
Period Amount
------ ------
Fiscal Year ending June 30, 1999 $330,000
Fiscal Year ending June 30, 2000 $690,000
Fiscal Year ending June 30, 2001 $2,636,000
32
37
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 any of the Notes or any other Indebtedness; or
(b) Representations and Warranties. Any
representation or warranty made by any Borrower, Guarantor or any
Subsidiary 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 any Borrower, any Subsidiary
or any Guarantor (or any officer, accountant or attorney of any
Borrower, Guarantor or any Subsidiary) 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
(c) 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 (provided, that in the case
of noncompliance with any of the requirements of subsections (b), (c)
or (d) of Section 4.01, an Event of Default shall not be deemed to
exist unless fifteen (15) days shall have passed since the first date
of such noncompliance); or
(d) Negative Covenants. Default is made in the due
observance or performance by any Borrower, Guarantor or any Subsidiary
of any of the covenants or agreements contained in Article V of this
Agreement; or
(e) Conditions Precedent. The Borrowers or Guarantors
fail to satisfy, or cause to be satisfied, any of the conditions
precedent contained in Article VII hereof which are not to be completed
as of the date of this Agreement; or
(f) Other Security Instrument Obligations. Default is
made in the due observance or performance by any Borrower, Guarantor or
any of their Subsidiaries 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
(g) Involuntary Bankruptcy Proceedings. A receiver,
conservator, custodian, liquidator, creditors' committee, board of
inspectors, or trustee of any Borrower, Guarantor or any of their
Subsidiaries, or of any of their Property, is created,
33
38
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
any Borrower, Guarantor or any such Subsidiary 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 Borrower's, Guarantor's or any such
Subsidiary'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
any Borrower, Guarantor or any such Subsidiary 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
(h) Voluntary Petitions. Any Borrower, Guarantor or
any of their Subsidiaries 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 any Borrower, Guarantor or any such Subsidiary is the
subject of an order for relief or winding-up petition entered by any
bankruptcy court, or any Borrower, Guarantor or any such Subsidiary
consents to the filing of any petition against it under any such law in
the United States or in any foreign country; or
(i) Assignments, Conveyances, or Transfers for
Benefit of Creditors. Any Borrower, Guarantor or any such Subsidiary
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
(j) Discontinuance of Business. Any Borrower,
Guarantor or any of their Subsidiaries discontinues its usual business;
or
(k) Default on Other Debt or Security. Any Borrower,
Guarantor or any of their Subsidiaries 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 any
Borrower or 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 to elect (whether or not such holder or
trustee does elect) a majority of the directors on the board of
directors of any Borrower, Guarantor or any such Subsidiary; or
35
39
(l) 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 any Borrower, Guarantor or any of their Subsidiaries and any
such Borrower, Guarantor or Subsidiary 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 generally accepted
accounting principles; or
(m) Insolvency. If any Borrower or Guarantor shall be
or become insolvent; or
(n) Fraudulent Transfers. Any Borrower or 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 60 days from the date thereof; or
(o) Forfeiture. The filing of formal charges under a
federal or state law for which forfeiture of any Borrower's or
Guarantor's Property is a potential penalty.
Provided, that the enumeration of Events of Default shall not
impair the nature of the Indebtedness evidenced by the Inventory Notes as being
demand obligations, payable on demand whether or not any Default or Event of
Default is in existence, as provided by Section 2.01(a).
Section 6.02 Remedies. Upon demand or the happening of any Event of
Default specified in Section 6.01, (i) 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(g) or (h) shall automatically accelerate the
maturity of the Indebtedness, without the necessity of any action by Lender)
without presentment, demand, protest, notice of protest or dishonor, notice of
default, notice of intent to demand, notice of intent to accelerate, notice of
acceleration, or other notice of any kind, all of which are hereby expressly
waived by each Borrower, each Subsidiary and each Guarantor; and (ii) all
obligations, if any, of Lender hereunder, including the Commitment, shall
immediately cease and terminate unless and until Lender shall reinstate same in
writing. Provided, the provision for remedies upon the occurrence of Events of
Default shall not impair the nature of the Indebtedness evidenced by the
Inventory Notes as being demand obligations, payable on demand whether or not
any Default or Event of Default is in existence, as provided by Section 2.01(a).
36
40
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 Borrowers 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 any Borrower, Guarantor or any
of their Subsidiaries 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 of any Event of
Default, or if any Borrower or Guarantor becomes insolvent, however evidenced,
Lender and any agent bank of Lender is hereby authorized at any time and from
time to time, without notice to the Borrowers or Guarantors (any such notice
being expressly waived by the Borrowers and Guarantors), 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 Lender or any agent
bank of Lender to or for the credit or the account of the Borrowers or the
Guarantors against any and all of the Indebtedness of the Borrowers or
Guarantors, irrespective of whether or not Lender shall have made any demand
under this Agreement or the Notes and although such obligations may be
unmatured. Lender agrees promptly to notify the Borrowers' Agent 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 Lender under
this Section 6.04 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Lender may have. The rights
contained in this Section 6.04 shall inure to the benefit of any participant in
any loans made hereunder.
ARTICLE VII
CONDITIONS
The obligation of Lender to make the loans to be evidenced by the Notes
is subject to the accuracy of each and every representation and warranty of the
Borrowers, Guarantors and their Subsidiaries made or referred to in each
Security Instrument, including this Agreement, or in any certificate delivered
to Lender pursuant to or in connection with any Security Instrument, including
this Agreement, to the performance by the Borrowers and Guarantors of their
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 and as of the time of the initial advance under
the Inventory Notes and Term Note A.
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
January 29, 1999.
Section 7.02 Notes. The Inventory Note of each Borrower requesting a
loan under the Inventory Loan and the Term Loan A Note of each Borrower
requesting a loan under Term Loan A each shall have been duly and validly
issued, executed and delivered to Lender.
36
41
Section 7.03 Charter; By-laws. Lender shall have received a copy,
certified as true by the Secretary or Assistant Secretary of each Borrower and
Guarantor of the articles or certificate of incorporation and the by-laws of
such Borrower or Guarantor which is to execute this Agreement or any Security
Instrument pursuant to this Agreement.
Section 7.04 Secretary's Certificates. Lender shall have received, on
or before the date of Closing, certificates of the Secretary of the Borrowers
and Guarantors and any Subsidiary which is to execute any Security Instrument
pursuant to this Agreement setting forth (i) resolutions of its board of
directors in form and substance satisfactory to Lender with respect to the
authorization of the Notes, 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 Borrowers' Counsel. Lender shall have received
within thirty (30) days of the date of this Agreement and prior to the Closing
from counsel for the Borrowers, Guarantors and the Subsidiaries, a favorable
written opinion satisfactory to 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 any Borrower, Guarantor or any Subsidiary or
any of the Property of any Borrower, Guarantor or any Subsidiary; and as to the
validity and enforceability of this Agreement and the validity, enforcement,
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 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 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 any Borrower, Guarantor or any of their
Subsidiaries is a party.
Section 7.08 No Material Adverse Changes. Prior to each loan, there
shall have occurred, in the opinion of Lender, no material adverse changes,
either in any case or in the aggregate, in the assets, liabilities, financial
condition, business, operations, affairs or circumstances of any Borrower,
Guarantor or any of their Subsidiaries, from those reflected in the Financial
Statements or by the facts warranted or represented in any Security Instrument,
including this Agreement.
Section 7.09 Other Security Instruments and Information. The Borrowers
and Guarantors, respectively, as appropriate, shall have duly and validly
executed and delivered, or caused to be executed and delivered, to Lender the
following instruments, each in form and substance satisfactory to Lender, in
sufficient executed counterparts for recording purposes, as
37
42
security for the Notes 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 executed by each Borrower and
Guarantor covering all right, title and interest of such Borrower and
Guarantor in all accounts receivable, general intangibles, Inventory,
chattel paper, instruments and documents and, in addition in the case
of GCI and each Guarantor, all Equipment and fixtures (excluding,
however, certain molds owned by GCI that are subject to an existing
security interest in favor of Xx. Xxx X. "Xxxx" Xxxxxxx et al., to be
agreed to by GCI and Lender), and in each case now owned and hereafter
acquired;
(b) all financing statements as may be required by
Lender in order to perfect is security interest in the collateral
referenced in subsection (a) of this Section 7.09;
(c) all documentation as may be required by Lender in
order to cause Lender's security interest and lien to be noted on
certificates of title for all Equipment of GCI consisting of vehicles
or trailers with respect to which a certificate of title has been
issued;
(d) the Accounts Purchase Agreements;
(e) each of those certain promissory notes in the
original principal amounts of $300,000 and $400,000, respectively, in
each case executed by MPA Systems, Inc. and payable to the order of
GCI, duly endorsed for the benefit of Lender;
Section 7.10 Guaranties. The 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, the following instruments:
(a) guaranty agreement;
(b) security agreements executed by each Guarantor covering
all right, title and interest of such Guarantor in all accounts
receivable, general intangibles, Inventory, Equipment and fixtures,
chattel paper, instruments and documents;
(c) all financing statements as may be required by Lender in
order to perfect is security interest in the collateral referenced in
subsection (b) of this Section 7.10.;
Section 7.11 Recordings. The Security Instruments described in Section
7.09 and Section 7.10 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 Lender shall
have received confirmations of receipt thereof from the appropriate filing,
recording or registration offices.
38
43
Section 7.12 Landlord's Waivers; Mortgagee's Waivers. The owner of
Borrowers' and Guarantors' offices at 0000 Xxxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxx,
Xxxxx 00000, and the owner of any other real property where any Borrower or
Guarantor maintains any Inventory or Equipment, and in each case any mortgagee
thereof, shall have executed and delivered, in form and substance satisfactory
to Lender, in sufficient executed counterparts for recording purposes, waivers
of any Liens to which it may be entitled, in favor of Lender.
Section 7.13 Closing Fee. Lender shall have received the Closing Fee in
immediately available funds.
Section 7.14 [Reserved]
Section 7.15 Validity Guaranties. Lender shall have received a Guaranty
of Validity of Collateral, duly executed by Xxxxxx X. Xxxxxxxx, which shall be
in form and substance satisfactory to Lender.
Section 7.16 Subordination Agreement. Lender shall have received a
subordination agreement duly executed by Renaissance Capital Growth and Income
Fund III, Inc. and Renaissance Capital US Growth & Income Trust PLC and the
Borrowers, in form and substance satisfactory to Lender.
Section 7.17 Releases. Releases or termination statements as may be
required by Lender in order to release any security interests or liens, and
terminate any financing statements, on any property on which Lender has a Lien
(other than those covered by intercreditor agreements referenced in Section
7.16).
Section 7.18 Additional Matters. Lender shall have received all
exhibits, annexes and schedules herein referenced and such additional reports,
certificates, documents, statements, legal opinions, waivers, subordinations,
agreements and instruments, in form and substance reasonably satisfactory to
Lender, as Lender shall have reasonably requested from any of the Borrowers,
Guarantors and their counsel.
Section 7.19 Initial Inventory Loans and Term Loan A Advances. In
addition to all other requirements and conditions provided by this Agreement,
the initial advances under the Inventory Loan, and Term Loan A, shall further be
subject to the following specific conditions:
(a) There shall have been no Default under this
Agreement nor any breach or default under any of the other Security
Instruments;
(b) All items required by Section 4.01 shall have
been delivered to Lender and each shall be, as of the date of the
requested advance, true and correct and satisfactory to Lender; and
(c) The financial condition of the Borrowers and
Guarantors, as shown by the most recent Financial Statement described
in Section 4.01(b) hereof, shall be acceptable to Lender, in its sole
discretion.
39
44
Section 7.20 Term Loan B Advances and Inventory Loan Reloads. In
addition to all other requirements and conditions provided by this Agreement,
advances under Term Loan B and any Inventory Loan Reload shall be further
subject to the following specific conditions:
(a) There shall have been no Default under this Agreement nor
any breach or default under any of the other Security Instruments;
(b) All items required by Section 4.01 shall have been
delivered to Lender and each shall be, as of the date of the requested
advance, true and correct and satisfactory to Lender; and
(c) The financial condition of the Borrowers and Guarantors,
as shown by the most recent Financial Statement described in Section
4.01(b) hereof, shall be acceptable to Lender, in its sole discretion;
and
(d) Lender shall have received evidence satisfactory to Lender
that the Term Loan B Conditions shall have been satisfied.
Section 7.21 Term Loan C Advances. In addition to all other
requirements and conditions provided by this Agreement, advances under Term Loan
C shall be further subject to the following specific conditions:
(a) There shall have been no Default under this Agreement nor
any breach or default under any of the other Security Instruments;
(b) All items required by Section 4.01 shall have been
delivered to Lender and each shall be, as of the date of the requested
advance, true and correct and satisfactory to Lender; and
(c) The financial condition of the Borrowers and Guarantors,
as shown by the most recent Financial Statement described in Section
4.01(b) hereof, shall be acceptable to Lender, in its sole discretion;
(d) The Term Loan C Conditions shall have been satisfied;
(e) With respect to all real property included in
determination of the Term Loan C Credit Limit, Lender shall have
received all documentation required by Lender in order to create in
Lender's favor a first, prior and exclusive deed of trust or mortgage
lien thereon, together with such other documents, information and items
as Lender may require, including without limitation the following, and
the form and substance thereof in each case shall be satisfactory to
Lender in its discretion:
(i) Copies of all deeds of trust or mortgages, duly
executed and delivered and evidencing the recording of each such
instrument in the
40
45
appropriate jurisdiction for the recording thereof on the real property
subject thereto or, at the option of Lender, in proper form for
recording in such jurisdiction;
(ii) an appraisal of all such real property prepared by a
credentialed appraiser satisfactory to Lender, establishing values at
levels satisfactory to Lender, in form, and based on valuations
methods, satisfactory to Lender;
(iii) One or more fully paid mortgagee title insurance
policies or, at the option of Lender, unconditional commitments for the
issuance thereof with all requirements and conditions to the issuance
of the final policy deleted or marked satisfied, issued by a title
insurance company satisfactory to Lender, each in an amount equal to
not less than the fair market value of the real property subject to the
deed of trust or mortgage insured thereby, insuring that such deed of
trust or mortgage creates a valid first lien on, and security title to,
all real property described therein, with no survey exceptions and no
other exceptions which Lender shall not have approved in writing;
(iv) A Phase I environmental report from a qualified
engineering firm or other qualified consultant acceptable to Lender
with respect to an investigation and audit of all such real property,
which shall be based on a thorough review of past and present uses,
occupants, ownership and tenancy of the property and/or adjacent
properties and/or up gradient properties regarding subsurface ground
water hazards, soils and/or test boring reports, (ii) contact with
local, state or federal agencies regarding known or suspected hazardous
material contamination of the property or other properties in the area,
(iii) review of aerial photographs, (iv) visual site inspection noting
unregulated fills, storage tanks or areas, ground discoloration or soil
odors and (v) other investigative methods deemed necessary by the
consultant or Lender to enable the consultant to report that there is
no apparent or likely contamination of the property or another property
in the area and, if deemed reasonably necessary to further investigate
suspected or likely contamination, (vi) supplemental environmental
reports prepared by qualified consultants of the analysis of core
drilling or ground water samples from the property, showing no
contamination by hazardous materials;
(v) Such other materials and information concerning such real
property as Lender may require, including, without limitation, (i)
current and accurate surveys thereof satisfactory to Lender, certified
to Lender and showing the location of the 100-year and 50-year flood
plains thereon, (ii) zoning letters as to the zoning status thereof,
(iii) certificates of occupancy and (iv) owner's affidavits as to such
matters relating thereto as Lender may request.
41
46
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All communications under or in connection with
this Agreement or the Notes 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 Borrowers or any Guarantor, to the Borrowers'
Agent, to its address shown at the beginning of this Agreement, or to
such other address or to such individual's or department's attention as
it may have furnished Lender in writing;
(b) If to Lender, to its address shown at the beginning of
this Agreement, or to such other address or to such individual's or
department's attention as it may have furnished to the Borrowers 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 Borrowers' Agent or Lender,
as the case may be.
Section 8.02 Deviation from Covenants. The procedure to be followed by
the Borrowers or Guarantors to obtain the consent of Lender to any deviation
from the covenants contained in this Agreement or any other Security Instrument
shall be as follows:
(a) The Borrowers' Agent shall send a written notice to 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) Lender will within a reasonable time send a written notice
to the Borrowers' Agent, signed by an authorized officer of 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 Lender.
Section 8.03 Invalidity. In the event that any one or more of the
provisions contained in the Notes, 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 Notes, this Agreement or any other Security
Instrument.
Section 8.04 Survival of Agreements. All representations and warranties
of the Borrowers and Guarantors herein, and all covenants and agreements herein
not fully performed before the effective date of this Agreement, shall survive
such date.
42
47
Section 8.05 Successors and Assigns. All covenants and agreements
contained by or on behalf of the Borrowers or any Subsidiary or any Guarantor in
the Notes, 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 Lender and its successors
and assigns; except that neither Borrowers 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 Lender sells
participations in the Notes, or other Indebtedness of the Borrowers 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 Lender.
Section 8.06 Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Notes 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
Notes 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 Lender, its
officers, employees, consultants or agents, nor any failure or delay by Lender
with respect to exercising any right, power or privilege of Lender under the
Notes, 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 Lender under the
Notes, 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 Notes
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 Notes, this
Agreement or in any other Security Instrument or agreement entered into in
connection with or as security for the Notes, 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 Notes, this Agreement or
under any of the other aforesaid Security Instruments or agreements or otherwise
in connection with the Notes shall under no circumstances exceed the maximum
amount of interest permitted by applicable law, and any excess shall be credited
on the Notes by the holder thereof (or, if the Notes shall have been paid in
full, refunded to the Borrowers); (ii) determination of the rate of interest for
determining whether the loans hereunder are usurious shall be made by
amortizing, prorating, allocating and
43
48
spreading, during the full stated term of such loans, all interest at any time
contracted for, charged or received from the Borrowers in connection with such
loans, and any excess shall be canceled, credited or refunded as set forth in
(i) herein; and (iii) in the event of demand for payment of the Notes, 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 canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited on the Notes (or, if the
Notes shall have been paid in full, refunded to the Borrowers).
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. All exhibits to this Agreement are incorporated
herein by this reference for all purposes. The exhibits may be attached hereto,
or bound together with or separately from this Agreement, and such binding shall
be effective to identify such exhibits as if attached to this Agreement.
Section 8.13 No Triparty Loan. Chapter 346 of the Texas Finance Code
(which regulates certain revolving loan accounts and revolving triparty
accounts) shall not apply to the loans evidenced by this Agreement or the Notes.
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 Revised Civil
Statutes Annotated article 5069-1.D, as amended.
Section 8.15 Performance and Venue. The obligations of the Borrowers
and Guarantors contained herein are performable at Lender's offices in Houston,
Xxxxxx County, Texas, and venue for any action in connection therewith shall be
in Xxxxxx County, Texas.
Section 8.16 Negotiation of Documents. This Agreement, the Notes 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 Lender's counsel, after such negotiation, shall not be
cause to construe any of such documents against Lender.
Section 8.17 Joint and Several Liability. The obligations and liability
of each Borrower hereunder and under the Notes and all Security Instruments
shall be joint and several.
Section 8.18 Notices Received by Lender. Any instrument in writing,
telex, telegram, telecopy or cable received by Lender in connection with any
loan hereunder, which purports to be dispatched or signed by or on behalf of the
Borrowers or Guarantors, 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.
44
49
Section 8.19 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 Lender the rights or powers to exercise control
over the business or affairs of the Borrowers or Guarantors. The relationship
between the Borrowers and Guarantors, and Lender, created by this Agreement is
only that of debtor-creditor.
Section 8.20 No Third-Party Beneficiaries. This Agreement is for the
sole and exclusive benefit of the Borrowers, Guarantors and Lender. 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 Borrowers and Lender, without any requirement or necessity
for notice to, or the consent of or approval of any other Person.
Section 8.21 Release of Liability. To the maximum extent permitted by
law from time to time in effect, each Borrower and Guarantor hereby knowingly,
voluntarily and intentionally (and after each has consulted with its own
attorney) irrevocably and unconditionally agrees that no claim may be made by
any Borrower or Guarantor against Lender or any of its affiliates, participants,
shareholders, directors, officers, employees, attorneys, accountants, or agents
or any of its or their successors and assigns, for any 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 Notes,
the Security Instruments or any other related documents, or any act, omission,
or event occurring in connection herewith or therewith. In furtherance of the
foregoing, each Borrower and Guarantor 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 each Borrower and Guarantor
shall indemnify and hold harmless Lender and its affiliates, participants,
shareholders, directors, officers, employees, attorneys, accountants and agents
and their successors and assigns 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, the Borrowers, Guarantors
and each of their Subsidiaries shall execute a release agreement, in form and
substance satisfactory to Lender, releasing Lender and Lender's affiliates,
participants, shareholders, directors, officers, employees, agents and attorneys
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
Borrowers, Guarantors or any such Subsidiary may have, as of the date of
execution of such release or in the future, against Lender and Lender's
affiliates, participants, shareholders, directors, officers, employees, agents
and attorneys, arising out of or in connection with this Agreement or any
related documents.
Section 8.22 DTPA Waiver. Borrowers and Guarantors each acknowledge and
agree, on it own behalf and on behalf of any permitted assigns and successors
hereafter, that the DTPA is not applicable to this transaction. Accordingly,
Borrower's and Guarantor's rights and remedies with respect to the transaction
contemplated under this Agreement, and with respect to all acts or practices of
Lender, past, present or future, in connection with such transaction, shall be
governed by legal principles other than the DTPA. In furtherance thereof, each
Borrower and Guarantor agrees as follows:
45
50
(a) Each Borrower and Guarantor is a "business consumer" as
defined under the DTPA. Each Borrower and Guarantor represents that it
has knowledge and experience in financial and business matters that
enable it to evaluate the merits and risks of the business transaction
that is the subject of this Agreement. Each Borrower and Guarantor
also represents that it is not in a significantly disparate bargaining
position in relation to Lender. Borrowers and Guarantor have
negotiated the loan documents with Lender at arm's length and has
willingly entered into the loan documents.
(b) Borrowers and Guarantors each represents that it has been
represented by legal counsel in the transaction contemplated by this
Agreement and Borrowers and Guarantors and their legal counsel have
negotiated the Notes and Security Instruments at arm's length, and
Borrower and Guarantor shall cause its legal counsel to sign this
Agreement in the space provided below for the purpose of complying
with Section 17.42(a)(3) of the DTPA.
Borrower and each Guarantor agrees, on its own behalf and on behalf of
its permitted assigns and successors, that all of its rights and remedies under
the DTPA are WAIVED AND RELEASED, including specifically, without limitation,
all rights and remedies under the DTPA resulting from or arising out of any and
all acts or practices of Lender in connection with this transaction, whether
such acts or practices occur before or after the execution of this Agreement;
provided, however, notwithstanding anything to the contrary herein, in
accordance with Section 17.42 of the DTPA, Borrowers and Guarantors do not waive
Section 17.555 of the DTPA.
Section 8.23 Waiver of Trial by Jury. EACH BORROWER, GUARANTOR AND
LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN
ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST THE BORROWERS, GUARANTORS OR ANY OF THEM, OR
LENDER, ARISING OUT OF THIS AGREEMENT, THE NOTES, THE SECURITY INSTRUMENTS OR
ANY OTHER INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH,
OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE BORROWERS,
GUARANTORS, OR EITHER OF THEM, AND LENDER OF ANY KIND OR NATURE. EACH SUCH PARTY
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING.
Section 8.24 Reversal of Payments. Lender shall have the continuing and
exclusive right to apply, reverse and re-apply any and all payments to any
portion of the Indebtedness in a manner consistent with the terms of this
Agreement. To the extent any Borrower or Guarantor makes a payment or payments
to Lender, or Lender receives any payment or proceeds of any collateral for any
Borrower's or Guarantor's benefit, which payment(s) or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or
46
51
federal law, common law or equitable cause, then, to the extent of such payment
or proceeds received, the Indebtedness or part thereof intended to be satisfied
shall be revived and continued in full force and effect, as if such payment or
proceeds had not been received by Lender.
Section 8.25 Injunctive Relief. Each Borrower and Guarantor recognizes
that, in the event any Borrower or Guarantor fails to perform, observe or
discharge any of its obligations or liabilities under this Agreement, any remedy
at law may prove to be inadequate relief to Lender; therefore, each Borrower and
Guarantor agrees that if any Event of Default shall have occurred and be
continuing, Lenders shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damages.
Section 8.26 Indemnification. THE BORROWERS AND GUARANTORS JOINTLY AND
SEVERALLY AGREE TO INDEMNIFY AND HOLD HARMLESS LENDER AND ITS AFFILIATES AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ADVISORS (EACH, AN
"INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES AND EXPENSES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED
AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH
OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY
INVESTIGATION, LITIGATION OR PROCEEDING OR PREPARATION OF DEFENSE IN CONNECTION
THEREWITH) THIS AGREEMENT, THE NOTES, THE SECURITY INSTRUMENTS OR ANY OTHER
INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION THEREWITH OR HEREWITH, ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN OR HEREIN OR THE ACTUAL OR PROPOSED USE OF THE
PROCEEDS OF THE LOANS (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF THE INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE,
LOSS, LIABILITY, COST OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY
A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM SUCH INDEMNIFIED PARTY'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION,
LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 8.26
APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION,
LITIGATION OR PROCEEDING IS BROUGHT BY ANY BORROWER OR GUARANTOR OR THEIR
RESPECTIVE DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY
OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER
OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. EACH BORROWER AND
GUARANTOR AGREES NOT TO ASSERT ANY CLAIM AGAINST LENDER, ANY OF ITS AFFILIATES
OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS AND ADVISERS,
ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THIS AGREEMENT OR THE OTHER
INSTRUMENTS AND AGREEMENTS REFERENCED ABOVE, ANY
47
52
OF THE TRANSACTIONS CONTEMPLATED THEREIN OR HEREIN OR THE ACTUAL OR PROPOSED USE
OF THE PROCEEDS OF THE LOANS. WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER
AGREEMENT OF THE BORROWERS HEREUNDER, THE AGREEMENTS AND OBLIGATIONS OF
BORROWERS AND GUARANTORS CONTAINED IN THIS SECTION 8.26 SHALL SURVIVE THE
PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 8.27 Governing Law. THIS AGREEMENT, THE NOTES, THE SECURITY
INSTRUMENTS AND ALL OTHER INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION
HEREWITH (UNLESS ANY SUCH OTHER INSTRUMENT OR AGREEMENT SPECIFICALLY PROVIDES
OTHERWISE) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS, PROVIDED THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW A HIGHER
RATE OF INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF TEXAS, THEN
WITH RESPECT TO THE PROVISIONS OF ANY LAWS WHICH PURPORT TO LIMIT THE AMOUNT OF
INTEREST THAT MAY BE CONTRACTED FOR, CHARGED OR RECEIVED IN CONNECTION WITH ANY
OF THE INDEBTEDNESS, SUCH FEDERAL LAW SHALL APPLY.
Section 8.28 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
Section 8.29 Final Expression. THIS WRITTEN LOAN AGREEMENT, THE NOTE
AND THE SECURITY INSTRUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
48
53
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
BORROWERS:
B&B ELECTROMATIC, INC.
By:
---------------------------------------
Xxxxxx X. Xxxxxxxx
Chairman
XXXXXXX COMPANY, INC.
By:
---------------------------------------
Xxxxxx X. Xxxxxxxx
Chairman
GUARANTORS:
INTEGRATED SECURITY SYSTEMS, INC.
By:
---------------------------------------
Xxxxxx X. Xxxxxxxx
Chairman
INTELLI-SITE, INC.
By:
---------------------------------------
Xxxxxx X. Xxxxxxxx
Chairman
TRI-COASTAL SYSTEMS, INC.
By:
---------------------------------------
Xxxxxx X. Xxxxxxxx
Chairman
49
54
LENDER:
FROST CAPITAL GROUP
By:
---------------------------------------
Xxx Xxxxxxxx
Senior Vice President
50
55
SCHEDULE 3.08
Common Shares
----------------
Convertible Preferred Stock of ISSI 205,000 shares
Employee Stock Option Plans of ISSI 2,000,000 shares
Warrants issued by ISSI 5,500,000 shares
Convertible Debentures made by ISSI 7,590,692 shares
Non-Qualified Options 439,200 shares
51
56
EXHIBIT "A"
TO LOAN AGREEMENT
AMONG
B&B ELECTROMATIC, INC.,
XXXXXXX COMPANY, INC.
AND
FROST CAPITAL GROUP
Inventory Loan Note
52
57
INVENTORY LOAN NOTE
$ January __, 1999
_______________
FOR VALUE RECEIVED, the undersigned, __________________________, a
corporation (hereinafter called "Maker") promises to pay to the order of THE
FROST NATIONAL BANK, a national banking association doing business as FROST
CAPITAL GROUP (hereinafter called "Lender"), at its offices at 0000 Xxxxx, Xxxxx
000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000, in lawful money of the United States
of America, the sum of ____________________ AND ___/100 DOLLARS ($__________) or
such lesser amount as may be loaned and remain outstanding hereunder, together
with accrued interest as provided hereinbelow.
This promissory note ("Note") is executed and delivered by Maker
pursuant to that certain Loan Agreement dated as of January __, 1999 among
Lender, Maker, B&B Electromatic, Inc. and Xxxxxxx Company, Inc. (hereinafter
called the "Loan Agreement") and is an Inventory Loan Note as defined therein.
All terms defined in the Loan Agreement, wherever used herein, shall have the
same meanings herein as are prescribed by the Loan Agreement.
The loan outstanding and evidenced hereunder is subject to the terms
and provisions of the Loan Agreement. The maximum principal amount at any time
outstanding hereunder shall not at any time exceed an amount equal to the
maximum amount allowed to be outstanding hereunder as prescribed by Section
2.01(a) of the Loan Agreement.
The loan outstanding and evidenced hereunder is due and payable ON
DEMAND, but if no demand is made, and for so long as no demand is made; then in
accordance with the terms set forth in Section 2.01(a) of the Loan Agreement.
Interest on the unpaid principal balance of this Note shall accrue at the rate
provided in Section 2.02 of the Loan Agreement and shall be payable monthly on
the first day of each month during the term hereof.
If any Event of Default shall have occurred then, at the option of
Lender, the principal and unpaid accrued interest on this Note and any and all
other indebtedness of Maker to Lender shall become and be due and payable
forthwith without demand, notice of default or of intent to accelerate the
maturity hereof, notice of acceleration, notice of nonpayment, presentment,
protest or notice of dishonor, all of which are hereby expressly waived by Maker
and each drawer, accepter, endorser, guarantor, surety, accommodation party or
other person now or hereafter primarily or secondarily liable upon or for
payment of all or any part of this Note (each hereinafter called an "other
liable party").
If this Note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Maker and each other liable party agree to pay Lender its collection costs,
including a reasonable amount (which is agreed to be an additional amount at
least equal to fifteen percent (15%) of the unpaid principal and interest
hereof) for attorney's fees, but in no event to exceed
53
58
the maximum amount permitted by law. Maker and each other liable party are and
shall be directly and primarily, jointly and severally, liable for the payment
of all sums called for hereunder, and Maker and each other liable party hereby
expressly waive bringing of suit and diligence in taking any action to collect
any sums owing hereon and in the handling of any security and Maker and each
other liable party hereby consent to and agree to remain liable hereon
regardless of any renewals, extensions for any period or rearrangements hereof,
or partial prepayments hereon, or any release or substitution of security
herefor, in whole or in part, with or without notice, from time to time, before
or after maturity.
It is the intention of Maker and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for this Note, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under this Note or under any of
the other aforesaid agreements or otherwise in connection with this Note shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on this Note by the holder
hereof (or, if this Note shall have been paid in full, refunded to Maker); (ii)
determination of the rate of interest for determining whether the loan hereunder
is usurious shall be made by amortizing, prorating, allocating and spreading, in
equal parts during the full stated term of such loan, all interest at any time
contracted for, charged or received from the Maker in connection with such loan,
and any excess shall be canceled, credited or refunded as set forth in (i)
herein; and (iii) in the event that maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from any default hereunder
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 allowed by applicable law, and excess interest, if any, provided for in
this Note or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore prepaid, shall be credited on
this Note (or if this Note shall have been paid in full, refunded to Maker).
This Note shall be construed under and governed by the laws of the
State of Texas (including applicable federal law), but in any event Chapter 346
of the Texas Finance Code (which regulates certain revolving loan accounts and
revolving triparty accounts) shall not apply to the loan evidenced by this Note.
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 Revised Civil Statutes Annotated article 5069-1.D
as amended.
This Note is secured as provided by the Loan Agreement and the
"Security Instruments" defined therein.
54
59
Wherefore, intending to be legally bound hereby, Maker has executed
this Note.
MAKER:
Address:
--------------------------------------
By:
---------------------------- -----------------------------------
Name:
---------------------------- ---------------------------------
Title:
---------------------------- --------------------------------
55
60
EXHIBIT "B-1"
TO LOAN AGREEMENT
AMONG
B&B ELECTROMATIC, INC.,
XXXXXXX COMPANY, INC.
AND
FROST CAPITAL GROUP
Term Note A
56
61
TERM NOTE A
$ January __, 1999
___________
FOR VALUE RECEIVED, the undersigned, ______________________, a
corporation (hereinafter called "Maker") promises to pay to the order of THE
FROST NATIONAL BANK, a national banking association doing business as FROST
CAPITAL GROUP (hereinafter called "Lender"), at its offices at 0000 Xxxxx, Xxxxx
000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000, in lawful money of the United States
of America, the sum of ____________ and ___________/100 Dollars ($____________ )
or such lesser amount as may be loaned and remain outstanding hereunder,
together with accrued interest as provided hereinbelow.
This promissory note ("Note") is executed and delivered by Maker
pursuant to that certain Loan Agreement dated as of January __, 1999 among
Lender, Maker, B&B Electromatic, Inc. and Xxxxxxx Company, Inc. (hereinafter
called the "Loan Agreement") and is a Term Note A as defined therein. All terms
defined in the Loan Agreement, wherever used herein, shall have the same
meanings herein as are prescribed by the Loan Agreement.
All loans outstanding and evidenced hereunder are subject to the terms
and provisions of the Loan Agreement. The maximum principal amount at any time
outstanding hereunder shall not at any time exceed an amount equal to the
maximum amount allowed to be outstanding hereunder as prescribed by the Loan
Agreement. The unpaid principal from day to day outstanding under this Note
shall bear interest at the applicable rate prescribed for the Notes as provided
in Section 2.02 of the Loan Agreement (but in no event to exceed the Maximum
Nonusurious Interest Rate).
The principal of this Note is due and payable in twenty four (24)
monthly installments, the first twenty three (23) of which shall be in the
amount of _____________________and /100 Dollars ($__________ ) each, on the
first (1st) day of each month commencing January 1, 1999, and one (1) final
installment of all unpaid principal and accrued interest on January 1, 2000.
Accrued interest under this Note, at the rate provided in Section 2.02 of the
Loan Agreement, shall be due and payable monthly on the first day of each month
during the term hereof in addition to any payment of principal which may be due
on such date. Provided that, notwithstanding the foregoing, the entire principal
balance of this Note, and all accrued interest hereon, shall automatically be
and become due and payable immediately upon the maturity of any Inventory Loan
Note, whether by demand or otherwise, however such maturity may occur or be
brought about. Lender's records shall be prima facie evidence of loans, payments
and interest accruals hereunder.
If any Event of Default shall have occurred then, at the option of
Lender, the principal and unpaid accrued interest on this Note and any and all
other indebtedness of Maker to Lender shall become and be due and payable
forthwith without demand, notice of default or of intent to accelerate the
maturity hereof, notice of acceleration, notice of nonpayment, presentment,
protest or notice of dishonor, all of which are hereby expressly waived by Maker
and each drawer, accepter, endorser, guarantor, surety, accommodation party or
other person now or hereafter
57
62
primarily or secondarily liable upon or for payment of all or any part of this
Note (each hereinafter called an "other liable party").
If this Note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Maker and each other liable party agree to pay Lender its collection costs,
including a reasonable amount (which is agreed to be an additional amount at
least equal to fifteen percent (15%) of the unpaid principal and interest
hereof) for attorney's fees, but in no event to exceed the maximum amount
permitted by law. Maker and each other liable party are and shall be directly
and primarily, jointly and severally, liable for the payment of all sums called
for hereunder, and Maker and each other liable party hereby expressly waive
bringing of suit and diligence in taking any action to collect any sums owing
hereon and in the handling of any security and Maker and each other liable party
hereby consent to and agree to remain liable hereon regardless of any renewals,
extensions for any period or rearrangements hereof, or partial prepayments
hereon, or any release or substitution of security herefor, in whole or in part,
with or without notice, from time to time, before or after maturity.
It is the intention of Maker and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for this Note, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under this Note or under any of
the other aforesaid agreements or otherwise in connection with this Note shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on this Note by the holder
hereof (or, if this Note shall have been paid in full, refunded to Maker); (ii)
determination of the rate of interest for determining whether the loans
hereunder are usurious shall be made by amortizing, prorating, allocating and
spreading, in equal parts during the full stated term of such loans, all
interest at any time contracted for, charged or received from the Maker in
connection with such loans, and any excess shall be canceled, credited or
refunded as set forth in (i) herein; and (iii) in the event that maturity of
this Note is accelerated by reason of an election by the holder hereof resulting
from any default hereunder 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 allowed by applicable law, and excess
interest, if any, provided for in this Note or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on this Note (or if this Note shall have
been paid in full, refunded to Maker).
This Note shall be construed under and governed by the laws of the
State of Texas (including applicable federal law), but in any event Chapter 346
of the Texas Finance Code (which regulates certain revolving loan accounts and
revolving triparty accounts) shall not apply to the loan evidenced by this Note.
58
63
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 Revised Civil Statutes article 5069.1D, as
amended.
This Note is secured as provided by the Loan Agreement and the
"Security Instruments" defined therein.
Wherefore, intending to be legally bound hereby, Maker has executed
this Note.
MAKER:
Address:
--------------------------------------
By:
---------------------------- -----------------------------------
Name:
---------------------------- ---------------------------------
Title:
---------------------------- --------------------------------
59
64
EXHIBIT "B-2"
TO LOAN AGREEMENT
AMONG
B&B ELECTROMATIC, INC.,
XXXXXXX COMPANY, INC.
AND
FROST CAPITAL GROUP
Term Note B
60
65
TERM NOTE B
$ ___________, 199_
____________
FOR VALUE RECEIVED, the undersigned, _________________, a corporation
(hereinafter called "Maker") promises to pay to the order of THE FROST NATIONAL
BANK, a national banking association doing business as FROST CAPITAL GROUP
(hereinafter called "Lender"), at its offices at 0000 Xxxxx, Xxxxx 000, Xxxxxxx,
Xxxxxx Xxxxxx, Xxxxx 00000, in lawful money of the United States of America, the
sum of ___________________and ____________/100 Dollars ($___________ ) or such
lesser amount as may be loaned and remain outstanding hereunder, together with
accrued interest as provided hereinbelow.
This promissory note ("Note") is executed and delivered by Maker
pursuant to that certain Loan Agreement dated as of January 22, 1999 among
Lender, Maker, B&B Electromatic, Inc. and Xxxxxxx Company, Inc. (hereinafter
called the "Loan Agreement") and is a Term Note B as defined therein. All terms
defined in the Loan Agreement, wherever used herein, shall have the same
meanings herein as are prescribed by the Loan Agreement.
All loans outstanding and evidenced hereunder are subject to the terms
and provisions of the Loan Agreement. The maximum principal amount at any time
outstanding hereunder shall not at any time exceed an amount equal to the
maximum amount allowed to be outstanding hereunder as prescribed by the Loan
Agreement. The unpaid principal from day to day outstanding under this Note
shall bear interest at the applicable rate prescribed for the Notes as provided
in Section 2.02 of the Loan Agreement (but in no event to exceed the Maximum
Nonusurious Interest Rate).
The principal of this Note is due and payable in forty-eight (48)
monthly installments, the first forty-seven (47) of which shall be in the amount
of $__________ each, on the first day of each month during the term hereof
beginning on the first day of the calendar month next occurring after the date
hereof, and one final installment of all unpaid principal and accrued unpaid
interest on the date that is the fourth (4th) anniversary of the date thereof.
Accrued interest under this Note, at the rate provided in Section 2.02 of the
Loan Agreement, shall be due and payable monthly on the first day of each month
during the term hereof in addition to any payment of principal which may be due
on such date. Provided that, notwithstanding the foregoing, the entire principal
balance of this Note, and all accrued interest thereon, shall automatically be
and become due and payable immediately upon the maturity of any Inventory Loan
Note, whether by demand or otherwise, however such maturity may occur or be
brought about. Lender's records shall be prima facie evidence of loans, payments
and interest accruals hereunder.
If any Event of Default shall have occurred then, at the option of
Lender, the principal and unpaid accrued interest on this Note and any and all
other indebtedness of Maker to Lender shall become and be due and payable
forthwith without demand, notice of default or of intent to accelerate the
maturity hereof, notice of acceleration, notice of nonpayment, presentment,
protest or notice of dishonor, all of which are hereby expressly waived by Maker
and each drawer, accepter, endorser, guarantor, surety, accommodation party or
other person now or hereafter
61
66
primarily or secondarily liable upon or for payment of all or any part of this
Note (each hereinafter called an "other liable party").
If this Note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Maker and each other liable party agree to pay Lender its collection costs,
including a reasonable amount (which is agreed to be an additional amount at
least equal to fifteen percent (15%) of the unpaid principal and interest
hereof) for attorney's fees, but in no event to exceed the maximum amount
permitted by law. Maker and each other liable party are and shall be directly
and primarily, jointly and severally, liable for the payment of all sums called
for hereunder, and Maker and each other liable party hereby expressly waive
bringing of suit and diligence in taking any action to collect any sums owing
hereon and in the handling of any security and Maker and each other liable party
hereby consent to and agree to remain liable hereon regardless of any renewals,
extensions for any period or rearrangements hereof, or partial prepayments
hereon, or any release or substitution of security herefor, in whole or in part,
with or without notice, from time to time, before or after maturity.
It is the intention of Maker and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for this Note, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under this Note or under any of
the other aforesaid agreements or otherwise in connection with this Note shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on this Note by the holder
hereof (or, if this Note shall have been paid in full, refunded to Maker); (ii)
determination of the rate of interest for determining whether the loans
hereunder are usurious shall be made by amortizing, prorating, allocating and
spreading, in equal parts during the full stated term of such loans, all
interest at any time contracted for, charged or received from the Maker in
connection with such loans, and any excess shall be canceled, credited or
refunded as set forth in (i) herein; and (iii) in the event that maturity of
this Note is accelerated by reason of an election by the holder hereof resulting
from any default hereunder 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 allowed by applicable law, and excess
interest, if any, provided for in this Note or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on this Note (or if this Note shall have
been paid in full, refunded to Maker).
This Note shall be construed under and governed by the laws of the
State of Texas (including applicable federal law), but in any event Chapter 346
of the Texas Finance Code (which regulates certain revolving loan accounts and
revolving triparty accounts) shall not apply to the loan evidenced by this Note.
62
67
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 Revised Civil Statutes Annotated article
5069-1.D, as amended.
This Note is secured as provided by the Loan Agreement and the
"Security Instruments" defined therein.
Wherefore, intending to be legally bound hereby, Maker has executed
this Note.
MAKER:
Address:
--------------------------------------
By:
---------------------------- -----------------------------------
Name:
---------------------------- ---------------------------------
Title:
---------------------------- --------------------------------
63
68
EXHIBIT "B-3"
TO LOAN AGREEMENT
AMONG
B&B ELECTROMATIC, INC.,
XXXXXXX COMPANY, INC.
AND
FROST CAPITAL GROUP
Term Note C
64
69
TERM NOTE C
$ ___________, 199_
____________
FOR VALUE RECEIVED, the undersigned, _______________ , a corporation
(hereinafter called "Maker") promises to pay to the order of THE FROST NATIONAL
BANK, a national banking association doing business as FROST CAPITAL GROUP
(hereinafter called "Lender"), at its offices at 0000 Xxxxx, Xxxxx 000, Xxxxxxx,
Xxxxxx Xxxxxx, Xxxxx 00000, in lawful money of the United States of America, the
sum of____________ and _____________/100 Dollars ($_____________ ) or such
lesser amount as may be loaned and remain outstanding hereunder, together with
accrued interest as provided hereinbelow.
This promissory note ("Note") is executed and delivered by Maker
pursuant to that certain Loan Agreement dated as of January 22, 1999 among
Lender, Maker, B&B Electromatic, Inc. and Xxxxxxx Company, Inc. (hereinafter
called the "Loan Agreement") and is a Term Note C as defined therein. All terms
defined in the Loan Agreement, wherever used herein, shall have the same
meanings herein as are prescribed by the Loan Agreement.
All loans outstanding and evidenced hereunder are subject to the terms
and provisions of the Loan Agreement. The maximum principal amount at any time
outstanding hereunder shall not at any time exceed an amount equal to the
maximum amount allowed to be outstanding hereunder as prescribed by the Loan
Agreement. The unpaid principal from day to day outstanding under this Note
shall bear interest at the applicable rate prescribed for the Notes as provided
in Section 2.02 of the Loan Agreement (but in no event to exceed the Maximum
Nonusurious Interest Rate).
The principal of this Note is due and payable in seventy-two (72)
monthly installments, the first seventy-one (71) of which shall be in the amount
of $____________ each, on the first day of each month during the term hereof
beginning on the first day of the calendar month next occurring after the date
hereof, and one final installment of all unpaid principal and accrued unpaid
interest on the date that is the sixth (6th) anniversary of the date thereof.
Accrued interest under this Note, at the rate provided in Section 2.02 of the
Loan Agreement, shall be due and payable monthly on the first day of each month
during the term hereof in addition to any payment of principal which may be due
on such date. Provided that, notwithstanding the foregoing, the entire principal
balance of this Note, and all accrued interest thereon, shall automatically be
and become due and payable immediately upon the maturity of any Inventory Loan
Note, whether by demand or otherwise, however such maturity may occur or be
brought about. Lender's records shall be prima facie evidence of loans, payments
and interest accruals hereunder.
If any Event of Default shall have occurred then, at the option of
Lender, the principal and unpaid accrued interest on this Note and any and all
other indebtedness of Maker to Lender shall become and be due and payable
forthwith without demand, notice of default or of intent to accelerate the
maturity hereof, notice of acceleration, notice of nonpayment, presentment,
protest or notice of dishonor, all of which are hereby expressly waived by Maker
and each drawer,
65
70
accepter, endorser, guarantor, surety, accommodation party or other person now
or hereafter primarily or secondarily liable upon or for payment of all or any
part of this Note (each hereinafter called an "other liable party").
If this Note is not paid at maturity whether by acceleration or
otherwise and is placed in the hands of an attorney for collection, or suit is
filed hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Maker and each other liable party agree to pay Lender its collection costs,
including a reasonable amount (which is agreed to be an additional amount at
least equal to fifteen percent (15%) of the unpaid principal and interest
hereof) for attorney's fees, but in no event to exceed the maximum amount
permitted by law. Maker and each other liable party are and shall be directly
and primarily, jointly and severally, liable for the payment of all sums called
for hereunder, and Maker and each other liable party hereby expressly waive
bringing of suit and diligence in taking any action to collect any sums owing
hereon and in the handling of any security and Maker and each other liable party
hereby consent to and agree to remain liable hereon regardless of any renewals,
extensions for any period or rearrangements hereof, or partial prepayments
hereon, or any release or substitution of security herefor, in whole or in part,
with or without notice, from time to time, before or after maturity.
It is the intention of Maker and Lender to conform strictly to
applicable usury laws. Accordingly, if the transactions contemplated hereby
would be usurious under applicable law, then, in that event, notwithstanding
anything to the contrary in any agreement entered into in connection with or as
security for this Note, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under this Note or under any of
the other aforesaid agreements or otherwise in connection with this Note shall
under no circumstances exceed the maximum amount of interest allowed by
applicable law, and any excess shall be credited on this Note by the holder
hereof (or, if this Note shall have been paid in full, refunded to Maker); (ii)
determination of the rate of interest for determining whether the loans
hereunder are usurious shall be made by amortizing, prorating, allocating and
spreading, in equal parts during the full stated term of such loans, all
interest at any time contracted for, charged or received from the Maker in
connection with such loans, and any excess shall be canceled, credited or
refunded as set forth in (i) herein; and (iii) in the event that maturity of
this Note is accelerated by reason of an election by the holder hereof resulting
from any default hereunder 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 allowed by applicable law, and excess
interest, if any, provided for in this Note or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore prepaid, shall be credited on this Note (or if this Note shall have
been paid in full, refunded to Maker).
This Note shall be construed under and governed by the laws of the
State of Texas (including applicable federal law), but in any event Chapter 346
of the Texas Finance Code (which regulates certain revolving loan accounts and
revolving triparty accounts) shall not apply to the loan evidenced by this Note.
66
71
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 Revised Civil Statutes Annotated article
5069-1.D, as amended.
This Note is secured as provided by the Loan Agreement and the
"Security Instruments" defined therein.
Wherefore, intending to be legally bound hereby, Maker has executed
this Note.
MAKER:
Address:
--------------------------------------
By:
---------------------------- -----------------------------------
Name:
---------------------------- ---------------------------------
Title:
---------------------------- --------------------------------
67
