Exhibit 10.27
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LOAN AGREEMENT
By and Among
TEMTEX INDUSTRIES, INC.
and
TEMCO FIREPLACE PRODUCTS, INC.
and
THE FROST NATIONAL BANK,
a national banking association
doing business as
FROST CAPITAL GROUP, and
formerly known as
CREEKWOOD CAPITAL GROUP
$4,000,000 Revolving Line of Credit Facility
Dated as of
September 6, 2000
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LOAN AGREEMENT
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THIS AGREEMENT made and entered into as of this 6th day of
September, 2000, by and between TEMTEX INDUSTRIES, INC., a
Delaware corporation ("Temtex"), and TEMCO FIREPLACE PRODUCTS,
INC., a Texas corporation ("Temco"), with their principal office
and mailing address at 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx,
Xxxxx 00000 (Temtex and Temco are hereinafter called,
individually and collectively, jointly and severally, the
"Borrower") and THE FROST NATIONAL BANK, a national banking
association, doing business as FROST CAPITAL GROUP, and formerly
known as CREEKWOOD CAPITAL GROUP, with offices at 0000 Xxxxx,
Xxxxx 000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx 00000 (hereinafter
called the "Lender");
W I T N E S E T H:
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For and in consideration of the mutual covenants and
agreements herein contained and of the loans and commitment
hereinafter referred to, the Borrower and the Lender agree as
follows:
ARTICLE I
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GENERAL TERMS
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Section 1.01 Terms Defined Above. As used in this
Agreement, the terms "Borrower" 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:
"Accounts Advance Amount" shall mean at any time an
amount equal to the product of (a) all Eligible Accounts
times (b) a percentage, which shall initially be eighty
percent (80%). Lender shall have the right at any time, and
from time to time, in its sole discretion, to revise the
above-described percentage.
"Affiliate" shall mean any Person controlling,
controlled by or under common control with any other Person.
For purposes of this definition, "control" (including
"controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of
such Person, whether through the ownership of voting
securities or otherwise. Without limiting the generality of
the foregoing, for purposes of this Agreement, Borrower,
each Guarantor, if any, and each of Borrower's Subsidiaries,
if any, shall be deemed to be Affiliates of one another.
"Agreement" shall mean this Loan Agreement, as the same
may from time to time be amended or supplemented or restated
from time to time.
"Borrowing Base" shall mean at any time an amount not
to exceed the lesser of: (a) Four Million and no/100
Dollars ($4,000,000.00), or (b) the sum of the Accounts
Advance Amount determined as of the date the Borrowing Base
is calculated plus the
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Inventory Advance Amount determined as of the date the
Borrowing Base is calculated. The Borrowing Base will not
include any Properties of Subsidiaries of Borrower.
"Business Day" shall mean any day on which Reference
Bank is open for the conduct of general banking business.
"Closing" shall mean the date and time for closing the
transaction contemplated hereby, described in Section 7.01
hereof.
"Closing Fee" shall mean the fee payable by Borrower as
described in Section 2.15 hereof.
"Commitment" shall mean the obligation of the Lender to
make revolving credit loans to the Borrower under Section
2.01 hereof, up to the maximum amount therein stated.
"Compliance Certificate" shall mean a certificate of
Borrower signed by an authorized officer of Borrower,
containing the information required by Section 4.15.
"Default" shall mean the occurrence of any of the
events specified in Article VI hereof, whether or not any
requirement for notice or lapse of time or other condition
precedent has been satisfied.
"Distribution" by any Person shall mean (a) with
respect to any stock issued by such Person, the retirement,
redemption, purchase or other acquisition for value of any
such stock, (b) the declaration or payment of any dividend
or other distribution on or with respect to such stock, (c)
any loan or advance by such Person to, or other investment
by such Person in, the holder of any such stock, (d) any
other payment (other than ordinary salaries to employees or
advances made in the ordinary course of business to
employees for travel or other expenses incurred in the
ordinary course of business) by such Person to or for the
benefit of the holder of any such stock, and (e) any payment
of principal or interest on any Subordinated Debt.
"Drawdown Termination Date" shall mean August 31, 2003,
or such earlier date if Lender exercises its rights to
DEMAND payment of the Indebtedness in full pursuant to its
rights hereunder and under the Revolving Credit Note, or
such later date, if this Agreement is extended pursuant to
Section 2.01 hereof.
"DTPA" shall mean the Texas Deceptive Trade Practices
Consumer Protection Act, Subchapter E of Chapter 17 of the
Texas Business and Commerce Code.
"Eligible Accounts" shall mean at any time an amount
equal to the aggregate net invoice or ledger amount owing on
all trade accounts receivable of the Borrower for goods sold
or leased or services rendered, in which the Lender has a
perfected, first priority lien or security interest, after
deducting (a) the amount of all accounts receivables unpaid
for (i) ninety (90) days or more after the date of the
original invoice, or (ii) for accounts with special or dated
terms, the earlier of thirty (30) days past the original due
date thereof or one hundred twenty (120) days past the date
of the original invoice; (b) all
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such accounts for which twenty-five percent (25%) or more of
the outstanding aggregate balance owed by any account debtor
is unpaid for ninety (90) days or more from the date of the
original invoice; (c) the amount owed by any account debtor
that exceeds twenty-five percent (25%) of all Eligible
Accounts of Borrower; (d) all contra-accounts, setoffs,
defenses or counterclaims asserted by or available to the
Persons obligated on such accounts; (e) the amount of all
discounts, allowances, rebates, credits and adjustments to
such accounts; (f) all such accounts owing by officers or
employees of Borrower or by Subsidiaries or by any other
Person in which Borrower may have an equity interest; (g)
all such accounts owed by account debtors which are
insolvent, in any bankruptcy proceeding, or otherwise which
Lender, in its sole discretion, deems not acceptable; (h)
accounts where the account debtor is a federal government
agency; (i) all accounts owed by account debtors which are
xxxx and hold, pre-xxxx or progress billing; and (j)
accounts where the account debtor is a foreign entity, other
than a Canadian entity, and such accounts are not supported
by a domestically confirmed letter of credit which is
acceptable to Lender in its sole discretion. Standards of
eligibility and concentration limits may be revised at any
time, and from time to time solely by Lender in its sole
discretion.
"Eligible Inventory" shall mean an amount equal to the
value of all of the Borrower's Inventory which is raw
materials or finished goods in which Lender has a perfected,
first priority lien or security interest valued at the
lesser of (i) cost or (ii) current market value. Eligible
Inventory will not include, without limitation, Inventory:
(a) consigned to or from third parties, (b) accounted for on
the books of the Borrower as other than raw materials or
finished goods, (c) located outside of the continental
United States (except for Inventory valued at no more than
$500,000 located at warehouses in Canada), (d) that is slow-
moving, obsolete, damaged or spoiled, (e) comprised of
packaging supplies, materials, boxes or containers or (f)
goods which Lender, in its sole discretion, deems not
acceptable.
"Environmental Laws" shall mean all federal, state and
local laws, rules, regulations, ordinances, programs,
permits, guidances, orders and consent decrees relating to
health, safety or environmental matters.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Event of Default" shall mean the occurrence of any of
the events specified in Article VI hereof, provided that any
requirement for notice or lapse of time or any other
condition precedent has been satisfied.
"Financial Statements" shall mean the consolidated and
consolidating financial statement or statements of Borrower
and its Subsidiaries, if any, described or referred to in
Section 3.06 hereof.
"GAAP" shall mean Generally Accepted Accounting
Principles in effect in the United States applied on a
consistent basis.
"Guaranty Agreement" shall mean the Guaranty Agreement
executed by
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Guarantors in favor of the Lender (as the same may be
amended, modified, supplemented or restated from time to
time).
"Guarantors" shall mean any Person that at any time
executes a Guaranty Agreement.
"Indebtedness" shall mean any and all amounts owing or
to be owing by Borrower to the Lender in connection with the
Note, this Agreement, and other liabilities of the Borrower
to the Lender from time to time existing, including, without
limitation, guaranties of indebtedness and obligations
acquired from third Persons, whether in connection with this
or other transactions, and all amounts owing or to be owing
by the Borrower to any agent bank of Lender pursuant to any
letter of credit agreement, overdraft agreement or other
agreement or financial accommodation.
"Indemnified Party" shall have the meaning set forth in
Section 8.20.
"Inventory" shall mean any goods held by the Borrower
for sale in the ordinary course of Borrower's business which
includes goods purchased for resale and shall not include
used or surplus goods or goods held on consignment or goods
which the Lender, in its sole discretion, deems not
acceptable.
"Inventory Advance Amount" shall mean at any time an
amount equal to the product of (a) all Eligible Inventory of
the Borrower located at the facilities of the Borrower and
in warehouse locations for which Lender has received a
satisfactory warehouseman's agreement and which are
otherwise acceptable to Lender, times (b) a percentage,
which shall initially be forty percent (40%); provided,
however, that the Inventory Advance Amount shall not at any
time exceed Two Million Five Hundred Thousand and no/100
Dollars ($2,500,000.00). Lender shall have the right at any
time, and from time to time, in its sole discretion, to
revise the above-described percentages.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the
owner of the Property, whether such interest is based on the
common law, statute or contract, and including but not
limited to the security interest or lien arising from a
mortgage, security agreement, deed of trust, assignment,
collateral mortgage, chattel mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment,
bailment for security purposes or certificate of title lien.
The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purposes of
this Agreement, the Borrower or any Guarantor 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 Facility" shall mean $4,000,000.
"Maximum Nonusurious Interest Rate" shall mean the
maximum nonusurious interest rate allowable under applicable
United States federal law and under the laws of
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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.
"Note" shall mean the promissory note or notes (whether
one or more) of the Borrower described in Section 2.01
hereof, together with any and all renewals, extensions,
increases or rearrangements thereof. The "Note" shall
include, without limitation, the Revolving Credit Note.
"Obligations" means all loans, advances, debts, other
Indebtedness, principal, interest, liabilities, liquidated
damages, obligations, fees, charges, costs or expenses,
lease payments, guarantees, covenants, and duties owing by
Borrower to the Lender of any kind and description whether
direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any
debt, liability, or obligation from Borrower to any other
Person that the Lender may have obtained by assignment or
otherwise, and further including all interest not paid when
due and all expenses that Borrower is required to pay or
reimburse by agreement, law or otherwise.
"Person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock
company, limited liability company, trust, trustee,
unincorporated organization, government or any agency or
political subdivision thereof, or any other form of entity.
"Plan" shall mean any Plan subject to Title IV of ERISA
and maintained by the Borrower or any Subsidiary, or any
such plan to which the Borrower or any Subsidiary is
required to contribute on behalf of its employees.
"Prime Rate" shall mean 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
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
the 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., and Banker's Trust Company. Such institution may be
changed at Lender's discretion, such change to be effective
on the date of such change.
"Property" shall mean any interest in any kind of
property or asset, whether real,
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personal or mixed, or tangible or intangible.
"Reference Bank" shall mean The Frost National Bank, a
national banking association, and its successors and
assigns.
"Revolving Credit Note" shall mean the promissory note
of the Borrower described in Subsection 2.01(a) hereof and
being in the form of note attached as Exhibit "A" hereto,
and all renewals, extensions, modifications and
rearrangements thereof.
"RICO" shall mean the Racketeer Influenced and Corrupt
Organization Act of 1970, as amended.
"Security Instruments" shall mean this Agreement, the
agreements or instruments described or referred to in
Sections 7.09, 7.10 and 7.12 hereof, and any and all other
agreements or instruments now or hereafter executed and
delivered by Borrower, any Subsidiary or any other Person
(other than solely by the Lender and/or any bank or creditor
participating in the benefits of loans evidenced by the Note
or any collateral or security therefor) in connection with,
or as security for the payment or performance of, the Note
or this Agreement (as the same may be amended, modified,
supplemented or restated from time to time).
"Subordinated Debt" shall mean the indebtedness,
obligations and liabilities of Borrower owing to
Subordinated Lenders which is subordinated in right of
payment to payment of the Indebtedness upon terms and
conditions and pursuant to documentation satisfactory to
Lender, in its sole discretion.
"Subordinated Lenders" shall mean all of the lenders
listed on Exhibit "B" attached hereto to Borrower or to
Guarantors, any Subsidiary or any other Person whose rights
in respect of Indebtedness from Borrower or any such
Subsidiary is subordinated to the Lender pursuant to terms
and executed or documentation in form and substance
satisfactory to the Lender, in its sole discretion.
"Subsidiary" shall mean any corporation of which more
than fifty percent (50%) of the issued and outstanding
securities having ordinary voting power for the election of
directors is owned or controlled, directly or indirectly, by
Borrower and/or one or more of the Subsidiaries and/or one
or more shareholders of Borrower. Unless context otherwise
requires, "Subsidiary" shall not include Temco.
"Temco" shall have the meaning set forth in the
preamble.
"Temtex" shall have the meaning set forth in the
preamble.
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 GAAP,
except where such principles are inconsistent with the
requirements of this Agreement.
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ARTICLE II
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AMOUNT AND TERMS OF LOAN
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Section 2.01 The Loans and Commitment. Subject to the
terms and conditions and relying on the representations and
warranties contained in this Agreement, the Lender agrees to make
the following loans to the Borrower:
(a) Revolving Credit Loans. From the date of this
Agreement through the Drawdown Termination Date, the Lender
may make revolving credit loans to Borrower from time to
time on any Business Day in such amounts as Borrower may
request up to the maximum amount hereinafter stated, and
Borrower may make borrowings, prepayments and reborrowings
(as permitted or required in Sections 2.07 and 2.08 hereof)
in respect thereof; provided, however, that the aggregate
principal amount of all such revolving credit loans (also
referred to herein as "Advances") at any one time
outstanding shall not exceed the Borrowing Base. To
evidence the revolving credit loans made by the Lender
pursuant to this Section, the Borrower will issue, execute
and deliver the Revolving Credit Note dated as of the date
of this Agreement, payable on DEMAND, but if no demand is
made, on the Drawdown Termination Date and secured by all of
the Collateral (as defined in the Security Instruments).
Thereafter, at the sole discretion of the Lender, the term
of the Revolving Credit Note and the Drawdown Termination
Date may be extended for a term of one (1) year. At the
expiration of such term, in the event the Borrower has not
given the Lender sixty (60) days' prior written notice of
its intent to terminate the revolving credit loans pursuant
to the Revolving Credit Note, then, at the sole discretion
of the Lender, the revolving credit loans shall be renewed,
and the Drawdown Termination Date extended, for a period of
one (1) year; and at the end of such one (1) year extension,
the revolving credit loans may be again extended, from year
to year, in the same fashion. Each such extension shall be
upon the same terms and conditions as set forth herein and
in the Revolving Credit Note and the Security Instruments
relating to the same, and upon such further stipulations and
conditions as the Lender may require. Interest on the
Revolving Credit Note shall accrue and be payable as
provided in Section 2.02 hereof.
Section 2.02 Interest Rate. The Revolving Credit Note
shall bear interest at the following rates:
(a) The Revolving Credit Note shall bear interest from
the date thereof until maturity at varying rates of interest
which is one and one-quarter percent (1.25%) above the Prime
Rate, as the same may change from day to day, calculated on
the last day of each month (but in no event to exceed the
Maximum Nonusurious Interest Rate).
(b) Upon the occurrence an Event of Default, principal
and past due interest (to the extent permitted by law) in
respect of the Note shall bear interest at a rate which is
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) irrespective of
whether the Indebtedness has been accelerated.
(c) Interest calculations are subject to certain
recapture provisions set forth in
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the Note.
(d) Interest charges shall be paid monthly in arrears
on the first day of each calendar month.
Section 2.03 Notice and Manner of Revolving Credit
Borrowing. The amount and date of each Advance shall be made as
set forth in this Section. Advances under the Revolving Credit
Note may be made by the Lender (i) pursuant to the terms of any
written agreement executed in connection herewith between
Borrower and Lender, or (ii) at the oral or written request of
the Borrower or of any officer or agent of Borrower designated by
or acting under the authority of resolutions of the board of
directors of Borrower, if a corporation, or other written
authorization of Borrower if other than a corporation, a duly
certified or executed copy of which shall be furnished to the
Lender, until written notice of the revocation of such authority
is received by the Lender. Borrower covenants and agrees to
furnish to the Lender written confirmation of any such oral
request within five (5) days of the resulting Advance, but any
such Advance shall be deemed to be made under and entitled to the
benefits of the Revolving Credit Note irrespective of any failure
by Borrower to furnish such written confirmation. Any Advance
shall be conclusively presumed to have been made under the terms
of the Revolving Credit Note to or for the benefit of Borrower
when made pursuant to the terms of any written agreement executed
in connection therewith between Borrower and Lender, or in
accordance with such requests and directions, or when said
Advances are deposited to the credit of the account of Borrower
with Lender regardless of the fact that Persons other than those
authorized hereunder may have authority to draw against such
account, or may have requested an Advance.
Section 2.04 Limitation. Lender shall have no obligation
to make Advances hereunder to the extent such Advance would cause
the outstanding principal balance of the Revolving Credit Note to
exceed the Borrowing Base.
Section 2.05 Application of Cash Sums. All cash sums paid
to and received by the Lender on account of any Property upon
which the Lender has a Lien (i) shall be promptly applied by the
Lender 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 the Lender may elect;
provided, however, the Lender need not apply or give credit for
any item included in such sums until the Lender has received
final credit therefor from its bank in accordance with normal
banking practices (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 the
Lender; provided, further, however, the Lender's failure to so
apply any such sums shall not be a waiver of the 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 the Lender, shall be released to the Borrower for use
in the Borrower's business.
Section 2.06 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 2.07 Voluntary Prepayments and Reborrowings. The
unpaid principal
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balance of the Revolving Credit Note at any time shall be the
total amounts loaned or advanced thereunder by the Lender, less
the amount of payments or prepayments of principal made thereon
by or for the account of Borrower. It is contemplated that by
reason of prepayments thereon there may be times when no
Indebtedness is owing thereunder; but notwithstanding such
occurrences, the Revolving Credit Note and Security Instruments
shall remain valid and be in full force and effect as to loans or
advances made pursuant to and under the terms of the Revolving
Credit Note subsequent to each such occurrence. All loans or
advances and all payments or prepayments made thereunder on
account of principal or interest may be evidenced by Lender, or
any subsequent holder, maintaining in accordance with its usual
practice an account or accounts evidencing the Indebtedness of
the Borrower resulting from all loans or advances and all
payments or prepayments thereunder from time to time and the
amounts of principal and interest payable and paid from time to
time thereunder, in which event, in any legal action or
proceeding in respect of the Revolving Credit Note, the entries
made in such account or accounts shall be conclusive evidence of
the existence and amounts of the obligations of the Borrower
therein recorded.
Section 2.08 Mandatory Prepayments. If at any time the
outstanding principal balance under the Revolving Credit Note
exceeds the Borrowing Base, then Borrower shall forthwith prepay
the amount of such excess for application towards reduction of
the outstanding principal balance of the Revolving Credit Note.
Said prepayment shall be without premium or penalty, and shall be
made together with the payment of accrued interest on the amount
prepaid.
Section 2.09 Cross-collateralization and Default. The
Security Instruments, including this Agreement, the Note and any
other instrument given in connection with, or as security for,
any Indebtedness of Borrower or any Subsidiary, shall serve as
security one for the other, and an event of default under the
Note or any such instrument shall constitute an event of default
under all such other Note and instruments.
Section 2.10 Termination of Commitment. Notwithstanding
anything to the contrary contained herein, in the Revolving
Credit Note, or in any other instrument or agreement executed in
connection with or as security for the Indebtedness, the Lender
may, (a) at any time, and from time to time, in its sole
discretion, refuse to make any advance for a revolving credit
loan hereunder and under the Revolving Credit Note, or (b) upon
giving the Borrower at least sixty (60) days' prior notice, at
any time terminate its Commitment to advance funds to the
Borrower hereunder and under the Revolving Credit Note and all
other obligations, if any, of the Lender hereunder. The rights
of the Lender under this Section 2.10 are in addition to the
rights of the Lender to terminate the Commitment pursuant to
Section 6.02 hereof.
Section 2.11 Operating Accounts. Annexed hereto as
Schedule 2.11 is a listing of all present operating accounts
which are checking or other demand daily depository accounts
maintained by the Borrower (the "Operating Accounts") together
with the address of that depository, the account number(s)
maintained with such depository, and a contact person at such
depository.
Section 2.12 Cash Collateral Blocked Accounts. Borrower
and the Lender shall establish with banks acceptable to Lender
certain lockboxes and blocked accounts (collectively "Blocked
Accounts") as set forth on Schedule 2.12 annexed hereto, for the
benefit of Lender, for the deposit of all receipts and
collections in accordance with Section 2.13 hereof, pursuant to
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executed blocked account agreements in form and substance
satisfactory to Lender, in its sole discretion. All receipts and
collections deposited in such Blocked Accounts shall be pledged
to Lender and forwarded on a daily basis to Lender's account at
The Frost National Bank. Proceeds received from such Blocked
Accounts shall be applied against any Indebtedness owing by
Borrower to Lender and shall be applied in accordance with
Section 2.05. Borrower shall be entitled to receive, within one
Business Day of Borrower's request therefor, any amounts received
from the Blocked Accounts in excess of the Indebtedness then
owing, or then expected to become owing, to Lender, provided that
Lender has received final credit from its bank for such amounts.
Only Lender shall have the right to direct withdrawals from such
Blocked Accounts, except that Borrower shall be permitted to
initiate, and shall initiate, daily transfers of funds through
the Automated Clearing House system from the Blocked Accounts
directly to (and only to) Lender's account at The Frost National
Bank as described above. Each bank at which any such Blocked
Account is maintained shall waive any right of offset such bank
may otherwise have in such Blocked Account and the items
deposited therein. Borrower shall pay all fees and charges as
may be required by any depository in which such Blocked Accounts
are opened. Borrower shall contemporaneously with the execution
of this Agreement, provide Lender with the duly executed blocked
account agreements relating to such Blocked Accounts.
Section 2.13 Collection of Accounts.
(a) All receipts of cash, cash equivalents, checks,
credit card receipts, notes, drafts, instruments, and other
items of payment arising out of the sale of inventory or
other Property of Borrower or the creation of accounts
receivable, including without limitation, insurance proceeds
and tax refunds (referred to as "Receipts"), and all
Property of Borrower in which Lender has a security interest
or lien, shall be deposited daily into one or more of the
Blocked Accounts, and shall be held in trust by the Borrower
for Lender until so deposited.
(b) In the event, notwithstanding the provisions of
this Section, the Borrower receives or otherwise has
dominion and control of any Receipts, or any proceeds or
collections of any Property of Borrower in which Lender has
a security interest or lien, such Receipts, proceeds, and
collections shall be held in trust by the Borrower for
Lender and shall not be commingled with any of the
Borrower's other funds or deposited in any account of the
Borrower other than a Blocked Account.
Section 2.14 Termination of Commitment or Prepayment in
Full. (a) In the event the Borrower desires to terminate the
Commitment or prepay in full the loans evidenced by the Note at
any time more than two (2) years prior to Drawdown Termination
Date, as the same may be extended, the Borrower will give the
Lender sixty (60) days' written notice of the Borrower's
intention and will pay to the Lender, as liquidated damages and
not as a penalty, the greater of an amount equal to five percent
(5%) of the Maximum Facility on the date of such prepayment, or
the sum of $200,000.00. In the event the Borrower desires to
terminate the Commitment or prepay in full the loans evidenced by
the Note at any time more than one (1) year prior to the Drawdown
Termination Date, as the same may be extended, the Borrower will
give the Lender sixty (60) days' written notice of the Borrower's
intention and will pay to the Lender, as liquidated damages and
not as a penalty, the greater of an amount equal to three percent
(3%) of the Maximum Facility on the date of such prepayment or
the sum of $120,000.00. In the event the Borrower desires to
terminate the Commitment or prepay in full the loans evidenced by
the
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Note at any time which is less than (or exactly) one (1) year
prior to the Drawdown Termination Date, as the same may be
extended, the Borrower will give the Lender sixty (60) days'
written notice of the Borrower's intention and will pay to the
Lender, as liquidated damages and not as a penalty, the greater
of an amount equal to one percent (1%) of the Maximum Facility on
the date of such prepayment or the sum of $40,000.00. In the
event any such notice of prepayment has been given by the
Borrower, the Commitment shall immediately terminate, and all
other obligations, if any, of the Lender, shall terminate on the
expiration of said sixty (60) day notice period, and the entire
principal amount of the Note, together with all accrued interest
thereon, and any other Indebtedness, shall be due and payable on
such date. The prepayment damages provided for herein shall not
apply to prepayments resulting from ordinary payments on the
Revolving Credit Note made from Borrower's collections in
accordance with this Agreement or otherwise in the normal course
of Borrower's business which do not result in a termination of
the Commitment.
Section 2.15 Closing Fee. The Borrower shall pay to
Lender at the Closing a closing fee (herein, the "Closing Fee")
in the amount of Forty Thousand Dollars ($40,000.00) with respect
to the credit facilities established pursuant to this Agreement.
Section 2.16 Collateral Management Fee. The Borrower
shall pay to Lender on the first day of each month during the
term of this Agreement and any extensions of the term of this
Agreement, a monthly collateral management fee equal to Six
Hundred Dollars ($600.00).
Section 2.17 Unused Line Fee. If the average outstanding
daily principal balance of Advances shall be less than the
Maximum Facility in any calendar month, Borrower shall pay to
Lender on the first day of the next succeeding calendar month a
fee (the "Unused Line Fee") equal to one-half of one percent
(.50%) per annum of the amount by which the Maximum Facility
exceeds the average outstanding daily principal balance of
Advances. The Unused Line Fee shall be calculated on the basis
of a three hundred sixty (360) day year for the actual number of
days elapsed and shall be payable for the entire term of this
Agreement, including all renewal terms, or for so long as any of
the Indebtedness is outstanding.
Section 2.18 Subordination. The advances, loans,
extensions of credit or the like made by the Subordinated Lenders
shall be subordinate to any Advances made hereunder pursuant to
terms and executed documentation in form and substance
satisfactory to Lender, in its sole discretion.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Lender to enter into this Agreement,
Borrower represents and warrants to the Lender (which
representations and warranties will survive the delivery of the
Note and the making of the loans thereunder) that:
Section 3.01 Corporate Existence. Borrower 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.
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Section 3.02 Corporate Power and Authorization. Borrower
is duly authorized and empowered to create and issue the Note;
and Borrower, and each Subsidiary is duly authorized and
empowered to execute, deliver and perform the Security
Instruments, including without limitation, this Agreement, to
which it is a party; and all corporate action on the Borrower's
or any Subsidiary's part requisite for the due creation and
issuance of the Note and for the due execution, delivery and
performance of the Security Instruments, including this
Agreement, to which Borrower, or any Subsidiary is a party has
been duly and effectively taken. The Board of Directors of
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 Borrower
is a party, directly or indirectly benefits Borrower and (ii)
that adequate and fair consideration and reasonably equivalent
value has been received by 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
constitute, and the Note and other Security Instruments to which
Borrower or any Subsidiary is a party upon their creation,
issuance, execution and delivery will constitute, valid and
binding obligations of the Borrower or such Subsidiary, as the
case may be, enforceable in accordance with their respective
terms.
Section 3.04 No Legal Bar or Resultant Lien. The Note and
the Security Instruments, including, without limitation this
Agreement, to which Borrower or any Subsidiary is a party, do not
and will not violate any provisions of the articles or
certificates of incorporation or bylaws of Borrower or any such
Subsidiary, or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Borrower or such
Subsidiary is subject, or result in the creation or imposition of
any Lien upon any Properties of Borrower or such Subsidiary,
other than those contemplated by this Agreement.
Section 3.05 No Consent. The execution, delivery and
performance of the Note and the Security Instruments, including
this Agreement, to which Borrower or any Subsidiaries are parties
does 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 Borrower
and its Subsidiaries dated May 31, 2000, which have been
delivered to the Lender, are complete and correct, have been
prepared from the books and records of Borrower in accordance
with GAAP, consistently applied, and fully and accurately reflect
the financial condition and results of the operations of Borrower
and its Subsidiaries 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 business, prospects,
profits, Properties, operations or condition, financial or
otherwise, of Borrower or any Subsidiary, except as disclosed to
the Lender in writing.
Section 3.07 Investments and Guaranties. Neither Borrower
nor any Subsidiary has made investments in, advances to or
guaranties of the obligations of any Person, except Temcomex,
S.A. DE C.V. or as reflected in the Financial Statements.
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Section 3.08 Issuance of Stock. Temtex Industries, Inc.
owns one hundred percent (100%) of the issued and outstanding
stock of Temco Fireplace Products, Inc. There are no outstanding
subscriptions, warrants, options, calls, commitments, convertible
securities or other agreements to which Borrower is a party or by
which it is bound, calling for the issuance of any capital stock
or securities convertible into capital stock of Borrower or any
Subsidiary, except as disclosed on Schedule 3.08.
Section 3.09 Liabilities. Except for liabilities (i)
incurred in the normal course of business, (ii) listed on
Schedule 3.09 attached hereto or (iii) described in the Financial
Statements, neither Borrower nor any Subsidiary has material
liabilities, direct or contingent, owing to any Person other than
Lender. Except as described in the Financial Statements, or as
otherwise disclosed to the Lender in writing, there is no
litigation, legal or administrative proceeding, investigation or
other action of any nature pending or, to the knowledge of
Borrower, threatened against or affecting Borrower or any
Subsidiary which involves the possibility of any judgment or
liability not fully covered by insurance, and which may
materially adversely affect the business or the Properties of
Borrower or any Subsidiary or their ability to carry on business
as now conducted.
Section 3.10 Taxes; Governmental Charges. Except as set
forth on Schedule 3.10, Borrower and each Subsidiary 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. Borrower and each Subsidiary
has good title to its respective Properties, free and clear of
all Liens except those referred to in the Financial Statements.
Section 3.12 Defaults. Neither Borrower nor any
Subsidiary is in default under any indenture, mortgage, deed of
trust, agreement or other instrument to which Borrower or any
Subsidiary is a party or by which Borrower or any Subsidiary is
bound, except as disclosed to the Lender in writing. No Default
or Event of Default hereunder has occurred and is continuing.
Section 3.13 Use of Proceeds: Margin Stock. The proceeds
of the Note will be used by the Borrower as working capital for
Borrower's business. None of such proceeds will be used for, and
neither the Borrower nor any Subsidiary are engaged in the
business of, extending credit for the purpose of purchasing or
carrying any "margin stock" as defined in 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 Note will be
used for any purpose which violates Regulation X of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 224).
All loans evidenced by the Note are and shall be "business loans"
as such term is used in the Depository Institutions Deregulation
and Monetary Control Act of 1980, as amended, and such loans are
for business, commercial, investment or other similar purposes
and not primarily for personal, family, household or agricultural
use, as such terms are used and defined in Texas Revised Civil
Statutes Annotated, Title 4 of the Finance Code, Chapter 346.
Neither Borrower nor any Subsidiary nor any Person acting on
behalf of Borrower or any Subsidiary has taken or will take any
action which might cause the Note or any of the Security
Instruments, including this Agreement, to violate Regulation U or
any other regulation of the Board of Governors of the Federal
Reserve System or to violate the
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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
Borrower nor any Subsidiary:
(a) is in violation of any law, ordinance, or
governmental rule or regulation to which Borrower or any
Subsidiary or any of their respective Properties are
subject, including but not limited to, those laws,
ordinances and governmental rules and regulations regarding
employee wages and overtime;
(b) has failed to obtain any license, certificate,
permit, franchise or other governmental authorization
necessary for the operation of its businesses; and
(c) has failed to obtain any other license,
certificate, 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 materially
adversely affect the business, prospects, profits,
Properties, operations or condition (financial or otherwise)
of Borrower or any Subsidiary.
Section 3.15 ERISA. The Borrower and its Subsidiaries are
in compliance in all material respects with the applicable
provisions of ERISA, and no "reportable event," as such term is
defined in Section 4043 of ERISA, has occurred with respect to
any Plan of Borrower or any Subsidiary.
Section 3.16 Subsidiaries. A list of all the existing
Subsidiaries of Borrower is provided in Schedule 3.16 attached
hereto and incorporated by reference.
Section 3.17 Direct Benefit From Loans. 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. Borrower is not 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).
Section 3.19 Leases and Landlord Waivers. Borrower and/or
its Subsidiaries are parties to certain lease agreements
pertaining to real property upon which Borrower or a Subsidiary
of Borrower operates its business and certain material personal
property leases (individually, the "Lease" and collectively, the
"Leases"). Schedule 3.19 sets forth the present landlord(s) of
the property associated with each real estate Lease and of each
lessor with respect to each personal property lease, the
expiration date of the respective Lease, and the renewal notice
period of each Lease. Schedule 3.19 is complete and correct and
fully and accurately describes all Leases to which Borrower
and/or any of its Subsidiaries are a party. Borrower has
provided Lender with Landlord Waivers, in form and substance
satisfactory to Lender, with respect to all real estate Leases,
each of which Landlord Waivers has been duly executed by the
landlord or such landlord's duly authorized representative (as
set forth in Schedule 3.19) and
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each of which Landlord Waiver is fully enforceable under the
terms and conditions of the Leases and applicable state, local or
municipal law.
Section 3.20 Patents, Trademarks, Copyrights and Licenses.
Each of Borrower and its Subsidiaries owns or possesses all the
patents, trademarks, service marks, trade names, copyrights and
licenses necessary for the present and planned future conduct of
its business without any known conflict with the rights of
others. All such patents, trademarks, service marks, trade
names, copyrights, licenses and other similar rights are listed
on Schedule 3.20.
Section 3.21 Continuous Nature of Representations and
Warranties. Each representation and warranty contained in this
Agreement and the Note and Security Instruments shall be
continuous in nature and shall remain accurate, complete and not
misleading at all times during the term of this Agreement, except
for changes in the nature of Borrower's or its Subsidiaries'
business or operations that would render the information in this
Agreement, the Notes or the Security Instruments, or any exhibit
attached hereto either inaccurate, incomplete or misleading, so
long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement, and except for such
representations and warranties that by their nature are limited
only to a specific date.
ARTICLE IV
AFFIRMATIVE COVENANTS
A deviation from the provisions of this Article IV shall not
constitute a Default under this Agreement if such deviation is
consented to in writing (in the manner hereinafter provided in
Section 8.02) by the Lender. Without the prior written consent
of the Lender, the Borrower will at all times comply with the
covenants contained in this Article IV, from the date hereof and
for so long as any part of the Indebtedness or the Commitment is
outstanding.
Section 4.01 Financial Statements and Reports. Borrower
and all Subsidiaries will promptly furnish to the Lender from
time to time upon request such information regarding the business
and affairs and financial condition of the Borrower and all its
Subsidiaries as the Lender may reasonably request, and will
furnish to the Lender:
(a) Annual Financial Statements. As soon as available
and in any event within one hundred twenty (120) days after
the close of each fiscal year of Borrower, audited Financial
Statements of Borrower and its Subsidiaries, consisting of
the consolidated and consolidating balance sheets of
Borrower and its Subsidiaries as at the end of such year and
the consolidated and consolidating operating statements of
Borrower and its Subsidiaries, as at the end of such year
(showing income, expenses and surplus), setting forth in
each case in comparative form figures for the previous
fiscal year, all prepared in accordance with GAAP,
consistently applied, and, with respect to the consolidated
Financial Statements only, certified by a nationally
recognized independent public accounting firm acceptable to
the Lender;
(b) Monthly Financial Statements. As soon as
available and in any event within forty-five (45) days after
the end of each calendar month, the consolidated and
consolidating balance sheets of Borrower and its
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Subsidiaries, at the end of such month and the consolidated
and consolidating operating statements of Borrower and its
Subsidiaries, for such month (showing income, expenses and
surplus for such month and for the period from the beginning
of the fiscal year to the end of such month), all prepared
in accordance with GAAP, consistently applied, in a manner
acceptable to Lender and certified by the chief financial
officer or treasurer of Borrower;
(c) Monthly Bank Statements. As soon as available and
in any event within fifteen (15) days after the end of each
calendar month, Borrower and each Subsidiary shall provide
Lender with a copy of all bank statements on all cash
accounts, including, without limitation, all Operating
Accounts and Blocked Accounts;
(d) Accounts Agings. As soon as available and in any
event within fifteen (15) days after the end of each
calendar month, consolidated and consolidating agings of all
accounts payable and accounts receivable (the "Account
Agings"), showing each such account which is thirty (30),
sixty (60), ninety (90) and over ninety (90) days past
invoice date and, with respect to accounts receivable,
reconciling such aging with the reports delivered to Lender
pursuant to Section 4.01(f);
(e) Inventory Report. As soon as available and in any
event (i) within twenty (20) days after the end of each
calendar month, an Inventory perpetual report and a schedule
that lists Inventory by cost and location, and (ii) within
sixty (60) days after each physical count of Inventory, but
in no event less than once a year, an Inventory perpetual
report and a schedule that list Inventory by item, cost and
location;
(f) Monthly Customer Statements. As soon as available
and in any event within fifteen (15) days after the end of
each calendar month, copies of all statements or invoices
sent to Borrower's customers as of the end of such month;
and
(g) Weekly and Monthly Borrowing Base Reports. (i) On
or before the third business day of each week, a report in
such form as Lender may reasonably request, reflecting the
Eligible Accounts of Borrower as of the end of the preceding
week and calculating the Accounts Advance Amount based
thereon, together with the Account Agings, cash receipt
journals or copies of checks, invoices for new xxxxxxxx,
sales journals and backup for all miscellaneous credits and
debits, purchases journals and cost of goods sold reports,
which support such report. Such report shall also reflect
the amount of sales and receipts of Borrower during the
preceding week and such other information as Lender may
reasonably request.
(ii) On or before the twentieth day of each month,
a report in such form as Lender may reasonably request,
reflecting the Eligible Inventory of Borrower as of the end
of the preceding month and calculating the Inventory Advance
Amount based thereon, together with the inventory reports
which support such report.
All such balance sheets and other financial statements referred
to in this Section 4.01 shall be in such detail as the Lender may
reasonably request and shall conform to GAAP 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.
Section 4.02 Compliance with Laws; Payment of Taxes and
Other Claims. The
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Borrower will (a) observe and comply with 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, including
without limitation, and (b) pay and discharge promptly all taxes,
assessments and governmental charges or levies imposed upon
Borrower or any Subsidiary or upon the income or any Property of
Borrower or any Subsidiary as well as all claims of any kind
(including claims for labor, materials, supplies and rent) which,
if unpaid, might become a lien upon any or all of the Property of
Borrower or any Subsidiary; provided, however, that, subject to
the written approval of the Lender, neither Borrower nor any
Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted and if the Borrower or any
Subsidiary shall have set up reserves therefor adequate under
GAAP.
Section 4.03 Maintenance. Borrower will and will cause
each Subsidiary to (i) maintain its corporate existence, rights
and franchises; (ii) observe and comply with all valid laws,
statutes, codes, acts, ordinances, judgments, injunctions, rules,
regulations, certificates, franchises, permits and licenses
(including, without limitation, applicable statutes, regulations,
orders and restrictions relating to the oil and gas exploration
industry) of all federal, state, county, municipal and other
governmental authorities; (iii) maintain its Properties (and any
Properties leased by or consigned to it or held under title
retention or conditional sales contracts) in good and workable
condition (ordinary wear and tear excepted) at all times and make
all repairs, replacements, additions, betterments and
improvements to its Properties as are needful and proper so that
the business carried on in connection therewith may be conducted
properly and efficiently at all times; and (iv) maintain and keep
books of records and accounts, all in accordance with GAAP,
consistently applied, of all dealings and transactions in
relation to its business and activity.
Section 4.04 Further Assurances. Borrower will and will
cause each Subsidiary to cure promptly any defects in the
creation and issuance of the Note and the execution and delivery
of the Security Instruments, including, without limitation, this
Agreement. The Borrower at its expense will promptly execute and
deliver to the Lender upon request all such other and further
documents, agreements and instruments to effectuate the
agreements of Borrower or any Subsidiary in the Security
Instruments, including, without limitation, this Agreement, or to
further evidence and more fully describe the collateral intended
as security for the Note, or to correct any omissions in the
Security Instruments, or more fully to state the security
obligations set out herein or in any of the Security Instruments,
or to perfect, protect or preserve any Liens created pursuant to
any of the Security Instruments, or to make any recordings, to
file any notices, or obtain any consents, all as may be necessary
or appropriate in connection therewith.
Section 4.05 Performance of Obligations. The Borrower
will pay the Note according to the reading, tenor and effect
thereof; and the Borrower will do and perform every act and
discharge all of the obligations provided to be performed and
discharged by the Borrower under the Security Instruments,
including this Agreement, at the time or times and in the manner
specified, and cause each Subsidiary to take such action with
respect to their obligations to be performed and discharged under
the Security Instruments to which they respectively are parties.
Section 4.06 Reimbursement of Expenses. The Borrower will
pay all reasonable legal fees incurred by the Lender in
connection with the preparation, amendment, interpretation,
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administration and enforcement of this Agreement and any and all
other Security Instruments contemplated hereby. The Borrower
will, upon request, promptly reimburse the Lender for all amounts
expended, advanced or incurred by the Lender to satisfy any
obligation of the Borrower under this Agreement or any other
Security Instrument, or to protect the Properties or business of
Borrower or any Subsidiary or to collect the Note, or to enforce
the rights of the Lender under this Agreement, the Note, or any
other Security Instrument, which amounts will include all court
costs, attorneys' fees, fees of auditors and accountants, and
investigation expenses reasonably incurred by the Lender in
connection with any such matters, together with interest at
either (i) the post-maturity rate specified in Section 2.02 on
each such amount from the date that the same is expended,
advanced or incurred by the Lender until the date of
reimbursement to the Lender, or (ii) if no Default shall have
occurred and be continuing, the pre-maturity rate specified in
Section 2.02 on each such amount from the date that the same is
expended, advanced or incurred by the Lender until the date of
written demand or request by the Lender for the reimbursement of
same, and thereafter at the applicable post-maturity rate
specified in Section 2.02 until the date of reimbursement to the
Lender.
Section 4.07 Insurance. Borrower and each Subsidiary now
maintains and will continue to maintain with financially sound
and reputable insurers, insurance with respect to their
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 Borrower shall be insured for an amount
at least equal to the unpaid principal balance of the Note, from
time to time outstanding. All such policies shall name the
Lender as loss payee and mortgagee and shall provide that the
insurer shall provide Lender with ten (10) days prior written
notification of the cancellation of such policies. Upon request
of the Lender, the Borrower will furnish or cause to be furnished
to the Lender from time to time a summary of the insurance
coverage of the Borrower and the Subsidiaries in form and
substance satisfactory to the Lender and if requested will
furnish the Lender copies of the applicable policies.
Section 4.08 Right of Inspection. The Borrower will
permit and will cause each Subsidiary to permit any officer,
employee or agent of the Lender to visit and inspect any of the
Properties of Borrower, or any Subsidiary, to conduct at least
four (4) collateral reviews per year, to examine Borrower's or
any Subsidiary's books of record and accounts, to take copies and
extracts therefrom, and to discuss the affairs, finances and
accounts of Borrower or any Subsidiary with the Borrower's or
such Subsidiary's officers, employees, accountants and auditors,
all at such reasonable times (and, after the occurrence of an
Event of Default, at any times) and as often as the Lender may
desire. The Borrower shall reimburse Lender for all of Lender's
expenses in connection with the collateral reviews, which
expenses include seven hundred fifty and no/100 dollars ($750.00)
per-person per-day for on-site collateral reviews.
Section 4.09 Notice of Certain Events. The Borrower shall
promptly notify the Lender if the Borrower learns of the
occurrence of (i) any event which constitutes a Default, together
with a detailed statement by a responsible officer of the
Borrower of the steps being taken to cure the effect of such
Default; or (ii) the receipt of any notice from, or the taking of
any other action by, the holder of any promissory note, debenture
or other evidence of indebtedness of the Borrower or any
Subsidiary or of any security (as defined in the Securities Act
of 1933, as amended) of Borrower or any Subsidiary with respect
to a claimed default, together with a detailed statement by a
responsible officer of Borrower specifying the notice given or
other
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action taken by such holder and the nature of the claimed default
and what action such Borrower, or such Subsidiary is taking or
proposes to take with respect thereto; or (iii) any legal,
judicial or regulatory proceedings affecting Borrower or any
Subsidiary or any of the Properties of 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 Borrower or any Subsidiary; or (iv) any dispute
between Borrower or 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 Borrower or any 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 Borrower or any Subsidiary, from
those reflected in the Financial Statements or by the facts
warranted or represented in any Security Instrument, including
without limitation this Agreement.
Section 4.10 ERISA Information and Compliance. The
Borrower will promptly furnish to the Lender (i) if requested by
the Lender, promptly after the filing thereof with the United
States Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual and other report with respect
to each Plan or any trust created thereunder, and (ii)
immediately upon becoming aware of the occurrence of any
"reportable event," as such term is defined in Section 4043 of
ERISA, or of any "prohibited transaction," as such term is
defined in Section 4975 of the Internal Revenue Code of 1986, as
amended, in connection with any Plan or any trust created
thereunder, a written notice signed by the Chief Executive
Officer of the Borrower specifying the nature thereof, what
action the Borrower or any of its Subsidiaries is taking or
proposes to take with respect thereto, and, when known, any
action taken by the Internal Revenue Service with respect
thereto. The Borrower will fund, or will cause its Subsidiaries
to fund, all current service pension liabilities as they are
incurred under the provisions of all Plans from time to time in
effect for the benefit of employees of the Borrower or any of its
Subsidiaries, and comply with all applicable provisions of ERISA.
Section 4.11 Environmental Requirements. Borrower shall
comply with all federal laws, state statutes, municipal
ordinances and all other governmental standards, rules and
regulations applicable to Borrower or to its Property in respect
to occupational health and safety, hazardous waste and substances
and environmental matters. Borrower shall promptly notify Lender
of its receipt of any notice of a violation or an alleged
violation of any such federal laws, state statutes, municipal
ordinances or other governmental standards, rules or regulations.
Borrower shall indemnify and hold Lender harmless from all loss,
cost, damages, claim and expense incurred by Lender on account of
Borrower's failure to perform the obligations of this Section.
Section 4.12 INTENTIONALLY DELETED.
Section 4.13 Subordinated Debt Legend and Inspection.
(a) Borrower shall cause each instrument or document which
now or hereafter evidences all or any portion of the Subordinated
Debt to be conspicuously marked with the following legend:
"THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A
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SUBORDINATION AGREEMENT, IN FAVOR OF THE FROST NATIONAL
BANK, D/B/A FROST CAPITAL GROUP, WHICH AGREEMENT IS
INCORPORATED HEREIN BY REFERENCE. NOTWITHSTANDING ANY
STATEMENT TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, NO
PAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS, WHETHER
OF PRINCIPAL OR INTEREST, SHALL BE DEMANDED, MADE, PAID,
RECEIVED OR ACCEPTED EXCEPT IN ACCORDANCE WITH THE EXPRESSED
TERMS OF SUCH AGREEMENT."
(b) Borrower shall permit Lender at any reasonable time,
and from time to time, to examine and make copies and abstracts
from Borrower's books, records, instruments and documents
evidencing or pertaining to the Subordinated Debt.
Section 4.14 Additional Guarantors. Upon Lender's
request, Borrower shall cause each of its now or hereafter
existing Subsidiaries to duly execute and deliver, or become a
party to a Guaranty Agreement with such Security Instruments as
Lender may require as security therefor from time to time.
Section 4.15 Compliance Certificate. At the time that
Borrower provides the Monthly Financial Statements pursuant to
Section 4.01, Borrower shall also provide a Compliance
Certificate which (i) 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 the case, attaches to
such certificate updated schedules, and (ii) 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 Borrower with respect thereto.
Section 4.16 Tax Payment or Plan. Borrower has paid in
full all tax liabilities identified on Schedule 3.10 or has
delivered to Lender a copy of a plan acceptable to the Internal
Revenue Service or other applicable tax authority for the payment
of such amounts, setting forth the method and times for payment.
Section 4.17 Blocked Accounts. At all times during the
term of this Agreement, Borrower will maintain Blocked Accounts
as required by Section 2.12, and will direct all collections and
other Receipts to such Blocked Accounts in accordance with
Section 2.13.
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
the Lender, the Borrower will at all times comply with the
covenants contained in this Article V, from the date hereof and
for so long as any part of the Indebtedness or the Commitment is
outstanding.
Section 5.01 Debts, Guaranties and Other Obligations.
Neither the Borrower nor any Subsidiary will incur, create,
assume or in any manner become or be liable in respect of any
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indebtedness (including obligations for the payment of rentals);
and neither the Borrower nor any 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:
(a) the Note or other Indebtedness to the Lender;
(b) liabilities, direct or contingent, of the Borrower
and its Subsidiaries existing on the date of this Agreement
which are reflected in the Financial Statements or have been
disclosed to the Lender in writing, and any renewals and
extensions (but not increases) thereof (provided that such
extensions and renewals are on substantially the same terms
as in effect on the date of this Agreement);
(c) liabilities in relation to leases and lease
agreements to the extent permitted by Section 5.07 hereof;
(d) endorsements of negotiable or similar instruments
for collection or deposit in the ordinary course of
business;
(e) trade payables or similar obligations from time to
time incurred in the ordinary course of business other than
for borrowed money;
(f) taxes, assessments or other government charges
which are not yet due or are being contested pursuant to
Section 4.02 hereof;
(g) indebtedness which is subordinated to the Note by
terms satisfactory to the Lender, in its sole discretion;
(h) indebtedness of Temcomex, S.A. de C.V. to
Borrower, not in excess of $300,000 outstanding in the
aggregate at any time;
(i) indebtedness listed on Schedule 5.01 attached
hereto; and
(j) loans or advances or other distributions solely
between Temtex and Temco.
Section 5.02 Liens. Neither the Borrower nor any
Subsidiary will create, incur, assume or permit to exist any Lien
on any of its Properties (now owned or hereafter acquired),
except the following (the "Permitted Liens"):
(a) Liens securing the payment of any Indebtedness to
the Lender;
(b) Obligations listed on Schedule 3.09 hereto;
(c) Liens for taxes, assessments, or other
governmental charges not yet due
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or which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such
reserve as shall be required by GAAP shall have been made
therefor;
(d) 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 the Lender, being
contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall
be required by GAAP shall have been made therefor;
(e) Liens existing on Property owned by Borrower or
any Subsidiary on the date of this Agreement which have been
disclosed to and permitted by the Lender in writing and
listed on Schedule 5.02 hereof, but not any renewals and
extensions thereof;
(f) 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
(g) inchoate liens arising under ERISA to secure the
contingent liability of Borrower or any Subsidiary permitted
by Section 4.10 hereof.
Section 5.03 Investments, Loans and Advances. Neither the
Borrower nor any Subsidiary will make or permit to remain
outstanding any loans or advances to or investments in any
Person, except that the foregoing restriction shall not apply to:
(a) loans, advances or investments the material
details of which have been set forth in the Financial
Statements or have been otherwise disclosed to the Lender in
writing prior to the execution of this Agreement;
(b) investments in direct obligations of the United
States of America or any agency thereof;
(c) investments in certificates of deposit issued by
commercial banks in the United States having a combined
capital and surplus in excess of One Hundred Million Dollars
($100,000,000.00);
(d) investments in commercial paper with the best
rating by Standard & Poor's, Xxxxx'x Investors Service,
Inc., or any other rating agency satisfactory to the Lender
issued by companies in the United States with a combined
capital and surplus in excess of One Hundred Million Dollars
($100,000,000.00); and
(e) loans, advances or investments permitted by
Section 5.01 hereof.
Section 5.04 Dividends, Distributions and Redemptions.
Neither Temtex nor any Subsidiary will, or will permit any
Subsidiary to, 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, except that
Temtex or such Subsidiaries may declare and deliver stock
dividends. Neither the Borrower nor any of its
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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 subordinated
indebtedness, as may be expressly allowed by the terms of any
subordination agreement governing same. Except as set forth on
Schedule 5.04, neither the Borrower nor any of its Subsidiaries
will make any payment of any management, consulting or similar
fee (excluding normal salary and compensation payable in respect
of services or as an officer of employee) 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 Borrower, any 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 Borrower nor
any Subsidiary will sell, transfer or otherwise dispose of all or
any substantial portion or integral part of its Properties except
in the ordinary course of business, or enter into any
arrangement, directly or indirectly, with any Person whereby
Borrower or any Subsidiary shall sell or transfer any Property,
whether now owned or hereafter acquired, and whereby Borrower or
any Subsidiary shall then or thereafter rent or lease as lessee
such Property or any part thereof or other Property which
Borrower or any 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 Borrower nor
any Subsidiary 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 Borrower
nor any Subsidiary will create, incur, assume or suffer to exist
any obligation for the payment of rent or hire of Property of any
kind whatsoever (real or personal), under leases or lease
agreements, without the prior written consent of Lender, except
(i) leases and lease agreements for equipment used in the office
operations of the Borrower in an aggregate amount for Borrower
and all Subsidiaries (determined on a consolidated basis) not to
exceed One Hundred Twenty Five Thousand Dollars ($125,000) in any
fiscal year of Borrower, and (ii) leases and lease agreements
described on Schedule 3.19 attached hereto, and renewals and
extensions thereof at the same or lower rent.
Section 5.08 Mergers, Consolidations, Acquisitions,
Opening New Locations, etc. Neither the Borrower nor any
Subsidiary will amend its certificate or articles of
incorporation or otherwise change its corporate name or
structure, or consolidate with or merge into or acquire any
Person, or permit any other Person to consolidate with or merge
into or acquire Borrower or any Subsidiary or acquire the stock
of any corporation or form any Subsidiary, without prior approval
of the Lender.
Section 5.09 ERISA Compliance. The Borrower will not at
any time permit any Plan maintained by it or any Subsidiary to:
(a) engage in any "prohibited transaction" as such
term is defined in Section 4975 of the Internal Revenue Code
of 1986, as amended;
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(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
Borrower or any Subsidiary pursuant to Section 4068 of
ERISA.
Section 5.10 Issuance of Stock. During the term of this
Agreement, Temco and all Subsidiaries will not issue any
additional shares of stock without the written consent of Lender.
Section 5.11 Changes in Accounting Methods. Borrower will
not make any change in its accounting method as in effect on the
date of this Agreement or change its fiscal year ending date from
August 31, unless such changes have been determined by the
independent certified public accountants described in
Section 4.01(a) to be appropriate, and Lender has been given
prior written notice of such changes.
Section 5.12 Transactions With Affiliates. Borrower will
not, directly or indirectly, enter into any transaction
(including, but not limited to, the sale or exchange of property
or the rendering of any service) with any Affiliate, other than
in the ordinary course of its business and upon substantially the
same or better terms as it could obtain in an arm's length
transaction with a Person who is not an Affiliate.
Section 5.13 Affiliate Receivables. Except for
receivables disclosed on Schedule 5.13, Borrower will not at any
time allow any accounts receivable and other receivables to be
owed to Borrower by any Affiliate.
Section 5.14 Use of Proceeds. Borrower will not use the
proceeds of the Note for purposes other than those set forth in
Section 3.13.
Section 5.15 RICO. Borrower 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 5.16 Restricted Payments. Borrower shall not,
directly or indirectly, declare, order, pay, make or set apart
any sum for any payment or prepayment of principal, premium, if
any, or interest on, any Subordinated Debt except as is permitted
by documentation expressly approved by Lender.
Section 5.17 Subordinated Loan Documents. Borrower will
not change or amend the terms of any Subordinated Debt or any of
the documents related thereto without the consent of Lender.
Section 5.18 Limitation on Capital Expenditures. Neither
Borrower nor any Subsidiary will incur any capital expenditures
(including payments with respect to capitalized lease
obligations), if as a result thereof, the capital expenditures of
the Company and its Subsidiaries in the aggregate, other than
payments with respect to capitalized leases obligations
identified on Schedule 3.19, would exceed $300,000 during any
year.
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ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
Section 6.01 Events. Any of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Principal and Interest Payments. Default is made
in the payment or prepayment when due of any installment of
principal or interest on the Note or any other Indebtedness;
or
(b) Representations and Warranties. Any
representation or warranty made by Borrower, any Subsidiary,
or any Guarantor in any Security Instrument, including this
Agreement, in particular Article III, 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
Borrower, any Subsidiary or any Guarantor (or any officer,
accountant or attorney of Borrower 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 or the
Security Instruments; or
(d) Negative Covenants. Default is made in the due
observance or performance by Borrower or any Subsidiary of
any of the covenants or agreements contained in Article V of
this Agreement or the Security Instruments; or
(e) Conditions Precedent. The Borrower 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 Borrower, any
Subsidiary, or any Guarantor of any of the covenants or
agreements contained in this Agreement or 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 this
Agreement or such Security Instrument; or
(g) Involuntary Bankruptcy Proceedings. A receiver,
conservator, custodian, liquidator, creditors' committee,
board of inspectors, or trustee of Borrower, or any
Subsidiary, or any Guarantor, or of any of their Property,
is created, engaged, retained, procured, authorized, or
appointed in the United States or under any law of any
foreign country by the order or decree of any court or
agency or supervisory authority having jurisdiction; or
Borrower, or any Subsidiary, or any Guarantor becomes a
debtor under the Bankruptcy Code of the United States or
under the law of any foreign country, or is the subject of
an order for relief, or becomes bankrupt or insolvent; or
Borrower, any Subsidiary or any Guarantor's Property is
sequestered, seized, or attached in the United
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States or under any law of any foreign country by court
order or decree; or a complaint, petition, or similar
pleading is filed against Borrower, any Subsidiary or any
Guarantor under any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution, or liquidation law of any
jurisdiction, in the United States or in any foreign
country, whether such law is now in existence or hereafter
in effect; or
(h) Voluntary Petitions. Borrower, any Subsidiary, or
any Guarantor files a petition in bankruptcy or
reorganization or seeks relief under any provision of any
bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution, or liquidation law of any jurisdiction,
in the United States or in any foreign country, whether such
law is now in existence or hereafter in effect, or Borrower,
any Subsidiary, or any Guarantor is the subject of an order
for relief or winding up petition entered by any bankruptcy
court, or Borrower, any Subsidiary, or any Guarantor
consents to the filing of any petition against it under any
such law in the United States or in any foreign country; or
(i) Assignments, Conveyances or Transfers for Benefit
of Creditors. Borrower, or any Subsidiary, or any Guarantor
makes an assignment, conveyance, or transfer for the benefit
of its creditors, or for the purpose of enforcing a lien
against its Property, or admits in writing its inability to
pay its debts generally as they become due, or is generally
not paying its debts as such debts become due, or consents
to the appointment of a custodian, receiver, trustee,
assignee, or liquidator of all, substantially all, less than
substantially all, or any part of its Property for the
purpose of enforcing a lien against its Property; or
(j) Discontinuance of Business. Borrower, or any
Subsidiary, or any Guarantor discontinues its usual
business; or
(k) Default on Other Debt or Security. Borrower, or
any Subsidiary, or any Guarantor fails to make any payment
due on any indebtedness or security (as "security" is
defined in the Securities Act of 1933, as amended) or any
event shall occur or any condition shall exist in respect of
any indebtedness or security of Borrower, any Subsidiary, or
any Guarantor, or under any agreement securing or relating
to such indebtedness or security, the effect of which is (i)
to cause or to permit any holder of such indebtedness or
other security or a trustee to cause (whether or not such
holder or trustee elects to cause) such indebtedness or
security, or a portion thereof, to become due prior to its
stated maturity or prior to its regularly scheduled dates of
payment, or (ii) to permit a trustee or the holder of any
security (other than common stock of Borrower or any
Subsidiary) to elect (whether or not such holder or trustee
does elect) a majority of the directors on the board of
directors of Borrower, any Subsidiary, or any Guarantor; or
(l) Undischarged Judgments. If judgment for the
payment of money in excess of Ten Thousand Dollars ($10,000)
is rendered by any court or other governmental body against
Borrower, any Subsidiary, or any Guarantor and Borrower, or
Subsidiary, or Guarantors do 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
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stayed during such appeal while providing such reserves
therefor as may be required under GAAP; or
(m) Insolvency. If Borrower, any Subsidiary, or any
Guarantor shall be or become insolvent; or
(n) Fraudulent Transfers. Borrower, any Subsidiary, or
any Guarantor shall have concealed, removed, or permitted to
be concealed or removed, any part of its Property, with
intent to hinder, delay or defraud its creditors or any of
them, or made or suffered a transfer of any of its Property
which may be fraudulent under any bankruptcy, fraudulent
transfer or similar law; or shall have made any transfer of
its Property to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid;
or shall have suffered or permitted, while insolvent, any
creditor to obtain a Lien upon any of its Property through
legal proceedings or distraint or other process which is not
vacated within sixty (60) days from the date thereof; or
(o) Forfeiture. The filing of formal charges under a
federal or state law for which forfeiture of Borrower's, any
Subsidiary's, or any Guarantor's Property is a potential
penalty; or
(p) Payments on Subordinated Debt. Borrower shall
make any payment on account of the Subordinated Debt, except
as is permitted by any agreement or document or instrument
which has been approved by Lender; or
(q) Challenge to Agreement or any Security Instrument.
Borrower or any Subsidiary or any Affiliate of any of them,
shall challenge or contest in any action, suit or proceeding
the validity or enforceability of this Agreement or any of
the Security Instruments, the legality or enforceability of
any of the Indebtedness or the perfection or priority of any
Lien granted to Lender; or
(r) Repudiation of or Default under Guaranty
Agreement. Any Guarantor shall revoke or attempt to revoke
the Guaranty Agreement signed by such Guarantor, or shall
repudiate such Guarantor's liability thereunder or shall be
in default under the terms thereof; or
(s) Revocation Proceeding. Any regulatory officer in
the State of Texas or in any other state in which Borrower
has a location brings an action or proceeding to revoke or
otherwise attempts to revoke any material license issued to
Borrower; or
(t) Change of Control of Temco Fireplace Products,
Inc. Temtex Industries, Inc. ceasing to own, directly or
indirectly, one hundred percent (100%) of the capital stock
of Temco Fireplace Products, Inc.; or
(u) Process Against Borrower. The issuance of an
injunction or order of attachment, or any other process
which is prior to a final judgment, for a claim of Ten
Thousand and No/100 Dollars ($10,000.00) or more against
Borrower, or any of the Borrower's Property, or any Property
pledged to secure the Indebtedness; or
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(v) Margin Stock. The failure of Borrower, any
Subsidiary or the Property pledged to secure the
Indebtedness to comply with Regulations U or X of the Board
of Governors of the Federal Reserve System, as amended; or
(w) Decline in Value of Collateral. Any
deterioration, impairment or decline in character or value
of any part of the collateral subject to a Lien in favor of
Lender to secure the Indebtedness (whether actual or
reasonably anticipated) that causes such collateral in the
judgment of Lender to become unsatisfactory as to character
or value; or
(x) Financial Responsibility. If in the reasonable
exercise of its judgment Lender, in good faith, determines
that the financial responsibility of Borrower has become
otherwise unsatisfactory.
Section 6.02 Remedies. Upon DEMAND, or the happening of
any Event of Default specified in Section 6.01, (i) the Lender
may declare the entire principal amount of all Indebtedness then
outstanding including interest accrued thereon to be immediately
due and payable (provided, that the occurrence of any event
described in Subsections 6.01(g) or (h) shall automatically
accelerate the maturity of the Indebtedness, without the
necessity of any action by the Lender) without presentment,
demand, protest, notice of protest or dishonor, notice of
default, notice of intent to accelerate the maturity thereof,
notice of acceleration of the maturity thereof, or other notice
of any kind, all of which are hereby expressly waived by
Borrower, each Subsidiary and each Guarantor; and (ii) all
obligations, if any, of the Lender hereunder, including the
Commitment, shall immediately cease and terminate unless and
until the Lender shall reinstate same in writing. In addition to
and not in limitation of any of the other rights and remedies
provided to Lender hereunder or under the Security Instruments in
connection with the Property of Borrower in which Lender has a
Lien, Borrower hereby agrees that upon request by Lender after
the occurrence of an Event of Default, Borrower shall cooperate
with Lender in the transfer of, and will execute all
documentation requested by Lender in connection with the transfer
of, to such Person as shall be directed by Lender, any or all of
the Property then held by Borrower any Subsidiary, and in
connection therewith Borrower agrees to take all other actions
reasonably necessary in order to effectuate the transfer of any
or all of such Property.
Section 6.03 Prohibition of Transfer, Assignment and
Assumption. This Agreement pertains to the extension of debt
financing and financial accommodations for the benefit of the
Borrower and the Subsidiaries and cannot be transferred to,
assigned to or assumed by any other Person either voluntarily or
by operation of law. In the event Borrower or any Subsidiary
becomes a debtor under the Bankruptcy Code of the United States
or under the law of any foreign country, any trustee or debtor in
possession may not assume or assign this Agreement nor delegate
the performance of any provision hereunder.
Section 6.04 Right of Setoff. The Lender and any agent
bank of the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set off and apply any and
all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing
by the Lender or any agent bank of the Lender to or for the
credit or the account of the Borrower against any and all of the
Indebtedness of the Borrower, irrespective of whether or not the
Lender shall have made any demand under this Agreement or the
Note and although such obligations may, be unmatured. The Lender
agrees promptly to notify the Borrower after any
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such setoff and application, provided that the failure to give
such notice shall not affect the validity of such setoff and
application. The rights of the Lender under this Section 6.04
are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Lender may have.
The rights contained in this Section 6.04 shall inure to the
benefit of any participant in any loans made hereunder.
ARTICLE VII
-----------
CONDITIONS
----------
The obligation of the Lender to make the loans to be
evidenced by the Note is subject to the accuracy of each and
every representation and warranty of the Borrower and its
Subsidiaries and Guarantors made or referred to in each Security
Instrument, including this Agreement, or in any certificate
delivered to the Lender pursuant to or in connection with any
Security Instrument, including this Agreement, to the performance
by the Borrower of its obligations to be performed hereunder on
or before the date of the loan, and to the satisfaction of the
following further conditions which must be satisfied as of the
date of this Agreement or advance under the Revolving Credit
Note.
Section 7.01 Closing. The delivery of all instruments and
certificates referred to in this Article VII not theretofore
delivered and for the making of the loans provided for in Article
II of this Agreement shall occur on or before September 6, 2000.
Section 7.02 Note. The Borrower shall have duly and
validly issued, executed and delivered the Revolving Credit Note
to the Lender.
Section 7.03 Charter; Bylaws. The Lender shall have
received a copy of the articles or certificate of incorporation
and the by-laws of Borrower, each Guarantor, and each Subsidiary
which is to execute this Agreement or any other Security
Instrument, certified as true by the Secretary or Assistant
Secretary of Borrower or such Subsidiary or such Guarantor,
respectively.
Section 7.04 Secretary's Certificates. The Lender shall
have received, on or before the date of Closing, certificates of
the Secretary of Borrower, each Guarantor, and each Subsidiary
which is to execute any Security Instrument setting forth (i)
resolutions of its board of directors in form and substance
satisfactory to the Lender with respect to the authorization of
the Note, this Agreement and any other Security Instruments
provided herein and the officers authorized to sign such
instruments, and (ii) specimen signatures of the officers so
authorized.
Section 7.05 Opinion of Borrower's Counsel. The Lender
shall have received on or before the Closing from counsel for the
Borrower, Guarantors and the Subsidiaries, a favorable written
opinion satisfactory to the Lender and its counsel, as to the
matters contained in Sections 3.01, 3.02, 3.03, 3.04 and 3.05
hereof, and as to such counsel's knowledge of pending or
threatened material litigation or governmental or regulatory
proceedings against Borrower or any Subsidiary or Guarantors or
any of the Property of Borrower or any Subsidiary or Guarantors;
and as to the validity, creation, attachment and perfection of
Liens under any of the Security Instruments; and as to such other
matters incident to the transactions herein contemplated as the
Lender or its counsel may request.
Section 7.06 Counsel of Lender. At the time of the loans
hereunder, all legal matters
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incident to the transactions herein contemplated shall be
satisfactory to counsel of the Lender.
Section 7.07 No Default. At the time of each loan
hereunder, no Default shall have occurred, and there shall not
have occurred any condition, event or act which constitutes, or
with notice or lapse of time (or both) would constitute a default
or event of default under any loan agreement, note agreement or
trust indenture to which Borrower or any Subsidiary is a party.
Section 7.08 No Material Adverse Changes. Prior to each
loan, there shall have occurred, in the opinion of the Lender, no
material adverse changes, either in any case or in the aggregate,
in the assets, liabilities, financial condition, business,
operations, affairs or circumstances of Borrower, any Guarantor,
or any Subsidiary, 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 Borrower shall have duly and validly executed and delivered,
or caused to be executed and delivered, to the Lender the
following instruments, each in form and substance satisfactory to
the Lender, in sufficient executed counterparts for recording
purposes, as security for the Note and other Indebtedness and
shall have delivered the following documents containing
information necessary to the preparation and perfection of the
liens created by such instruments:
(a) Security Agreements covering all of Borrower's
accounts receivable, general intangibles, inventory,
currently unencumbered machinery and equipment, furniture
and fixtures, chattel paper, all regulatory licenses,
trademarks, service marks, patents and other intellectual
property, instruments, notes, and documents.
(b) Stock Pledge Agreements and Stock Power Agreements
sufficient to assign (i)Temtex Industries, Inc.'s interest
in the capital stock of Temco Fireplace Products, Inc. and
(ii) Temco Fireplace Products, Inc.'s interest in Temtex
International, Inc. to Lender as collateral for Borrower's
Obligations;
(c) Financing Statements relating to the items
described in Subsection (a); and
(d) Certificates of Title on all vehicles in which the
Lender is given a Lien;
Section 7.10 Guaranties. The Guarantors shall have duly
and validly executed and delivered, or caused to be executed and
delivered, to the Lender in form and substance satisfactory to
Lender, the Guaranty Agreements.
Section 7.11 Recordings. The Security Instruments
described in Section 7.09 hereof, including financing statements,
security agreements and other notices related thereto, shall have
been duly delivered to the appropriate offices for filing,
recording or registration, and the Lender shall have received
confirmations of receipt thereof from the appropriate filing,
recording or registration offices.
Section 7.12 Landlord's Waiver. Each landlord of Borrower
and/or its Subsidiaries, as disclosed on Schedule 3.19, shall
have executed and delivered, in form and substance satisfactory
to the Lender, in sufficient executed counterparts for recording
purposes, waivers
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of any Liens to which it may be entitled, in favor of the Lender.
Section 7.13 Closing Fee. Lender shall have received, in
immediately available funds, the Closing Fee.
Section 7.14 Financial Condition. The results of the
examination by Lender of the financial condition of Borrower
including, but limited to, the examination of the Financial
Statements and analysis of related data, shall be satisfactory to
Lender, in its sole and absolute discretion.
Section 7.15 [INTENTIONALLY DELETED]
Section 7.16 Subordination Agreement. The Subordinated
Lenders (if any) will enter into a Subordination Agreement with
Lender in form and substance satisfactory to Lender in its sole
discretion which will subordinate all the outstanding
indebtedness of the Borrower owing to such Subordinate Lender to
the Obligations of Borrower to Lender pursuant to this Agreement
and the other Security Instruments.
Section 7.17 Additional Matters. The Lender shall have
received all exhibits, annexes schedules herein referenced and
such additional reports, certificates, documents, statements,
legal opinions, agreements and instruments, in form and substance
reasonably satisfactory to the Lender, as the Lender shall have
reasonably requested from Borrower, Guarantors and their
respective counsel.
Section 7.18 Revolving Credit Advances. Advances under
the Revolving Credit Note shall further be subject to the
following specific conditions:
(a) There shall have been no Default under this
Agreement nor under any of the other Security Instruments;
(b) The Financial Statements shall have been furnished
and shall be, as of the date thereof, true and correct, and
all other financial information required by the Lender shall
have been furnished and shall be, as of the date of the
requested advance, true and correct; and
(c) The financial condition of the Borrower, as shown
by the most recent Financial Statement described in Section
4.01(b) hereof, shall be acceptable to the Lender, in its
sole discretion.
Section 7.19 No Litigation. No action, proceeding,
investigation, regulations or legislation shall have been
instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises
out of disagreement or the consummation of the transactions
contemplated hereby.
Section 7.20 Excess Availability Requirement. Lender
shall have determined that immediately after Lender has made at
Closing the initial Advances contemplated hereby and Borrower has
paid (or made provisions for payment of) secured loans, accounts
payable over
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sixty (60) days past due and all closing costs incurred in
connection with the transactions contemplated hereby, the amount
of the Borrowing Base shall exceed the aggregate principal amount
of all outstanding Advances by at least $2,000,000.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
Section 8.01 Notices. All communications under or in
connection with this Agreement or the Note shall be in writing
and shall be mailed by registered or certified mail, return
receipt requested, postage prepaid, or personally delivered to an
officer of the receiving party. All such communications shall be
mailed or delivered as follows:
(a) If to Borrower: c/o Temtex Industries, Inc.
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: X. X. Xxxxxx, President
(b) If to Lender: Frost Capital Group
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xx. Xxxxx Xxxxxxxx
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 actually received by, or receipt therefor is
given by, an authorized officer of the Borrower or the Lender, as
the case may be.
Section 8.02 Deviation from Covenants. The procedure to
be followed by the Borrower to obtain the consent of the Lender
to any deviation from the covenants contained in this Agreement
or any other Security Instrument shall be as follows:
(a) The Borrower shall send a written notice to the
Lender setting forth (i) the covenant(s) relevant to the
matter, (ii) the requested deviation from the covenant(s)
involved, and (iii) the reason for the requested deviation
from the covenant(s); and
(b) The Lender will within a reasonable time send a
written notice to the Borrower, signed by an authorized
officer of the Lender, permitting or refusing the request;
but in no event will any deviation from the covenants of
this Agreement or any other Security Instrument be effective
without the written consent of the Lender.
Section 8.03 Invalidity. In the event that any one or
more of the provisions contained in the Note, this Agreement or
in any other Security Instrument shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision of the Note, this Agreement or any other Security
Instrument.
Section 8.04 Survival of Agreements. All representations
and warranties of the Borrower herein, and all covenants and
agreements herein not fully performed before the effective date
of this Agreement, shall survive such date.
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Section 8.05 Successors and Assigns. All covenants and
agreements contained by or on behalf of the Borrower or any
Subsidiary or any Guarantor in the Note, this Agreement and any
other Security Instrument shall bind its successors and assigns
or the heirs and personal representatives of any individual
Guarantor and shall inure to the benefit of the Lender and its
successors and assigns; except that neither Borrower, nor any
Subsidiary, nor any Guarantor, nor any Person acting on behalf of
any of them may assign any of their rights hereunder without the
prior written consent of Lender. In the event that the Lender
sells participations in the Note, or other Indebtedness of the
Borrower incurred or to be incurred pursuant to this Agreement,
to other lenders, each of such other lenders shall have the
rights of set off against such Indebtedness and similar rights or
Liens to the same extent as may be available to the Lender.
Section 8.06 Renewal, Extension or Rearrangement. All
provisions of this Agreement relating to the Note or other
Indebtedness shall apply with equal force and effect to each and
all promissory Note hereinafter executed which in whole or in
part represent a renewal, extension, increase or rearrangement of
any part of the Indebtedness originally represented by the Note
or of any part of such other Indebtedness. Any provision of this
Agreement to be performed during the "term of this Agreement,"
"term hereof" or similar language, shall include any extension
period.
Section 8.07 Waivers. No course of dealing on the part of
the Lender, its officers, employees, consultants or agents, nor
any failure or delay by the Lender with respect to exercising any
right, power or privilege of the Lender under the Note, this
Agreement or any other Security Instrument shall operate as a
waiver thereof, except as otherwise provided in Section 8.02
hereof.
Section 8.08 Cumulative Rights. Rights and remedies of
the Lender under the Note, this Agreement and each other Security
Instrument shall be cumulative, and the exercise or partial
exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.
Section 8.09 Construction. This Agreement is, and the
Revolving Credit Note will be, a contract made under and shall be
construed in accordance with and governed by the laws of the
State of Texas.
Section 8.10 Interest. It is the intention of the parties
hereto to conform strictly to applicable usury laws now in force.
Accordingly, if the transactions contemplated hereby would be
usurious under applicable law, then, in that event,
notwithstanding anything to the contrary in the Note, this
Agreement or in any other Security Instrument or agreement
entered into in connection with or as security for the Note, it
is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under applicable law that is
contracted for, charged or received under the Note, this
Agreement or under any of the other aforesaid Security
Instruments or agreements or otherwise in connection with the
Note shall under no circumstances exceed the maximum amount of
interest permitted by applicable law, and any excess shall be
credited on the Note by the holder thereof (or, if the Note shall
have been paid in full, refunded to the Borrower); (ii)
determination of the rate of interest for determining whether the
loans hereunder are usurious shall be made by amortizing,
prorating, allocating and spreading, during the full stated term
of such loans, all interest at any time contracted for, charged
or received from the Borrower in
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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 the maturity of the Note is accelerated by reason of
an election of the holder thereof resulting from any Default or
Event of Default under this Agreement or otherwise, or in the
event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more
than the maximum amount permitted by applicable law, and excess
interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be
credited on the Note (or, if the Note shall have been paid in
full, refunded to the Borrower).
Section 8.11 Multiple Originals. This Agreement may be
executed in two (2) or more copies; each fully executed copy
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 8.12 Exhibits and Schedules. All exhibits and
schedules to this Agreement are incorporated herein by this
reference for all purposes. The exhibits and schedules may be
attached hereto, or bound together with or separately from this
Agreement, and such binding shall be effective to identify such
exhibits as if attached to this Agreement.
Section 8.13 No Triparty Loan. Texas Revised Civil
Statutes Annotated, Finance Code, Chapter 346 (which regulates
certain revolving loan accounts and revolving triparty accounts)
shall not apply to the loans evidenced by this Agreement or the
Note.
Section 8.14 Applicable Rate Ceiling. Unless changed in
accordance with law, the applicable rate ceiling under Texas law
shall be the indicated (weekly) rate ceiling from time to time in
effect as provided in Texas Revised Civil Statutes Annotated,
Finance Code, Chapter 303, as amended.
Section 8.15 Performance and Venue. The obligations of
Borrower 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 Note and all other Security Instruments have been negotiated
by the parties at arm's length, each represented by its own
counsel, and the fact that the documents have been prepared by
the Lender's counsel, after such negotiation, shall not be cause
to construe any of such documents against the Lender.
Section 8.17 Notices Received by Lender. Any instrument
in writing, telex, telegram, telecopy or cable received by the
Lender in connection with any loan hereunder, which purports to
be dispatched or signed by or on behalf of Borrower, shall
conclusively be deemed to have been signed by such party, and
Lender may rely thereon and shall have no obligation, duty or
responsibility to determine the validity or genuineness thereof
or authority of the Person or Persons executing or dispatching
the same.
Section 8.18 Debtor-Creditor Relationship. None of the
terms of this Agreement or of any other document executed in
conjunction herewith or related hereto shall be deemed to give
the Lender the rights or powers to exercise control over the
business or affairs of the Borrower. The relationship between
the Borrower and the Lender created by this Agreement is only
that
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of debtor/creditor.
Section 8.19 No Third-Party Beneficiaries. This Agreement
is for the sole and exclusive benefit of Borrower 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
Borrower and Lender, without any requirement or necessity for
notice to, or the consent of or approval of any other Person.
Section 8.20 Indemnification. EACH BORROWER JOINTLY AND
SEVERALLY AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS LENDER
AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS AND ADVISORS (EACH, AND "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 EXPENSES 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 WILFUL MISCONDUCT, IN THE CASE OF AN INVESTIGATION,
LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS
SECTION 8.20 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE
REGARDLESS OF WHETHER SUCH INVESTIGATION, LITIGATION OR
PROCEEDING IS BROUGHT BY BORROWER OR ITS RESPECTIVE DIRECTORS,
SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY IS OTHERWISE A
PARTY THERETO AND WHETHER THE TRANSACTIONS CONTEMPLATED HEREBY
ARE CONSUMMATED, WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER
AGREEMENT OF THE BORROWER HEREUNDER, THE AGREEMENTS AND
OBLIGATIONS OF BORROWER CONTAINED IN THIS SECTION 8.20 SHALL
SURVIVE THE PAYMENT IN FULL OF THE INDEBTEDNESS AND ALL OTHER
AMOUNTS PAYABLE UNDER THIS AGREEMENT.
Section 8.21 Release Of Liability. TO THE MAXIMUM EXTENT
PERMITTED BY LAW FROM TIME TO TIME IN EFFECT, BORROWER 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 BORROWER AGAINST THE 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,
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CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (WHETHER THE CLAIM IS BASED ON CONTRACT, TORT OR
STATUTE) ARISING OUT OF, OR RELATED TO, THE TRANSACTIONS
CONTEMPLATED BY ANY OF THIS AGREEMENT, THE NOTE, THE SECURITY
INSTRUMENTS OR ANY OTHER RELATED DOCUMENTS, OR ANY ACT, OMISSION,
OR EVENT OCCURRING IN CONNECTION HEREWITH OR THEREWITH. IN
FURTHERANCE OF THE FOREGOING, BORROWER HEREBY WAIVES, RELEASES
AND AGREES NOT TO XXX UPON ANY CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO
EXIST IN ITS FAVOR, AND BORROWER SHALL INDEMNIFY AND HOLD
HARMLESS LENDER AND ITS AFFILIATES, PARTICIPANTS, SHAREHOLDERS,
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, ACCOUNTANTS AND AGENTS
AND THEIR SUCCESSORS AND ASSIGNS OF AND FROM ANY SUCH CLAIMS.
Section 8.22 WAIVER OF TRIAL BY JURY. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR
THERETO. IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING,
AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTIONS SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY,
AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION 8.22 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 8.23 DTPA Waiver. Borrower acknowledges and
agrees, on Borrower's own behalf of any permitted assigns and
successors hereafter, that the DTPA is not applicable to this
transaction. Accordingly, Borrower's rights and remedies with
respect to the transaction contemplated under this Agreement and
with respect to all acts or practices of Lender, past, present or
future, in connection with such transaction, shall be governed by
legal principles other than the DTPA. In furtherance thereof,
Borrower agrees as follows:
(a) Borrower represents that Borrower has the
knowledge and experience in financial and business matters
that enable Borrower to evaluate the merits and risks of the
business transaction that is the subject of this Agreement.
Borrower also represents that Borrower is not in a
significantly disparate bargaining position in relation to
Lender. Borrower has negotiated the loan documents with
Lender at arm's length and have willingly entered into the
loan documents.
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(b) Borrower represents that (i) Borrower has been
represented by the firm of Xxxxx and Xxxxx, as legal counsel
in the transaction contemplated by this Agreement and (ii)
such legal counsel was not directly or indirectly
identified, suggested or selected by Lender or an agent of
Lender.
(c) This Agreement relates to a transaction involving
total consideration by Borrower of more than $100,000.00 and
does not involve the Borrower's residence.
Borrower agrees, on Borrower's own behalf and on behalf of
Borrower's permitted assigns and successors, that all of the
Borrower's 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.
In furtherance thereof, Borrower agrees that by signing this
Agreement, Borrower and any permitted assigns and successors are
bound by the following waiver:
WAIVER OF CONSUMER RIGHTS. BORROWER
HEREBY WAIVES ITS RIGHTS UNDER THE DECEPTIVE
TRADE PRACTICES - CONSUMER PROTECTION ACT,
SECTION 17.41 ET. SEQ. BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION
WITH AN ATTORNEY OF BORROWER'S OWN SELECTION,
BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER.
BORROWER HAS READ AND UNDERSTANDS SECTION 8.23:
/s/ XXX (INITIALS)
-------------
Section 8.24 Final Expression. THIS WRITTEN LOAN
AGREEMENT, THE NOTE AND THE OTHER 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.
Section 8.25 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 makes a payment or payments to Lender, or
Lender receives any payment or proceeds of any collateral for
Borrower's benefit, which payment(s) or proceed 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 part under any bankruptcy law,
state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Indebtedness
or
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party 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 8.26 Injunctive Relief. Each Borrower recognizes
that, in the event Borrower 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 agrees that if any Default or
Event of Default shall have occurred and be continuing, Lender
shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damages.
Section 8.27 The Term "Borrower" or "Borrowers". All
references to "Borrower" or "Borrowers" herein shall refer to and
include each of Temtex Industries, Inc. and Temco Fireplace
Products, Inc. separately and all representations contained
herein shall be deemed to be separately made by each of them, and
each of the covenants, agreements and obligations set forth
herein shall be deemed to be the joint and several covenants,
agreements and obligations of them. Any notice, request,
consent, report or other information or agreement delivered to
Lender by any Borrower shall be deemed to be ratified by,
consented to and also delivered by the other Borrower. Each
Borrower recognizes and agrees that each covenant and agreement
of "Borrower" or "Borrowers" under this Agreement and the other
Loan Documents shall create a joint and several obligation of the
Borrowers, which may be enforced against Borrowers, jointly, or
against each Borrower separately. Without limiting the terms of
this Agreement and the other Loan Documents, security interests
granted under this Agreement and other Loan Documents in
properties, interests, assets and collateral shall extend to the
properties, interests, assets and collateral of each Borrower.
Similarly, the term "Indebtedness" shall include, without
limitation, all obligations, liabilities and indebtedness of such
corporations, or any one of them, to Lender, whether such
obligations, liabilities and indebtedness shall be joint,
several, joint and several or individual.
Section 8.28 Joint and Several Liability; Rights of
Contribution.
(A) Each Borrower states and acknowledges that:
(i) pursuant to this Agreement, Borrowers desire to utilize their
borrowing potential on a consolidated basis to the same extent
possible if they were merged into a single corporate entity and
that this Agreement reflects the establishment of credit
facilities which would not otherwise be available to such
Borrower if each Borrower were not jointly and severally liable
for payment of all of the Indebtedness; (ii) it has determined
that it will benefit specifically and materially from the
advances of credit contemplated by this Agreement; (iii) it is
both a condition precedent to the Indebtedness of Lender
hereunder and a desire of the Borrowers that each Borrower
execute and deliver to Lender this Agreement; and (iv) Borrowers
have requested and bargained for the structure and terms of and
security for the advances contemplated by this Agreement.
(B) Each Borrower hereby irrevocably and
unconditionally: (i) agrees that it is jointly and severally
liable to Lender for the full and prompt payment of the
Indebtedness and the performance by each Borrower of its
Indebtedness hereunder in accordance with the terms hereof;
(ii) agrees to fully and promptly perform all of its Indebtedness
hereunder with respect to each advance of credit hereunder as if
such advance had been made directly to it; and (iii) agrees as a
primary obligation to indemnify Lender on demand for and against
any loss incurred by Lender as a result of any of the
Indebtedness of any one or more of the Borrowers being or
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becoming void, voidable, unenforceable or ineffective for any
reason whatsoever, whether or not known to Lender or any Person,
the amount of such loss being the amount which Lender would
otherwise have been entitled to recover from any one or more of
the Borrowers.
(C) It is the intent of each Borrower that the
Indebtedness and liability hereunder of no one of them be subject
to challenge on any basis, including, without limitation,
pursuant to any applicable fraudulent conveyance or fraudulent
transfer laws. Accordingly, as of the date hereof, the liability
of each Borrower under this Section 8.28, together with all of
its other liabilities to all Persons as of the date hereof and as
of any other date on which a transfer or conveyance is deemed to
occur by virtue of this Agreement, calculated in amount
sufficient to pay its probable net liabilities on its existing
Indebtedness as the same become absolute and matured ("Dated
Liabilities") is, and is to be, less than the amount of the
aggregate of a fair valuation of its property as of such
corresponding date ("Dated Assets"). To this end, each Borrower
under this Section 8.28, (i) grants to and recognizes in each
other Borrower, ratably, rights of subrogation and contribution
in the amount, if any, by which the Dated Assets of such
Borrower, but for the aggregate of subrogation and contribution
in its favor recognized herein, would exceed the Dated
Liabilities of such Borrower or, as the case may be,
(ii) acknowledges receipt of and recognizes its right to
subrogation and contribution ratably from each of the other
Borrowers in the amount, if any, by which the Dated Liabilities
of such Borrower, but for the aggregate of subrogation and
contribution in its favor recognized herein, would exceed the
Dated Assets of such Borrower under this Section 8.28. In
recognizing the value of the Dated Assets and the Dated
Liabilities, it is understood that Borrowers will recognize, to
at least the same extent of their aggregate recognition of
liabilities hereunder, their rights to subrogation and
contribution hereunder. It is a material objective of this
Section 8.28 that each Borrower recognizes rights to subrogation
and contribution rather than be deemed to be insolvent (or in
contemplation thereof) by reason of an arbitrary interpretation
of its joint and several Indebtedness hereunder. In addition to
and not in limitation of the foregoing provisions of this Section
8.28, the Borrowers and Lender hereby agree and acknowledge that
it is the intent of each Borrower and of Lender that the
Indebtedness of each Borrower hereunder be in all respects in
compliance with, and not be voidable pursuant to, applicable
fraudulent conveyance and fraudulent transfer laws.
(D) Notwithstanding the foregoing, and the Borrowers'
agreement to be jointly and severally liable for payment of all
the Indebtedness, each of the Borrowers is a separate and
distinct corporation. Lender acknowledges and agrees that each
Borrower is a separate and distinct entity and further agrees not
to challenge or dispute the separate existence of each Borrower.
Section 8.29 Structure of Credit Facility. Each Borrower
agrees and acknowledges that the present structure of the credit
facilities detailed in this Agreement is based in part upon the
financial and other information presently known to Lender
regarding each Borrower, the corporate structure of Borrowers,
and the present financial condition of each Borrower. Each
Borrower hereby agrees that upon the occurrence and during the
continuance of an Event of Default, Lender shall have the right,
in its sole credit judgment, to require that any or all of the
following changes be made to these credit facilities: (i) make
Advances specifically to a specific Borrower, (ii) restrict loans
and advances between Borrowers, (iii) require that each Borrower
execute a guaranty of the Indebtedness of each other Borrower to
Lender and (iv) require that any advances made by a Borrower to
another Borrower be collateralized in a manner acceptable to
-39-
Lender.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed as of the date first above
written.
BORROWER:
---------
TEMTEX INDUSTRIES, INC.,
a Delaware corporation
By: /s/ X. X. Xxxxxx
----------------------------
Name: X. X. Xxxxxx
Title: President
TEMCO FIREPLACE PRODUCTS, INC.,
a Texas corporation
By: /s/ X. X. Xxxxxx
---------------------------
Name: X. X. Xxxxxx
Title: President
LENDER:
-------
THE FROST NATIONAL BANK,
a national banking association
doing business as
FROST CAPITAL GROUP, and
formerly known as
CREEKWOOD CAPITAL GROUP
By: /s/ Xxxxx Xxxxxxxx
--------------------------
Name: Xxxxx Xxxxxxxx
Title: Vice President
-40-
Exhibit "A"
Revolving Credit Note
---------------------
$4,000,000.00 Houston, Texas September 6, 2000
ON DEMAND, or if no demand is made, on or before three years
from the date hereof or such later date if extended pursuant to
the terms of the Loan Agreement (as hereinafter defined), the
undersigned, TEMTEX INDUSTRIES, INC., a Delaware corporation, and
TEMCO FIREPLACE PRODUCTS, INC., a Texas corporation (individually
and collectively, jointly and severally, the "Maker"), with
principal office and mailing address at 0000 XXX Xxxxxxx, Xxxxx
0000, Xxxxxx, Xxxxx 00000, HEREBY JOINTLY AND SEVERALLY PROMISE
TO PAY to the order of
THE FROST NATIONAL BANK,
a national banking association,
doing business as
FROST CAPITAL GROUP
and formerly known as
CREEKWOOD CAPITAL GROUP
(together with its successors and assigns, "Lender"), at its
offices at 0000 Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx
00000, in lawful money of the United States of America, up to the
sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), or so
much thereof as may be advanced from time to time pursuant to
that certain Loan Agreement, of even date herewith, between Maker
and Lender (as renewed, extended, amended and restated from time
to time, the "Loan Agreement"), together with interest on the
unpaid principal balance hereof from time to time outstanding at
a floating rate per annum which is one and one quarter percent
(1.25%) per annum (hereinafter called the "Margin Percentage")
above the Prime Rate (as hereinafter defined), 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 rate of nonusurious
interest allowed from time to time by law as now or, to the
extent allowed by law, as may hereafter be in effect (hereinafter
called the "Maximum Nonusurious Interest Rate"), with adjustments
due to changes in the Prime Rate to be made on the effective date
of any change in the Prime Rate. Upon the occurrence of an Event
of Default (as defined in the Loan Agreement), the Margin
Percentage shall equal a varying rate per annum which is two
percent (2.00%) above the rate specified in the immediately
preceding sentence (but in no event to exceed the Maximum
Nonusurious Interest Rate), from maturity until paid, and to the
extent permitted by applicable law, past due interest shall also
accrue interest at such per annum rate. Unless otherwise
specified below, interest shall be computed on a per annum basis
of a year of 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
365 days or 366 days, as the case may be.
"Prime Rate" shall mean that variable rate of interest per
annum established by The Frost National Bank, a national banking
association (together with its successors and assigns,
"Reference Bank") from time to time as its "prime rate." Such
rate is set by Reference Bank as a general reference rate of
interest, taking into account such factors as Reference Bank may
deem appropriate, it being understood that many of Reference
Bank's commercial or other loans are priced in relation to such
rate, that it is not necessarily the lowest or best rate actually
charged to any customer and that Reference Bank may make various
commercial or other loans at rates of interest having no
relationship to such rate. The Prime Rate shall never be less
than seven percent (7.00%) per annum.
In the event that Reference Bank does not have a rate
designated by it as its "prime rate," then the Prime Rate under
this Revolving Credit Note (this "Note") 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 at its sole option exercised in good faith, and
changed by Lender at its sole option, from time to time, any such
change to become effective on the date of such change; such
institutions shall include: Citibank, N.A., The Chase Manhattan
Bank, N.A. and Banker's Trust Company.
Notwithstanding the foregoing, if at any time the sum of the
Margin Percentage plus the Prime Rate exceeds the Maximum
Nonusurious Interest Rate, the rate of interest to accrue on this
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 this Note below the Maximum
Nonusurious Interest Rate until the total amount of interest
accrued on this Note equals the amount of interest which would
have accrued if a varying rate per annum equal to the sum of the
Margin Percentage plus the Prime Rate had at all times been in
effect.
If at maturity or final payment of this Note the total
amount of interest paid or accrued under the foregoing provisions
is less than the total amount of interest which would have
accrued if a varying rate per annum equal to the sum of the
Margin Percentage plus the Prime Rate had at all times been in
effect, then Maker agrees, to the extent allowed by law, to pay
to Lender an amount equal to the difference between (a) the
lesser of (i) the amount of interest which would have accrued on
this Note if the Maximum Nonusurious Interest Rate had at all
times been in effect or (ii) the amount of interest which would
have accrued if a varying rate per annum equal to the sum of the
Margin Percentage plus the Prime Rate had at all times been in
effect and (b) the amount of interest accrued in accordance with
the other provisions of this Note.
Accrued interest is due and payable monthly commencing the
first day of the calendar month immediately succeeding the
calendar month in which the first advance is made hereunder by
Lender and on the first day of each and every succeeding month
thereafter during the term hereof and at maturity; provided,
that, upon any prepayment of principal, at the option of Lender,
it may demand (at any time at or after prepayment) all accrued
and unpaid interest with respect to the principal amount prepaid
through the date of prepayment. Reference is hereby made to
Section 2.02 of the Loan Agreement for additional provisions
regarding calculation of interest accrued on this Note.
The unpaid principal balance hereof shall at no time exceed
the sum of Four Million and No/100 Dollars ($4,000,000.00). The
unpaid principal balance of this Note at any time shall be the
total amounts loaned or advanced hereunder by the holder hereof,
less the amount of payments or prepayments of principal made
hereon by or for the account of Maker. All loans or advances and
all payments or prepayments made hereunder 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
Maker resulting from all loans or advances and all payments or
prepayments hereunder from time to time and the amounts of
principal and interest payable and paid from time to time
hereunder, in which event, in any legal action or proceeding in
respect of this Note, the entries made in such account or
accounts shall be conclusive evidence of the existence and
amounts of the obligations of Maker therein recorded. In the
event that the unpaid principal amount hereof at any time, for
any reason, exceeds the maximum amount hereinabove specified,
Maker agrees to pay the excess principal amount forthwith upon
demand; such excess principal amount shall in all respects be
deemed to be included among the loans or advances made pursuant
to the other terms of this Note and shall bear interest at the
rates hereinabove stated.
Advances hereunder may be made by the holder hereof
(i) pursuant to the terms of any written agreement executed in
connection herewith between Maker and Lender, including, without
limitation, the Loan Agreement, or (ii) at the oral or written
request of any of the undersigned or of any officer or agent of
Maker designated by or acting under the authority of resolutions
of the board of directors of Maker, a duly certified or executed
copy of which shall be furnished to the holder hereof, until
written notice of the revocation of such authority is received by
the holder hereof. Maker covenants and agrees to furnish to the
holder hereof written confirmation of any such oral request
within five (5) days of the resulting loan or advance, but any
such loan or advance shall be deemed to be made under and
entitled to the benefits of this note irrespective of any failure
by Maker to furnish such written confirmation. Any loan or
advance shall be conclusively presumed to have been made under
the terms of this note to or for the benefit of Maker when made
pursuant to the terms of any written agreement executed in
connection herewith between Maker and Lender, or in accordance
with such requests and directions or when said advances are
deposited to the credit of the account of Maker with Lender
regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account, or may
have requested an advance.
If any installment or payment of principal or interest of
this Note is not paid when due; or if a default occurs under any
instrument now or hereafter executed in connection with or as
security for this Note including, without limitation, the Loan
Agreement, thereupon, or upon demand, 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 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 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, Maker and each drawer,
acceptor, 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") jointly and severally
agree to pay Lender the collection costs of Lender, including
reasonable attorney's fees. 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: (a) 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 Nonusurious Interest Rate, 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); (b) if 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 (including any
renewals of the term hereof) all interest at any time contracted
for, charged or received from Maker in connection with such
loans, and any excess shall be canceled, credited or refunded as
set forth in clause (a) herein; and (c) 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 Nonusurious Interest Rate,
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 and applicable federal law, but Texas
Revised Civil Statutes Annotated, Finance Code, Chapter 346
(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, Finance Code, Chapter 303, as amended.
Maker, if two or more in number, shall be jointly and
severally bound hereby.
Wherefore, intending to be legally bound hereby, Maker has
executed this Note.
MAKER:
TEMTEX INDUSTRIES, INC.,
a Delaware corporation
By: /s/ X. X. Xxxxxx
-----------------------------
Name: X. X. Xxxxxx
Title: President
TEMCO FIREPLACE PRODUCTS, INC.,
a Texas corporation
By: /s/ X. X. Xxxxxx
-----------------------------
Name: X. X. Xxxxxx
Title: President
Exhibit "B"
Subordinated Lenders
--------------------
[Not applicable]
--------------------------------------------------------------
--------------------------------------------------------------
SECURITY AGREEMENT
By and Between
TEMTEX INDUSTRIES, INC.
in favor of
THE FROST NATIONAL BANK,
a national banking association,
doing business as
FROST CAPITAL GROUP and
formerly known as
CREEKWOOD CAPITAL GROUP
Dated as of
September 6, 2000
-----------------------------------------------------------------
-----------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I GENERAL............................................1
Section 1.01 Certain Definitions.........................1
Section 1.02 Terms Defined in Code.......................2
ARTICLE II SECURITY INTEREST.............................2
Section 2.01 Grant of Security Interest..................2
Section 2.02 Indebtedness Secured........................4
Section 2.03 Limited License.............................5
ARTICLE III REPRESENTATIONS AND WARRANTIES................5
Section 3.01 Information.................................5
Section 3.02 Ownership and Liens.........................5
Section 3.03 Status of Accounts..........................6
Section 3.04 Status of Related Rights....................6
Section 3.05 Status of Books and Records.................6
Section 3.06 Location....................................6
Section 3.07 Certificate of Title........................7
Section 3.08 Collateral Not Covered by Documents.........7
Section 3.09 Corporate Existence Power and
Authorization............................7
Section 3.10 Status of Instruments.......................7
ARTICLE IV COVENANTS.....................................7
Section 4.01 Financing Statement Filings.................7
Section 4.02 Taxes, etc..................................8
Section 4.03 Satisfactory Collateral.....................8
Section 4.04 Possession of Collateral....................8
Section 4.05 Maintenance of Collateral...................8
Section 4.06 Further Assurances..........................8
Section 4.07 Filing Reproductions........................9
Section 4.08 Delivery of Information.....................9
Section 4.09 Compromise of Collateral....................9
Section 4.10 Title; Prohibited Liens and Filings.........9
Section 4.11 Inspection..................................9
Section 4.12 Account Obligations.........................9
Section 4.13 Use of Inventory...........................10
Section 4.14 Collection and Enforcement of Accounts,
General Intangibles and Related Rights.....10
Section 4.15 Reports....................................11
Section 4.16 Proceeds...................................11
Section 4.17 Insurance..................................11
Section 4.18 Expenses...................................12
Section 4.19 Financial Statements and Reports...........12
Section 4.20 Fixtures or Accessions.....................12
ARTICLE V RIGHTS AND REMEDIES...............................13
Section 5.01 With Respect to Collateral.................13
Section 5.02 Application of Cash Sums...................13
Section 5.03 Default, Events............................14
Section 5.04 Default, Remedies..........................15
Section 5.05 Proceeds...................................16
Section 5.06 Deficiency.................................16
Section 5.07 Secured Party's Duties.....................16
Section 5.08 Secured Party's Actions....................16
Section 5.09 Transfer of Indebtedness
and Collateral..........................17
Section 5.10 Cumulative Security........................17
Section 5.11 Continuing Agreement.......................17
Section 5.12 Cumulative Rights..........................17
Section 5.13 Exercise of Rights.........................17
Section 5.14 Remedy and Waiver..........................18
Section 5.15 Non-Judicial Remedies......................18
ARTICLE VI MISCELLANEOUS................................18
Section 6.01 Debtor.....................................18
Section 6.02 Preservation of Liability..................18
Section 6.03 Notices....................................18
Section 6.04 Construction...............................18
Section 6.05 Amendment and Waiver.......................18
Section 6.06 Invalidity.................................18
Section 6.07 Successors and Assigns.....................19
Section 6.08 Survival of Agreements.....................19
Section 6.09 Titles of Articles and Sections............19
Section 6.10 Exhibits...................................19
Section 6.11 Conflict of Terms..........................19
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT dated as of September 6, 2000, by
TEMTEX INDUSTRIES, INC., a Delaware corporation, with principal
office and mailing address at 0000 XXX Xxxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxx 00000 ("Debtor"), in favor of THE FROST NATIONAL
BANK, a national banking association, doing business as FROST
CAPITAL GROUP and formerly known as CREEKWOOD CAPITAL GROUP,
whose office address is at 0000 Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx
00000 (herein called "Secured Party").
W I T N E S S E T H
- - - - - - - - - -
A. Debtor has requested Secured Party to make a loan or
loans to or for the account of Debtor and Temco Fireplace
Products, Inc. ("Temco") pursuant to that certain Loan Agreement
by and among Debtor, Temco and Secured Party of even date
herewith (as renewed, modified and restated from time to time,
the "Agreement");
B. Secured Party has conditioned its agreement to make
such loan or loans under that certain Agreement upon Debtor's
execution and delivery of this Security Agreement;
NOW, THEREFORE, to induce Secured Party to make a loan or
loans to or for the account of Debtor, at the special instance of
Secured Party, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, Debtor
hereby agrees with Secured Party, as follows:
ARTICLE I
---------
GENERAL
-------
Section 1.01 Certain Definitions. As used in this
Security Agreement, the following terms shall have the respective
meanings as indicated, unless the context otherwise requires:
"Accounts" shall have the meaning indicated in
Subsection 2.01(a) of this Security Agreement.
"Agreement" shall have the meaning set forth in the
Recitals hereto.
"Books and Records" shall mean all books, records,
reports, memoranda, and/or data compilations, in any form
(including, without limitation, corporate and other business
records, customer lists, credit files, computer programs,
printouts and any other computer materials and records), of
Debtor pertaining to any of the Accounts, General
Intangibles, Goods, and any other Property included in the
Collateral.
"Code" shall mean the Uniform Commercial Code as
presently in effect in the State of Texas, Texas Business &
Commerce Code Annotated Sections 1.101 through 11.108.
-1-
"Collateral" shall mean all Property, including without
limitation, cash or other proceeds, in which Secured Party
shall have a security interest pursuant to Section 2.01 of
this Security Agreement.
"General Intangibles" shall have the meaning indicated
in Subsection 2.01(b) of this Security Agreement.
"Goods" shall have the meanings indicated in Subsection
2.01(c) of this Security Agreement.
"Indebtedness" shall have the meaning indicated in
Section 2.02 of this Security Agreement.
"Instruments" shall have the meaning indicated in
Subsection 2.01(e) of this Security Agreement.
"Other Liable Party" shall mean any Person other than
Debtor, primarily or secondarily liable for any of the
Indebtedness or who grants Secured Party a lien upon and/or
a security interest on any Property as security for any of
the Indebtedness.
"Person" shall mean any individual, corporation,
partnership, joint venture, limited liability company,
association, joint stock company, trust, trustee,
unincorporated organization, government or agency or court
or political subdivision thereof, or any other form of
entity.
"Property" shall mean any interest in any kind of
property or asset, whether real, personal or mixed, or
tangible or intangible.
"Related Rights" shall mean all chattel papers,
documents and instruments relating to the Accounts or
General Intangibles and all rights now or hereafter existing
in and to all security agreements, leases and other
contracts securing or otherwise relating to any Accounts or
General Intangibles or any such chattel papers, documents
and instruments.
"Security Agreement" shall mean this Security
Agreement, as the same may from time to time be amended,
supplemented, revised or restated.
Section 1.02 Terms Defined in Code. All terms used herein
which are defined in the Code shall have the same meaning herein
unless otherwise defined herein or the context otherwise
requires.
ARTICLE II
----------
SECURITY INTEREST
-----------------
Section 2.01 Grant of Security Interest. Debtor hereby
grants and confirms that it has
-2-
granted to Secured Party a security interest in, a general lien
upon, and a right of set-off against the following described
Property:
(a) all of Debtor's accounts of any kind (including
all leases) whether now existing or hereafter arising
(herein called the "Accounts"); all chattel papers,
documents and instruments whether now existing or hereafter
arising relating to the Accounts; all rights now or
hereafter existing in and to all security agreements, leases
and other contracts securing or otherwise relating to any
Accounts or any such chattel papers, documents and
instruments; and all returned or repossessed goods arising
therefrom or relating to any Accounts, or other proceeds of
any sale or other disposition of inventory;
(b) all of Debtor's investment property and general
intangibles of any kind whether now existing or hereafter
arising including, without limitation the following (herein
called the "General Intangibles"):
(i) all leases of real or personal property;
(ii) all copyrights, trademarks, trademark
registrations and applications
for registration, trade names, corporate names, trade
styles, service marks, logos, other source and business
identifying marks, together with any goodwill
associated therewith, and all patents, patent
applications, and all renewals, extensions and
continuations in part of the above, any written
agreement granting any right to use any copyright,
trademark, trademark application or registration,
patent, patent application or registration, and the
right to xxx for past, present and future infringements
of the foregoing including the Intellectual Property
Collateral set forth in Exhibit "B" attached hereto
(herein called the "Intellectual Property Collateral");
and
all chattel papers, documents and instruments whether now
existing or hereafter arising relating to the General
Intangibles; and all rights now or hereafter existing in and
to all security agreements, leases, licenses and other
contracts securing or otherwise relating to any General
Intangibles or such chattel papers, documents and
instruments;
(c) all of Debtor's equipment and inventory in all of
its forms, whether now owned or hereafter acquired and
wherever located, all parts thereof and all accessions or
additions thereto and products thereof, whether now owned or
hereafter acquired (any and all such equipment, inventory,
parts, accessions, additions and products herein called the
"Goods"); and including, without limiting the foregoing, the
Goods located at Debtor's places of business listed on
Schedule I attached hereto; all chattel papers, documents
and instruments whether now existing or hereafter arising
relating to the Goods; and all rights now or hereafter
existing in and to all security agreements, leases and other
contracts securing or otherwise relating to any Goods or any
such chattel papers, documents and instruments;
(d) in the event that any of the Goods are or will
become so related to any particular real estate that an
interest in such Goods arises under the real estate law of
the
-3-
state where the real estate is located or is or will be
installed in or affixed to other goods of such type, a
description of such real estate or other goods is contained
in Schedule II hereto and the name of the record owner of
such real estate is contained in Schedule II hereto;
(e) all of Debtor's chattel papers, notes, documents
and instruments (herein called the "Instruments") whether
now existing or hereafter arising; and all rights now or
hereafter existing in and to all security agreements, leases
and other contracts securing or otherwise relating to any
such chattel papers, documents and instruments;
(f) any additional Properties from time to time
delivered to or deposited with Secured Party or any agent
bank of Secured Party, whether as security for the
Indebtedness or otherwise;
(g) the proceeds, products, additions, substitutions
and accessions of and to any and all of the foregoing
Property; and all of Debtor's books, records, reports,
memoranda and data compilations, in any form (including,
without limitation, corporate and other business records,
customer lists, credit files, computer programs, printouts
and any other computer materials and records), of Debtor
pertaining to any and all of the foregoing Property; and
(h) the Collateral includes, without limitation, the
following types of property as defined in the S.B. 1058,
76th Texas Legislature, Regular Session, 1999: commercial
tort claims, deposit accounts, letter of credit rights,
payment intangibles and software.
Section 2.02 Indebtedness Secured. The security interest
in, general lien upon, and right of set-off against the
Collateral is granted to Secured Party to secure the following
(all of which is herein called the "Indebtedness"):
(a) the prompt and unconditional payment and
performance when due of any and all indebtedness,
obligations and liabilities of Debtor or Temco to Secured
Party (including all claims of every nature and description
of Secured Party against Debtor or Temco), now or hereafter
existing or arising, absolute or contingent, direct or
indirect, joint and/or several, secured or unsecured, due or
to become due, whether originally contracted with Secured
Party or acquired in any manner (including by way of
participation) by Secured Party including indebtedness,
obligations and liabilities of Debtor or Temco to Secured
Party as a member of any partnership, syndicate, association
or other group, and whether incurred by Debtor or Temco as
principal, surety, endorser, guarantor, accommodation party
or otherwise;
(b) the reimbursement when due of all amounts which
might be advanced by Secured Party to satisfy amounts
required to be paid by Debtor under this Security Agreement
or under any other instrument at any time executed in
connection with or as security for the payment of any part
of the Indebtedness or any amount secured hereby or to pay
any taxes, insurance premiums, liens, claims and charges
against any or all of the Collateral, or any properties
covered by any instrument executed or to be executed by
-4-
Debtor to secure any part of the Indebtedness or any amount
secured hereby, together with interest thereon to the extent
provided;
(c) the reimbursement and payment by Debtor or Temco
of all advances, charges, costs and expenses (including
attorneys' fees and legal expenses) incurred by Secured
Party in connection with the transaction which gives rise to
this Security Agreement, in connection with any of the
Indebtedness or any amount secured hereby and in exercising
any right, power or remedy conferred by this Security
Agreement or by law (including, but not limited to attorneys
fees and legal expenses incurred by Secured Party in
connection with the operation, maintenance or foreclosure of
any or all of the Collateral); and
(d) the performance and payment by Debtor of all its
obligations in this Security Agreement or any other document
or agreement now or hereafter executed in connection with or
as security for any part of the Indebtedness or any amount
secured hereby.
Section 2.03 Limited License. Debtor hereby grants to
Secured Party a limited license in Debtor's trade names,
trademarks and service marks for purposes of allowing Secured
Party to use the same in connection with any foreclosure sale or
any other disposition pursuant to the Code or this Security
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Security
Agreement, Debtor represents and warrants to Secured Party (which
representations and warranties will survive the creation of the
Indebtedness and any extension of credit thereunder) that:
Section 3.01 Information. All information supplied and
statements (including financial statements), certificates or data
furnished or made by Debtor (or any officer, attorney or
accountant of Debtor) to Secured Party (including, without
limitation, any extracts from or copies of the Books and Records)
in connection with the Indebtedness and/or this Security
Agreement, whether contemporaneously with or subsequent to the
execution of this Security Agreement are and shall be true,
correct, complete, valid and genuine. No information, statements,
certificate, exhibit or report furnished by Debtor to Secured
Party in connection with the Indebtedness and/or this Security
Agreement contained any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the
statement contained therein not misleading.
Section 3.02 Ownership and Liens. Except for the leases
identified in the schedules to the Agreement and the security
interest in favor of Secured Party and unless otherwise agreed in
writing, Debtor owns good and indefeasible title to the
Collateral free and clear of any other security interest, lien,
encumbrance, adverse claim or option. Debtor has authority to
grant a security interest in the Collateral to Secured Party in
the manner provided herein and free and clear of any other
security interest, lien, encumbrance, adverse claim or option; no
security
-5-
interest, lien, encumbrance, adverse claim or option has been
created by Debtor or is known by Debtor to exist with respect to
any Collateral; to the best of Debtor's information and belief,
no financing statement or other security instrument is on file in
any jurisdiction covering such Collateral; at the time the
security interest in favor of Secured Party attaches, good and
indefeasible title to all after acquired Property included within
the Collateral, free and clear of any security interest, lien,
encumbrance, adverse claim or option (other than those permitted
by the first sentence of this Section 3.02) will be vested in
Debtor; and Debtor's grant of a security interest in the
Collateral to Secured Party in the manner provided herein does
not result in the creation or imposition of any other security
interest, lien, encumbrance, adverse claim or option in favor of
any other Person upon any Collateral or any other Property.
Section 3.03 Status of Accounts. Each Account now
existing represents, and each Account hereafter arising will
represent, to the best of Debtor's knowledge, the valid and
legally enforceable indebtedness of a bona fide account debtor
arising from the sale or lease or rendition by Debtor of goods
and/or services and is not and will not be subject to contra
accounts, set-offs, defenses or counterclaims by or available to
account debtors obligated on the Accounts except as disclosed to
Secured Party in writing; such goods will have been delivered to,
or be in the process of being delivered to, and such services
will have been rendered by Debtor to the account debtor and
accepted by the account debtor; and the amount shown as to each
Account on Debtor's books will be the true and undisputed amount
owing and unpaid thereon, subject to any discounts, allowances,
rebates, credits and adjustments to which the account debtor has
a right and which have been disclosed to Secured Party in
writing.
Section 3.04 Status of Related Rights. All Related Rights
are, and those hereafter arising will be, valid and genuine. Any
chattel paper included in the Related Rights has, and those
hereafter arising will have, only one duplicate original
counterpart which constitutes chattel paper or collateral within
the meaning of the Code or the law of any applicable
jurisdiction.
Section 3.05 Status of Books and Records. All Books and
Records have been, and those entries hereafter made therein will
be, made in the regular course of Debtor's business; made on the
basis of information recorded or transmitted (or to be recorded
or transmitted) by a Person, either an employee or representative
of Debtor, with personal knowledge of the acts, events,
conditions, opinions or diagnoses recorded therein and in the
regular course of Debtor's business; made at or near the time of
the act, event, condition, opinion or diagnosis recorded therein
and in the regular course of Debtor's business; and contain full,
true and correct entries of all dealings or transactions relating
to the Accounts, General Intangibles, Goods, Related Rights and
other Collateral, in accordance with generally accepted
accounting principles, consistently applied.
Section 3.06 Location. The address of Debtor's chief
executive office and chief place of business is recited in the
opening paragraph of this Security Agreement, and the Books and
Records of Debtor are kept at such location. Debtor's Goods
(other than Goods, if any, comprising mobile goods) are located
only at the location set forth in Subsection 2.01(c) of this
Security Agreement. In the event any of the Goods are mobile,
such Goods are of a type normally used in more than one
jurisdiction, such as motor vehicles, trailers, rolling stock,
airplanes, shipping containers, road building and construction
machinery and commercial
-6-
harvesting machinery and the like.
Section 3.07 Certificate of Title. In the event any of
the Goods are covered by a certificate of title, such Goods are
specifically identified on Exhibit "A" attached hereto.
Section 3.08 Collateral Not Covered by Documents. None of
the goods included in the Collateral are, and at the time the
security interest in favor of Secured Party attaches none of the
after acquired goods included in the Collateral will be, covered
by any document as defined in the Code or in the Uniform
Commercial Code of any state other than Texas where the goods are
(or will be) located.
Section 3.09 Corporate Existence Power and Authorization.
Debtor's state of incorporation is recited in the opening
paragraph of this Security Agreement; Debtor is duly organized,
legally existing and in good standing under the laws of such
state; Debtor is duly qualified as a foreign corporation in all
jurisdictions wherein the Collateral is located and where
Debtor's obligations which give rise to any of the Accounts,
General Intangibles or Related Rights are to be performed; Debtor
is duly authorized and empowered to execute, deliver and perform
the instruments evidencing any of the Indebtedness and this
Security Agreement; and all corporate action on Debtor's part
requisite for the due execution, delivery and performance of such
instruments and this Security Agreement has been duly and
effectively taken.
Section 3.10 Status of Instruments. Each Instrument now
existing is, and each Instrument hereafter will be, the valid and
legally enforceable indebtedness of a bona fide maker thereof for
good and valuable consideration, of which Debtor is the owner and
holder, and is not and will not be subject to set-offs,
counterclaims or defenses by any maker except as disclosed to
Secured Party in writing; and the amount shown on Debtor's books
in respect thereof will be the true and undisputed amount owing
and unpaid thereon. Each Instrument is endorsed to Secured Party
and is in the possession of Secured Party.
ARTICLE IV
----------
COVENANTS
---------
A deviation from the provisions of this Article IV shall not
constitute an event of default under this Security Agreement if,
prior to the occurrence thereof, such deviation is consented to
in writing by Secured Party. Without the prior written consent of
Secured Party, Debtor 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 Indebtedness is outstanding.
Section 4.01 Financing Statement Filings. Debtor
recognizes that financing statements pertaining to the Collateral
are being filed with the office of the Secretary of State of
Texas and the central filing office (or local filing offices as
may be required by law) of any other state where the Goods are
located. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the
filing of any financing statements or other public notice or
recordings for the purpose of perfecting security interests in
the Collateral. Without limiting the generality of the foregoing,
Debtor will (a) immediately notify Secured Party of any change to
a state other than as represented in Section 3.06 of this
Security
-7-
Agreement (i) in the location of the Goods (other than Goods
constituting mobile goods), (ii) in the location of Debtor's
chief executive office or chief place of business, (iii) in the
location of the Books and Records, and (iv) in the "location" of
Debtor within the meaning of Section 9.103(c) of the Code; (b)
prior to any Collateral becoming so related to any particular
real estate so as to become a fixture on such real estate, notify
Secured Party of the description of such real estate and the name
of the record owner thereof; and (c) immediately notify Secured
Party of any change in any Debtor's name, identity or corporate
structure. In any notice furnished pursuant to this Section,
Debtor will expressly state that the notice is required by this
Security Agreement and contains facts that will or may require
additional filings of financing statements or other notices for
the purpose of continuing perfection of Secured Party's security
interest in the Collateral.
Section 4.02 Taxes, etc. Debtor agrees to pay prior to
any delinquency all taxes, charges, liens and assessments against
the Collateral, and upon the failure of Debtor to do so, Secured
Party, at its option, may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount
necessary to discharge the same.
Section 4.03 Satisfactory Collateral. Debtor will at all
times maintain with Secured Party Collateral of a character and
value satisfactory to Secured Party. If at any time any of the
Collateral shall depreciate in character or value or otherwise be
unsatisfactory to Secured Party, Secured Party in its discretion
may demand, and Debtor will upon said demand provide, such
further collateral or such payment on account of the Indebtedness
as will be satisfactory to Secured Party.
Section 4.04 Possession of Collateral. Secured Party
shall be deemed to have possession of any of the Collateral in
transit to it or set apart for it. Otherwise the Collateral shall
remain in Debtor's possession or control at all times at Debtor's
risk of loss and shall (except for temporary removal consistent
with its normal use) be kept at the locations represented
pursuant to Section 3.06 and any other location specified in
writing to Secured Party, where Secured Party may inspect it at
any time.
Section 4.05 Maintenance of Collateral. Debtor will
maintain the Collateral in good condition and will not misuse,
abuse, waste, destroy, endanger or allow the Collateral to
deteriorate. Debtor will forthwith, or in the case of any loss
or damage to any goods included in the Collateral as soon as
practicable, make or cause to be made all repairs, replacements
or other improvements to the Collateral as are necessary or
desirable to accomplish the foregoing. Debtor will not use the
Collateral in violation of any law, statute, ordinance or
regulation or suffer it to be so used.
Section 4.06 Further Assurances. Debtor will from time to
time sign, execute, deliver and file, alone or with Secured
Party, any financing statement, security agreements or other
documents, any document as may be requested by Secured Party, and
take all further action that may be necessary or desirable, or
that Secured Party may request to confirm, perfect and preserve
the security interest created hereby, and in addition, Debtor
hereby authorizes and appoints Secured Party as Debtor's true and
lawful attorney-in-fact and agent to execute and deliver on
behalf of Debtor and to file such financing statements, security
agreements and other documents
-8-
as Secured Party shall determine to be useful. Debtor shall do
all such additional and further acts, things, deeds, give such
assurances and execute such instruments as Secured Party requests
to vest more completely in and assure to Secured Party its rights
under this Security Agreement. Without limiting the foregoing,
(i) Debtor will not remove any Goods (other than mobile goods)
included in the Collateral from the jurisdiction in which such
Goods are located (as represented in Section 3.06 of this
Security Agreement) unless prior thereto all actions referenced
in Section 4.01 have been taken with respect thereto; (ii) Debtor
will xxxx conspicuously any and all chattel paper included in the
Collateral and its Books and Records pertaining to the Collateral
with a legend, in form and substance satisfactory to Secured
Party indicating that such chattel paper or Collateral is subject
to the security interest granted by this Security Agreement; and
(iii) in the event any Account, General Intangible or Related
Right is evidenced by a note or other instrument, Debtor will
transfer, deliver and assign to Secured Party such note or other
instrument duly endorsed and accompanied by duly executed
instruments of transfer and assignment, all in form and substance
satisfactory to Secured Party, to be held by Secured Party as
Collateral under this Security Agreement.
Section 4.07 Filing Reproductions. At the option of
Secured Party, a carbon, photographic or other reproduction of
this Security Agreement or of a financing statement covering the
Collateral shall be sufficient as a financing statement and may
be filed as a financing statement.
Section 4.08 Delivery of Information. Debtor will
transmit to Secured Party promptly all information that Debtor
may have or receive with respect to (i) the Collateral or (ii)
account debtors or obligors in respect of the Accounts, the
General Intangibles and the Related Rights which might in any way
materially affect the value of the Collateral or Secured Party's
rights or remedies with respect thereto.
Section 4.09 Compromise of Collateral. Debtor will not
adjust, settle or compromise any of the Collateral without the
prior written consent of Secured Party, except in the ordinary
course of business.
Section 4.10 Title; Prohibited Liens and Filings. Debtor
agrees to protect the title to the Collateral. Debtor will not
pledge, mortgage, lease or otherwise encumber, or create or
suffer a security interest to exist in any of the Collateral
(other than in favor of Secured Party) or sell, assign or
otherwise transfer any of the Collateral (other than inventory as
permitted by Section 4.13 of this Security Agreement) to or in
favor of anyone other than Secured Party. Debtor will not file
or permit to be filed or recorded any financing statement or
other security instrument with respect to the Collateral other
than in favor of Secured Party.
Section 4.11 Inspection. Debtor will, upon Secured
Party's demand, at any time and from time to time, during normal
business hours permit Secured Party to inspect Debtor's Books and
Records, originals of the Related Rights, the Goods and any other
Collateral.
Section 4.12 Account Obligations. Debtor will duly
perform or cause to be performed all obligations of Debtor with
respect to the goods or services, the sale or lease or rendition
of which gave rise or will give rise to each Account or
Instrument.
-9-
Section 4.13 Use of Inventory. Until the occurrence of
any event of default specified in Section 5.03 hereof, Debtor may
use its inventory in any lawful manner not inconsistent with this
Security Agreement and with the terms of insurance thereon and
may sell, lease or otherwise dispose of its inventory in the
ordinary course of business. Debtor will not be permitted to use
any item of inventory in a manner inconsistent with the holding
thereof for sale, lease or disposition in the ordinary course of
business or in contravention of the terms of any agreement. A
sale, lease or disposition in the ordinary course of business
does not include the exchange of items of inventory for goods in
kind or otherwise or transfers of items of inventory made in
satisfaction of present or future indebtedness.
Section 4.14 Collection and Enforcement of Accounts,
General Intangibles and Related Rights.
(a) Except as otherwise provided in subsection 4.14(b)
hereof, Debtor shall continue to collect, at its own
expense, all amounts due or to become due to Debtor with
respect to the Accounts, General Intangibles, Instruments
and Related Rights in accordance with the provisions of the
Agreement. In connection with such collections, Debtor may
take (and, at Secured Party's direction, shall take) such
action as Debtor or Secured Party may deem necessary or
advisable to enforce collection of the Accounts, General
Intangibles and Related Rights.
(b) Notwithstanding the provisions of subsection
4.14(a) hereof, Secured Party shall have the right at any
time and from time to time, whether with or without written
notice to Debtor of its intention to do so, to contact
account debtors or obligors under any or all of the
Accounts, General Intangibles, Instruments or Related Rights
in order to verify information about Debtor's accounts, to
notify such account debtors or obligors of the assignment
and security interest of Secured Party in such Accounts,
General Intangibles, Instruments or Related Rights and, upon
the occurrence of an event of default, to direct such
account debtors or obligors to make payment of all amounts
due or to become due Debtor thereunder directly to Secured
Party. Upon exercising such right, Secured Party may
additionally, at the expense of Debtor, enforce collection
of any or all of the Accounts, General Intangibles,
Instruments and Related Rights and may adjust, settle or
compromise the amount or payment thereof, in the same manner
and to the same extent as Debtor might have done.
(c) Upon notice by Secured Party to Debtor that Secured
Party either intends to exercise the rights and remedies
granted in subsection 4.14(b) hereof or that it has so
exercised one or more of the rights or remedies granted to
it in subsection 4.14(b) hereof, as the case may be (it
being understood and agreed that the foregoing shall not in
any fashion require the Secured Party to give notice of its
intent to exercise, or its exercise of, the right and
remedies granted to it in subsection 4.14(b) hereof), then,
(i) all amounts and proceeds (including chattel paper, notes
and instruments) received by Debtor in respect of the
Accounts, General Intangibles, Instruments and Related
Rights (1) shall be received in trust for the benefit of
Secured Party hereunder, (2) shall be segregated from other
funds of Debtor and shall not be commingled with other money
nor deposited in a deposit
-10-
account of Debtor, and (3) shall forthwith be paid over to
Secured Party in the same form as so received (together with
any necessary endorsement) to be held by Secured Party as
cash collateral and applied as set forth in Section 5.02
hereof; (ii) Debtor shall not adjust, settle or compromise
any of the Accounts, the General Intangibles, the
Instruments or the Related Rights nor release wholly or
partly any account debtor or obligor thereof, nor allow any
credit (other than proceeds subject to this subsection
4.14(c)) or discount thereon; and (iii) Debtor shall
forthwith deliver to Secured Party, to be maintained under
the exclusive control of Secured Party, the Books and
Records relating to the Accounts, the General Intangibles,
the Instruments and the Related Rights for the purpose of
enabling Secured Party to exercise its rights and remedies
under this Security Agreement.
Section 4.15 Reports. Debtor will promptly furnish to
Secured Party from time to time, upon request of Secured Party
(i) such copies, extracts and abstracts of its Books and Records
as Secured Party may request; (ii) an analysis of Debtor's
Accounts, General Intangibles, the Instruments and Related Rights
in such detail as Secured Party may direct and including, without
limitation, an identification of each Account by amount, invoice
number and/or date and account debtor or obligor; an age
analysis; and a summary for any relevant period identifying the
amount outstanding at the beginning of the period, amount billed
during the period, proceeds received during the period and amount
outstanding at the end of the period; and (iii) an analysis of
Debtor's inventory in such detail as Secured Party may direct and
including, without limitation, for any relevant period, inventory
comprising work in progress at the beginning of the period,
amount billed comprising finished goods at the beginning of the
period, inventory sold or otherwise disposed of during the
period, inventory subject to lease during the period, inventory
comprising work in progress at the end of the period, and
inventory comprising finished goods at the end of the period.
Section 4.16 Proceeds. Except as otherwise specified in
the Agreement, Debtor will deliver to Secured Party promptly upon
receipt, all proceeds received by Debtor from the sale or other
disposition of the Collateral in the exact form in which they are
received, or in such other form as Secured Party may from time to
time direct. To evidence Secured Party's rights in this regard,
Debtor will assign or endorse proceeds to Secured Party as
Secured Party requests. Upon request of Secured Party, Debtor
will notify obligors on all of the Collateral to take payments
directly to Secured Party, and Secured Party may endorse as
Debtor's agent any checks, instruments, chattel paper or other
documents connected with the Collateral, take control of proceeds
of the Collateral and may hold the proceeds as part of the
Collateral and may use cash proceeds to reduce any part of the
Indebtedness, or otherwise, and take any action necessary to
obtain, preserve and enforce the security interests and liens
granted hereunder and maintain and preserve the Collateral.
Section 4.17 Insurance. Debtor shall have and maintain,
with financially sound and reputable insurers, insurance
satisfactory in all respects to Secured Party covering the Goods
included in the Collateral against risk of fire, theft and such
other risks as Secured Party may require, including standard
extended coverage, in an amount at least equal to the value
thereof. Policies evidencing any such property insurance
(i) shall contain a standard loss payee endorsement and
mortgagee's endorsement, (ii) shall provide for payment of any
loss to Secured Party, (iii) shall contain the agreement by the
insurer that any loss thereunder shall be payable to
-11-
Secured Party notwithstanding any action, inaction or breach of
representation or warranty by Debtor, (iv) shall provide that
there shall be no recourse against Secured Party for payment of
premiums or other amounts with respect thereto and (v) shall
provide for a minimum of ten (10) days prior written notice to
Secured Party of any cancellation, modification or alteration of
such insurance coverage. Debtor shall furnish Secured Party with
certificates or other evidence of compliance with the foregoing
insurance provisions. Secured Party may act as attorney for
Debtor and Debtor hereby irrevocably appoints Secured Party as
Debtor's true and lawful attorney-in-fact and agent, with full
power of substitution, in Secured Party's name or Debtor's name
or otherwise, but at Debtor's cost and expense and without notice
to Debtor, to obtain, adjust, sell and cancel such insurance and
endorse any draft drawn by insurers of such Collateral. The
Secured Party may apply any proceeds of such insurance which may
be received by it in payment on account of the Indebtedness,
whether due or not. If any insurance policy covering the goods
included in the Collateral expires or is canceled before the
Indebtedness is paid in full or Secured Party's obligation, if
any, to advance additional monies has terminated, at the Secured
Party's option, the Secured Party may obtain replacement
insurance which may, but need not, be single interest insurance
in favor of the Secured Party and Secured Party may pay the
premiums thereunder.
Section 4.18 Expenses. Debtor agrees to pay to Secured
Party, at Secured Party's offices, all advances, charges, costs
and expenses (including reasonable attorneys' fees and legal
expenses) incurred by Secured Party in connection with the
transaction which gives rise to this Security Agreement, in
connection with confirming, perfecting and preserving the
security interest created under this Security Agreement, in
connection with protecting Secured Party against the claims or
interests of any third Person against the Collateral, and in
exercising any right, power or remedy conferred by this Security
Agreement or by law. The amount of all such advances, charges,
costs and expenses shall be due and payable by Debtor to Secured
Party upon demand together with interest thereon from the date of
demand at the maximum rate of nonusurious interest allowed by law
as of the date of demand; for purposes of determining such
maximum rate of nonusurious interest under this Section, the
amount of all such advances, charges, costs and expenses shall be
added to the amount of all other Indebtedness then outstanding,
and the aggregate amount shall be used.
Section 4.19 Financial Statements and Reports. Debtor
will promptly furnish to Secured Party from time to time upon
request such information regarding the business and affairs and
financial condition of Debtor as Secured Party may reasonably
request, and will furnish to Secured Party all financial
statements and other financial information as may be required
under the terms of the Agreement. All such financial statements
and information referred to above shall be in such detail as
Secured Party may reasonably request and such financial
statements shall conform to generally accepted accounting
principles.
Section 4.20 Fixtures or Accessions. Unless Subsection
2.01(d) has been completed, Debtor will not permit any Collateral
to become so related to any particular real estate so as to
become a fixture on such real estate or to be installed in or
affixed to other goods so as to become an accession to such other
goods; in the event that any Collateral is to become so related
to any particular real estate or so installed or affixed to other
goods, prior thereto Debtor will notify Secured Party of such
fact and upon demand of Secured Party furnish written consent(s)
to
-12-
Secured Party's security interest and/or disclaimer(s) signed by
any person having an interest in the real estate or other goods.
ARTICLE V
----------
RIGHTS AND REMEDIES
-------------------
Section 5.01 With Respect to Collateral. Secured Party is
hereby fully authorized and empowered (without necessity of any
further consent or authorization from Debtor) and the right is
expressly granted to Secured Party, and Debtor hereby
constitutes, irrevocably appoints and makes Secured Party
Debtor's true and lawful attorney-in-fact and agent for Debtor
and in Debtor's name, place and stead, which appointment is
coupled with an interest in the Collateral, with full power of
substitution, in Secured Party's name or Debtor's name or
otherwise, for Secured Party's sole use and benefit, but at
Debtor's cost and expense, to exercise without notice, all or any
of the following powers at any time with respect to all or any of
the Collateral (regardless of whether any of the Indebtedness is
due or not):
(a) to demand, xxx for, collect, receive and give
acquittance for any and all monies due or to become due by
virtue thereof and otherwise deal with proceeds;
(b) to receive, take, endorse, assign and deliver any
and all checks, notes, drafts, documents and other
negotiable and nonnegotiable instruments and chattel paper
taken or received by Secured Party in connection therewith;
(c) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto;
(d) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or avails thereof or the
relative goods, as fully and effectually as if Secured Party
were the absolute owner thereof;
(e) to extend the time of payment of any or all
thereof and to grant waivers and make any allowance or other
adjustment with reference thereto; and
(f) to enter any post office box and take all items
therefrom, to open the same and, after taking all
remittances, to return any remaining items to Debtor and to
change any post office box to any address or post office box
Secured Party chooses;
provided, however, Secured Party shall be under no
obligation or duty to exercise any of the powers hereby conferred
upon it and shall be without liability for any act or failure to
act in connection with the collection of, or the preservation of
any rights under, any Collateral.
Section 5.02 Application of Cash Sums. Prior to the
happening of any of the events of default specified in Section
5.03 hereof, all cash sums paid to and received by Secured Party
on account of the Collateral (i) shall be promptly applied by
Secured Party 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 Secured Party may
elect; provided, further, however, Secured
-13-
Party's failure to so apply any such sums shall not be a waiver
of Secured Party's right to so apply such sums or any other sums
at any time, (ii) released to Borrower, within one Business Day
of Borrower's request therefor, to the extent such collected sums
exceed the amount of the Indebtedness then owing, or then
expected to become owing to Secured Party, or (iii) otherwise, at
the option of Secured Party, shall be released to Debtor for use
in Debtor's business.
Section 5.03 Default, Events. At the option of Secured
Party and without necessity of demand or notice, all or any part
of the Indebtedness shall immediately become due and payable
irrespective of any agreed maturity or period of grace and any
obligation of Secured Party for further financial accommodation
shall terminate upon the happening of any of the following
events:
(a) the occurrence of an "Event of Default" under the
Agreement;
(b) default in the payment of any amount payable
hereunder when due;
(c) any deterioration, impairment or decline in
character or value of any part of the Collateral or any
other collateral subject to a security interest in favor of
Secured Party to secure the Indebtedness (whether actual or
reasonably anticipated) that causes the Collateral or any
such other collateral in the judgment of Secured Party to
become unsatisfactory as to character or value; or
(d) the entry of a judgment, issuance of an injunction
or order of attachment, or any other process against Debtor,
or any of the Collateral, or Other Liable Party;
(e) the application for the appointment or the
appointment of a receiver, trustee, liquidator, conservator,
rehabilitator, or similar individual, officer or committee
of, or for any property of, Debtor or Other Liable Party;
(f) the death, incapacity, insolvency, dissolution,
assignment for the benefit of creditors, calling of a
meeting of any creditors, appointment of a committee of any
creditors or a liquidating agent, offering to or receiving
from any creditors a composition or extension of any of the
indebtedness of any of them, making a bulk transfer,
granting a security interest in any property, the whole or
partial suspension, discontinuance, or liquidation or usual
business, or failure in business, of or by Debtor or Other
Liable Party, including the imminent or threatened
occurrence of any of the foregoing events;
(g) the commencement of any proceeding, suit or action
under any provisions of the Bankruptcy Code, as amended, or
any similar statute, for adjudication as a bankrupt,
reorganization, composition, extension, arrangement,
adjustment of debts if Debtor or any Other Liable Party is
an individual with regular income, receivership, liquidation
or dissolution by or against Debtor or Other Liable Party;
(h) the admission in writing by Debtor or Other Liable
Party of inability to pay, or Debtor's or Other Liable
Party's generally not pay, such Person's debts as they
become due;
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(i) failure of Debtor, Other Liable Party or the
Collateral to comply with Regulations U or X of the Board of
Governors of the Federal Reserve System, as amended;
(j) failure by Debtor or Other Liable Party, after
demand, to furnish any financial information to Secured
Party or to permit Secured Party to inspect books or records
of account; making any misrepresentation to Secured Party
for the purpose of obtaining credit; failure to pay any tax
or failure to withhold, collect or remit any tax or tax
deficiency when assessed or due; failure by Debtor or Other
Liable Party to pay any obligations, or any interest or
premiums thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) or
to perform or observe any term, covenant or condition on
such Person's part to be performed or observed under any
agreement or instrument relating to any such obligations,
when required to be performed or observed if the effect of
such failure to perform or observe is to accelerate, or to
permit the acceleration of (upon the giving of notice or
upon the lapse of time, or both), the maturity of such
obligations, or any such obligations shall be declared to be
due and payable, or required to be prepaid (other than by a
regularly scheduled prepayment), prior to the scheduled
maturity thereof;
(k) failure by Debtor, upon demand from Secured Party,
to furnish such further reasonable Collateral or take such
payment on account of the Indebtedness as will be
satisfactory to Secured Party; or
(l) if in the reasonable exercise of its judgment
Secured Party, in good faith, determines that the financial
responsibility of Debtor or Other Liable Party has become
otherwise unsatisfactory.
Section 5.04 Default, Remedies. If all or any part of the
Indebtedness shall become due and payable as specified in Section
5.03 hereof, Secured Party may then, or at any time thereafter
apply, set off, sell in one or more sales, lease or otherwise
dispose of, any or all of the Collateral, in its then condition
or following any commercially reasonable preparation or
processing, in such order as Secured Party may elect, and any
such sale may be made either at public or private sale at its
place of business or elsewhere, either for cash or upon credit or
for future delivery, at such price as Secured Party may deem
fair, and Secured Party may be the purchaser of any or all
Collateral so sold and hold the same thereafter in its own right
free from any claim of Debtor or right of redemption. No such
purchase or holding by Secured Party shall be deemed a retention
by Secured Party in satisfaction of the Indebtedness. All
demands, notices and advertisements, and the presentment of
property at sale, are hereby waived. If, notwithstanding the
foregoing provisions, any applicable provision of the Code or
other law requires Secured Party to give reasonable notice of any
such sale or disposition or other action, Debtor agrees that five
(5) days prior written notice shall constitute reasonable notice.
Secured Party may require Debtor to assemble the Collateral and
make it available to Secured Party at a place designated by
Secured Party which is reasonably convenient to Secured Party and
Debtor. Any sale hereunder may be conducted by an auctioneer or
any officer or agent of Secured Party.
-15-
Section 5.05 Proceeds. The proceeds of any sale or other
disposition of the Collateral and all sums received or collected
by Secured Party from or on account of the Collateral shall be
applied by Secured Party in the manner set forth in Section 9.504
of the Code as presently in effect.
Section 5.06 Deficiency. Debtor shall remain liable to
Secured Party for any Indebtedness, advances, costs, charges and
expenses, together with interest thereon remaining unpaid and
shall pay the same immediately to Secured Party at Secured
Party's offices.
Section 5.07 Secured Party's Duties. The powers and
remedies conferred upon Secured Party by this Security Agreement
are solely to protect its interest in the Collateral and shall
not impose any duty upon Secured Party to exercise any such power
or remedy. Secured Party shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor,
or other notice or demand in connection with the Collateral or
the Indebtedness, or to take any steps necessary to preserve any
rights against prior parties. Secured Party shall not be liable
for failure to collect or realize upon any or all of the
Indebtedness or Collateral, or for any delay in so doing, nor
shall Secured Party be under any duty to take any action
whatsoever with regard thereto. Secured Party shall use
reasonable care in the custody and preservation of any Collateral
in its possession but need not take any steps to keep the
Collateral identifiable. Secured Party shall have no duty to
comply with any recording, filing or other legal requirements
necessary to establish or maintain the validity, priority or
enforceability of, or Secured Party's rights in or to, any of the
Collateral.
Section 5.08 Secured Party's Actions. Debtor waives any
right to require Secured Party to proceed against any Person,
exhaust any Collateral, or have any Other Liable Party joined
with Debtor in any suit arising out of the Indebtedness or this
Security Agreement or pursue any other remedy in Secured Party's
power; waives any and all notice of acceptance of this Security
Agreement or of creation, modification, renewal or extension for
any period of any of the Indebtedness from time to time; and
waives any defense arising by reason of any disability or other
defense of Debtor or of any Other Liable Party, or by reason of
the cessation from any cause whatsoever of the liability of
Debtor or of any Other Liable Party. All dealings between Debtor
and Secured Party, whether or not resulting in the creation of
Indebtedness, shall conclusively be presumed to have been had or
consummated in reliance upon this Agreement. Until all
Indebtedness shall have been paid in full, Debtor shall not have
any right to subrogation, and Debtor waives any right to enforce
any remedy which Secured Party now has or may hereafter have
against Debtor or Other Liable Party and waives any benefit of
and any right to participate in any Collateral or security
whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Indebtedness, from time to
time to (a) take and hold any other Property as collateral, other
than the Collateral, for the payment of any or all of the
Indebtedness, and exchange, enforce, waive and release any or all
of the Collateral or such other Property; (b) apply the
Collateral or such other Property and direct the order or manner
of sale thereof as Secured Party in its discretion may determine;
(c) renew and/or extend for any period, accelerate, modify,
compromise, settle or release the obligation of Debtor or any
Other Liable Party with respect to any or all of the Indebtedness
or Collateral; and
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(d) release or substitute Debtor or any Other Liable Party.
Section 5.09 Transfer of Indebtedness and Collateral.
Secured Party may transfer any or all of the Indebtedness, and
upon any such transfer Secured Party may transfer any or all of
the Collateral and shall be fully discharged thereafter from all
liability with respect to the Collateral so transferred, and the
transferee shall be vested with all rights, powers and remedies
of Secured Party hereunder with respect to Collateral so
transferred; but with respect to any Collateral not so
transferred Secured Party shall retain all rights, powers and
remedies hereby given. Secured Party may at any time deliver any
or all of the Collateral to Debtor, whose receipt shall be a
complete and full acquittance for the Collateral so delivered,
and Secured Party shall thereafter be discharged from any
liability therefor.
Section 5.10 Cumulative Security. The execution and
delivery of this Security Agreement in no manner shall impair or
affect any other security (by endorsement or otherwise) for the
payment of the Indebtedness. No security taken hereafter as
security for payment of the Indebtedness shall impair in any
manner or affect this Security Agreement. All such present and
future additional security is to be considered as cumulative
security.
Section 5.11 Continuing Agreement. This is a continuing
agreement and all the rights, powers and remedies of Secured
Party hereunder shall continue to exist until the Indebtedness is
paid in full as the same becomes due and payable; until Secured
Party has no further obligation to advance monies to Debtor or
Other Liable Party; and until Secured Party, upon request of
Debtor, has executed a written termination statement.
Furthermore, it is contemplated by the parties hereto that there
may be times when no Indebtedness is owing; but notwithstanding
such occurrence, this Security Agreement shall remain valid and
shall be in full force and effect as to subsequent Indebtedness
provided that Secured Party has not executed a written
termination statement. Otherwise this Security Agreement shall
continue irrespective of the fact that the personal liability of
any Other Liable Party may have ceased, and notwithstanding the
death or incapacity of Debtor or the death, incapacity or
bankruptcy of any Other Liable Party or any other event or
proceeding affecting Debtor or Other Liable Party.
Section 5.12 Cumulative Rights. The rights, powers and
remedies of Secured Party hereunder shall be in addition to all
rights, powers and remedies given by statute or rule of law and
are cumulative. The exercise of any one or more of the rights,
powers and remedies provided herein shall not be construed as a
waiver of any of the other rights, powers and remedies of Secured
Party. Furthermore, regardless of whether or not the Uniform
Commercial Code is in effect in the jurisdiction where such
rights, powers and remedies are asserted, Secured Party shall
have the rights, powers and remedies of a secured party under the
Code, as amended.
Section 5.13 Exercise of Rights. Time shall be of the
essence for the performance of any act under this Security
Agreement or the Indebtedness by Debtor or Other Liable Party,
but neither Secured Party's acceptance of partial or delinquent
payment nor any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy shall be deemed a waiver of
any obligation of Debtor or Other Liable Party or of any right,
power or remedy of Secured Party or preclude any other or further
exercise thereof; and no single or partial exercise of any right,
power or remedy shall preclude any other or further exercise
thereof, or of the exercise of any
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other right, power or remedy.
Section 5.14 Remedy and Waiver. Secured Party may remedy
any default and may waive any default without waiving the default
remedied or waiving any prior or subsequent default.
Section 5.15 Non-Judicial Remedies. Secured Party may
enforce its rights hereunder without resort to prior judicial
process or judicial hearing, and Debtor expressly waives,
renounces and knowingly relinquishes any and all legal rights
which might otherwise require Secured Party to enforce its rights
by judicial process. In so providing for non-judicial remedies,
Debtor recognizes and concedes that such remedies are consistent
with the usage of the trade, are responsive to commercial
necessity and are the result of bargaining at arm's length.
Nothing herein is intended to prevent Secured Party or Debtor
from resorting to judicial process at either party's option.
ARTICLE VI
----------
MISCELLANEOUS
-------------
Section 6.01 Debtor. The term "Debtor" as used throughout
this Security Agreement shall include the respective successors,
legal representatives, heirs and assigns of Debtor.
Section 6.02 Preservation of Liability. Neither this
Security Agreement nor the exercise by Secured Party (or any
failure to so exercise) any right, power or remedy conferred
herein or by law shall be construed as relieving any Person
liable on the Indebtedness from full liability on the
Indebtedness and for any deficiency thereon.
Section 6.03 Notices. Any notice or demand to Debtor
under this Security Agreement or in connection with this Security
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Debtor at the
address of Debtor appearing on the records of the Secured Party,
in the U.S. Mail, but actual notice, however given or received,
shall always be effective.
Section 6.04 Construction. This Security Agreement has
been made in and the security interest granted hereby is granted
in and both shall be governed by the laws of the State of Texas
(except to the extent that the laws of any other jurisdiction
govern the perfection and priority of the security interest
granted hereby) and of the United States of America, as
applicable, in all respects, including matters of construction,
validity, enforcement and performance.
Section 6.05 Amendment and Waiver. This Security
Agreement may not be amended, altered, or modified (nor may any
of its terms be waived) except in writing duly signed by an
authorized officer of Secured Party and by Debtor.
Section 6.06 Invalidity. If any provision of this
Security Agreement is rendered or declared invalid, illegal or
unenforceable by reason of any existing or subsequently enacted
-18-
legislation or by a judicial decision which shall have become
final, Debtor and Secured Party shall promptly meet and negotiate
substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain
in full force and effect.
Section 6.07 Successors and Assigns. The covenants,
representations, warranties and agreements herein set forth shall
be binding upon Debtor and shall inure to the benefit of Secured
Party, its successors and assigns.
Section 6.08 Survival of Agreements. All representations
and warranties of Debtor herein, and all covenants and agreements
herein not fully performed before the effective date of this
Security Agreement, shall survive such date.
Section 6.09 Titles of Articles and Sections. All titles
or headings to articles, sections or other divisions of this
Security Agreement are only for the convenience of the parties
and shall not be construed to have any effect or meaning with
respect to the other content of such articles, sections or other
divisions, such other content being controlling as to the
agreement between the parties hereto.
Section 6.10 Exhibits. All exhibits to this Security
Agreement are incorporated herein by reference for all purposes.
Section 6.11 Conflict of Terms. If any provision
contained in this Security Agreement is in direct conflict with,
or inconsistent with, any provision of the Agreement, the
provision in the Agreement shall govern and control.
-19-
IN WITNESS WHEREOF, Debtor has executed this Agreement as of
the date set forth hereinabove.
DEBTOR:
TEMTEX INDUSTRIES, INC.,
a Delaware corporation
By: /s/ X. X. Xxxxxx
-------------------------
Name: X. X. Xxxxxx
Title: President
--------------------------------------------------------------
--------------------------------------------------------------
SECURITY AGREEMENT
By and Between
TEMCO FIREPLACE PRODUCTS, INC.
in favor of
THE FROST NATIONAL BANK,
a national banking association,
doing business as
FROST CAPITAL GROUP and
formerly known as
CREEKWOOD CAPITAL GROUP
Dated as of
September 6, 2000
--------------------------------------------------------------
--------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I GENERAL........................................1
Section 1.01 Certain Definitions ......................1
Section 1.02 Terms Defined in Code.....................2
ARTICLE II SECURITY INTEREST.........................2
Section 2.01 Grant of Security Interest................2
Section 2.02 Indebtedness Secured......................4
Section 2.03 Limited License...........................5
ARTICLE III REPRESENTATIONS AND WARRANTIES............5
Section 3.01 Information...............................5
Section 3.02 Ownership and Liens.......................5
Section 3.03 Status of Accounts........................6
Section 3.04 Status of Related Rights..................6
Section 3.05 Status of Books and Records...............6
Section 3.06 Location..................................6
Section 3.07 Certificate of Title......................7
Section 3.08 Collateral Not Covered by Documents.......7
Section 3.09 Corporate Existence Power and
Authorization........................ .....7
Section 3.10 Status of Instruments.....................7
ARTICLE IV COVENANTS.................................7
Section 4.01 Financing Statement Filings...............7
Section 4.02 Taxes, etc................................8
Section 4.03 Satisfactory Collateral...................8
Section 4.04 Possession of Collateral..................8
Section 4.05 Maintenance of Collateral.................8
Section 4.06 Further Assurances........................8
Section 4.07 Filing Reproductions......................9
Section 4.08 Delivery of Information...................9
Section 4.09 Compromise of Collateral..................9
Section 4.10 Title; Prohibited Liens and Filings.......9
Section 4.11 Inspection................................9
Section 4.12 Account Obligations.......................9
Section 4.13 Use of Inventory.........................10
Section 4.14 Collection and Enforcement of
Accounts, General Intangibles
and Related Rights.......................10
Section 4.15 Reports..................................11
Section 4.16 Proceeds.................................11
Section 4.17 Insurance................................11
Section 4.18 Expenses.................................12
Section 4.19 Financial Statements and Reports.........12
Section 4.20 Fixtures or Accessions...................12
ARTICLE V RIGHTS AND REMEDIES...........................13
Section 5.01 With Respect to Collateral...............13
Section 5.02 Application of Cash Sums.................13
Section 5.03 Default, Events..........................14
Section 5.04 Default, Remedies........................15
Section 5.05 Proceeds.................................16
Section 5.06 Deficiency...............................16
Section 5.07 Secured Party's Duties...................16
Section 5.08 Secured Party's Actions..................16
Section 5.09 Transfer of Indebtedness and Collateral..17
Section 5.10 Cumulative Security......................17
Section 5.11 Continuing Agreement.....................17
Section 5.12 Cumulative Rights........................17
Section 5.13 Exercise of Rights.......................17
Section 5.14 Remedy and Waiver........................18
Section 5.15 Non-Judicial Remedies....................18
ARTICLE VI MISCELLANEOUS............................18
Section 6.01 Debtor...................................18
Section 6.02 Preservation of Liability................18
Section 6.03 Notices..................................18
Section 6.04 Construction.............................18
Section 6.05 Amendment and Waiver.....................18
Section 6.06 Invalidity...............................18
Section 6.07 Successors and Assigns...................19
Section 6.08 Survival of Agreements...................19
Section 6.09 Titles of Articles and Sections..........19
Section 6.10 Exhibits.................................19
Section 6.11 Conflict of Terms........................19
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT dated as of September 6, 2000, by
TEMCO FIREPLACE PRODUCTS, INC., a Texas corporation, with
principal office and mailing address at 0000 XXX Xxxxxxx, Xxxxx
0000, Xxxxxx, Xxxxx 00000 ("Debtor"), in favor of THE FROST
NATIONAL BANK, a national banking association, doing business as
FROST CAPITAL GROUP and formerly known as CREEKWOOD CAPITAL
GROUP, whose office address is at 0000 Xxxxx, Xxxxx 000, Xxxxxxx,
Xxxxx 00000 (herein called "Secured Party").
W I T N E S S E T H
- - - - - - - - - -
A. Debtor has requested Secured Party to make a loan or
loans to or for the account of Debtor and Temtex Industries, Inc.
("Temtex") pursuant to that certain Loan Agreement by and among
Debtor, Temtex and Secured Party of even date herewith (as
renewed, modified and restated from time to time, the
"Agreement");
B. Secured Party has conditioned its agreement to make
such loan or loans under that certain Agreement upon Debtor's
execution and delivery of this Security Agreement;
NOW, THEREFORE, to induce Secured Party to make a loan or
loans to or for the account of Debtor, at the special instance of
Secured Party, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, Debtor
hereby agrees with Secured Party, as follows:
ARTICLE I
---------
GENERAL
-------
Section 1.01 Certain Definitions. As used in this
Security Agreement, the following terms shall have the respective
meanings as indicated, unless the context otherwise requires:
"Accounts" shall have the meaning indicated in
Subsection 2.01(a) of this Security Agreement.
"Agreement" shall have the meaning set forth in the
Recitals hereto.
"Books and Records" shall mean all books, records,
reports, memoranda, and/or data compilations, in any form
(including, without limitation, corporate and other business
records, customer lists, credit files, computer programs,
printouts and any other computer materials and records), of
Debtor pertaining to any of the Accounts, General
Intangibles, Goods, and any other Property included in the
Collateral.
"Code" shall mean the Uniform Commercial Code as
presently in effect in the State of Texas, Texas Business &
Commerce Code Annotated Sections 1.101 through 11.108.
-1-
"Collateral" shall mean all Property, including without
limitation, cash or other proceeds, in which Secured Party
shall have a security interest pursuant to Section 2.01 of
this Security Agreement.
"General Intangibles" shall have the meaning indicated
in Subsection 2.01(b) of this Security Agreement.
"Goods" shall have the meanings indicated in Subsection
2.01(c) of this Security Agreement.
"Indebtedness" shall have the meaning indicated in
Section 2.02 of this Security Agreement.
"Instruments" shall have the meaning indicated in
Subsection 2.01(e) of this Security Agreement.
"Other Liable Party" shall mean any Person other than
Debtor, primarily or secondarily liable for any of the
Indebtedness or who grants Secured Party a lien upon and/or
a security interest on any Property as security for any of
the Indebtedness.
"Person" shall mean any individual, corporation,
partnership, joint venture, limited liability company,
association, joint stock company, trust, trustee,
unincorporated organization, government or agency or court
or political subdivision thereof, or any other form of
entity.
"Property" shall mean any interest in any kind of
property or asset, whether real, personal or mixed, or
tangible or intangible.
"Related Rights" shall mean all chattel papers,
documents and instruments relating to the Accounts or
General Intangibles and all rights now or hereafter existing
in and to all security agreements, leases and other
contracts securing or otherwise relating to any Accounts or
General Intangibles or any such chattel papers, documents
and instruments.
"Security Agreement" shall mean this Security
Agreement, as the same may from time to time be amended,
supplemented, revised or restated.
Section 1.02 Terms Defined in Code. All terms used herein
which are defined in the Code shall have the same meaning herein
unless otherwise defined herein or the context otherwise
requires.
ARTICLE II
----------
SECURITY INTEREST
-----------------
Section 2.01 Grant of Security Interest. Debtor hereby
grants and confirms that it has
-2-
granted to Secured Party a security interest in, a general lien
upon, and a right of set-off against the following described
Property:
(a) all of Debtor's accounts of any kind (including
all leases) whether now existing or hereafter arising
(herein called the "Accounts"); all chattel papers,
documents and instruments whether now existing or hereafter
arising relating to the Accounts; all rights now or
hereafter existing in and to all security agreements, leases
and other contracts securing or otherwise relating to any
Accounts or any such chattel papers, documents and
instruments; and all returned or repossessed goods arising
therefrom or relating to any Accounts, or other proceeds of
any sale or other disposition of inventory;
(b) all of Debtor's investment property and general
intangibles of any kind whether now existing or hereafter
arising including, without limitation the following (herein
called the "General Intangibles"):
(i) all leases of real or personal property;
(ii) all copyrights, trademarks, trademark
registrations and applications
for registration, trade names, corporate names, trade
styles, service marks, logos, other source and business
identifying marks, together with any goodwill
associated therewith, and all patents, patent
applications, and all renewals, extensions and
continuations in part of the above, any written
agreement granting any right to use any copyright,
trademark, trademark application or registration,
patent, patent application or registration, and the
right to xxx for past, present and future infringements
of the foregoing including the Intellectual Property
Collateral set forth in Exhibit "B" attached hereto
(herein called the "Intellectual Property Collateral");
and
all chattel papers, documents and instruments whether now
existing or hereafter arising relating to the General
Intangibles; and all rights now or hereafter existing in and
to all security agreements, leases, licenses and other
contracts securing or otherwise relating to any General
Intangibles or such chattel papers, documents and
instruments;
(c) all of Debtor's equipment and inventory in all of
its forms, whether now owned or hereafter acquired and
wherever located, all parts thereof and all accessions or
additions thereto and products thereof, whether now owned or
hereafter acquired (any and all such equipment, inventory,
parts, accessions, additions and products herein called the
"Goods"); and including, without limiting the foregoing, the
Goods located at Debtor's places of business listed on
Schedule I attached hereto; all chattel papers, documents
and instruments whether now existing or hereafter arising
relating to the Goods; and all rights now or hereafter
existing in and to all security agreements, leases and other
contracts securing or otherwise relating to any Goods or any
such chattel papers, documents and instruments;
(d) in the event that any of the Goods are or will
become so related to any particular real estate that an
interest in such Goods arises under the real estate law of
the
-3-
state where the real estate is located or is or will be
installed in or affixed to other goods of such type, a
description of such real estate or other goods is contained
in Schedule II hereto and the name of the record owner of
such real estate is contained in Schedule II hereto;
(e) all of Debtor's chattel papers, notes, documents
and instruments (herein called the "Instruments") whether
now existing or hereafter arising; and all rights now or
hereafter existing in and to all security agreements, leases
and other contracts securing or otherwise relating to any
such chattel papers, documents and instruments;
(f) any additional Properties from time to time
delivered to or deposited with Secured Party or any agent
bank of Secured Party, whether as security for the
Indebtedness or otherwise; and
(g) the proceeds, products, additions, substitutions
and accessions of and to any and all of the foregoing
Property; and all of Debtor's books, records, reports,
memoranda and data compilations, in any form (including,
without limitation, corporate and other business records,
customer lists, credit files, computer programs, printouts
and any other computer materials and records), of Debtor
pertaining to any and all of the foregoing Property; and
(h) the Collateral includes, without limitation, the
following types of property as defined in the S.B. 1058,
76th Texas Legislature, Regular Session, 1999: commercial
tort claims, deposit accounts, letter of credit rights,
payment intangibles and software.
Section 2.02 Indebtedness Secured. The security interest
in, general lien upon, and right of set-off against the
Collateral is granted to Secured Party to secure the following
(all of which is herein called the "Indebtedness"):
(a) the prompt and unconditional payment and
performance when due of any and all indebtedness,
obligations and liabilities of Debtor or Temtex to Secured
Party (including all claims of every nature and description
of Secured Party against Debtor or Temtex), now or hereafter
existing or arising, absolute or contingent, direct or
indirect, joint and/or several, secured or unsecured, due or
to become due, whether originally contracted with Secured
Party or acquired in any manner (including by way of
participation) by Secured Party including indebtedness,
obligations and liabilities of Debtor or Temtex to Secured
Party as a member of any partnership, syndicate, association
or other group, and whether incurred by Debtor or Temtex as
principal, surety, endorser, guarantor, accommodation party
or otherwise;
(b) the reimbursement when due of all amounts which
might be advanced by Secured Party to satisfy amounts
required to be paid by Debtor under this Security Agreement
or under any other instrument at any time executed in
connection with or as security for the payment of any part
of the Indebtedness or any amount secured hereby or to pay
any taxes, insurance premiums, liens, claims and charges
against any or all of the Collateral, or any properties
covered by any instrument executed or to be executed by
-4-
Debtor to secure any part of the Indebtedness or any amount
secured hereby, together with interest thereon to the extent
provided;
(c) the reimbursement and payment by Debtor or Temtex
of all advances, charges, costs and expenses (including
attorneys' fees and legal expenses) incurred by Secured
Party in connection with the transaction which gives rise to
this Security Agreement, in connection with any of the
Indebtedness or any amount secured hereby and in exercising
any right, power or remedy conferred by this Security
Agreement or by law (including, but not limited to attorneys
fees and legal expenses incurred by Secured Party in
connection with the operation, maintenance or foreclosure of
any or all of the Collateral); and
(d) the performance and payment by Debtor of all its
obligations in this Security Agreement or any other document
or agreement now or hereafter executed in connection with or
as security for any part of the Indebtedness or any amount
secured hereby.
Section 2.03 Limited License. Debtor hereby grants to
Secured Party a limited license in Debtor's trade names,
trademarks and service marks for purposes of allowing Secured
Party to use the same in connection with any foreclosure sale or
any other disposition pursuant to the Code or this Security
Agreement.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce Secured Party to accept this Security
Agreement, Debtor represents and warrants to Secured Party (which
representations and warranties will survive the creation of the
Indebtedness and any extension of credit thereunder) that:
Section 3.01 Information. All information supplied and
statements (including financial statements), certificates or data
furnished or made by Debtor (or any officer, attorney or
accountant of Debtor) to Secured Party (including, without
limitation, any extracts from or copies of the Books and Records)
in connection with the Indebtedness and/or this Security
Agreement, whether contemporaneously with or subsequent to the
execution of this Security Agreement are and shall be true,
correct, complete, valid and genuine. No information, statements,
certificate, exhibit or report furnished by Debtor to Secured
Party in connection with the Indebtedness and/or this Security
Agreement contained any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the
statement contained therein not misleading.
Section 3.02 Ownership and Liens. Except for the leases
identified in the schedules to the Agreement and the security
interest in favor of Secured Party and unless otherwise agreed in
writing, Debtor owns good and indefeasible title to the
Collateral free and clear of any other security interest, lien,
encumbrance, adverse claim or option. Debtor has authority to
grant a security interest in the Collateral to Secured Party in
the manner provided herein and free and clear of any other
security interest, lien, encumbrance, adverse claim or option; no
security
-5-
interest, lien, encumbrance, adverse claim or option has been
created by Debtor or is known by Debtor to exist with respect to
any Collateral; to the best of Debtor's information and belief,
no financing statement or other security instrument is on file in
any jurisdiction covering such Collateral; at the time the
security interest in favor of Secured Party attaches, good and
indefeasible title to all after acquired Property included within
the Collateral, free and clear of any security interest, lien,
encumbrance, adverse claim or option (other than those permitted
by the first sentence of this Section 3.02) will be vested in
Debtor; and Debtor's grant of a security interest in the
Collateral to Secured Party in the manner provided herein does
not result in the creation or imposition of any other security
interest, lien, encumbrance, adverse claim or option in favor of
any other Person upon any Collateral or any other Property.
Section 3.03 Status of Accounts. Each Account now
existing represents, and each Account hereafter arising will
represent, to the best of Debtor's knowledge, the valid and
legally enforceable indebtedness of a bona fide account debtor
arising from the sale or lease or rendition by Debtor of goods
and/or services and is not and will not be subject to contra
accounts, set-offs, defenses or counterclaims by or available to
account debtors obligated on the Accounts except as disclosed to
Secured Party in writing; such goods will have been delivered to,
or be in the process of being delivered to, and such services
will have been rendered by Debtor to the account debtor and
accepted by the account debtor; and the amount shown as to each
Account on Debtor's books will be the true and undisputed amount
owing and unpaid thereon, subject to any discounts, allowances,
rebates, credits and adjustments to which the account debtor has
a right and which have been disclosed to Secured Party in
writing.
Section 3.04 Status of Related Rights. All Related Rights
are, and those hereafter arising will be, valid and genuine. Any
chattel paper included in the Related Rights has, and those
hereafter arising will have, only one duplicate original
counterpart which constitutes chattel paper or collateral within
the meaning of the Code or the law of any applicable
jurisdiction.
Section 3.05 Status of Books and Records. All Books and
Records have been, and those entries hereafter made therein will
be, made in the regular course of Debtor's business; made on the
basis of information recorded or transmitted (or to be recorded
or transmitted) by a Person, either an employee or representative
of Debtor, with personal knowledge of the acts, events,
conditions, opinions or diagnoses recorded therein and in the
regular course of Debtor's business; made at or near the time of
the act, event, condition, opinion or diagnosis recorded therein
and in the regular course of Debtor's business; and contain full,
true and correct entries of all dealings or transactions relating
to the Accounts, General Intangibles, Goods, Related Rights and
other Collateral, in accordance with generally accepted
accounting principles, consistently applied.
Section 3.06 Location. The address of Debtor's chief
executive office and chief place of business is recited in the
opening paragraph of this Security Agreement, and the Books and
Records of Debtor are kept at such location. Debtor's Goods
(other than Goods, if any, comprising mobile goods) are located
only at the location set forth in Subsection 2.01(c) of this
Security Agreement. In the event any of the Goods are mobile,
such Goods are of a type normally used in more than one
jurisdiction, such as motor vehicles, trailers, rolling stock,
airplanes, shipping containers, road building and construction
machinery and commercial
-6-
harvesting machinery and the like.
Section 3.07 Certificate of Title. In the event any of
the Goods are covered by a certificate of title, such Goods are
specifically identified on Exhibit "A" attached hereto.
Section 3.08 Collateral Not Covered by Documents. None of
the goods included in the Collateral are, and at the time the
security interest in favor of Secured Party attaches none of the
after acquired goods included in the Collateral will be, covered
by any document as defined in the Code or in the Uniform
Commercial Code of any state other than Texas where the goods are
(or will be) located.
Section 3.09 Corporate Existence Power and Authorization.
Debtor's state of incorporation is recited in the opening
paragraph of this Security Agreement; Debtor is duly organized,
legally existing and in good standing under the laws of such
state; Debtor is duly qualified as a foreign corporation in all
jurisdictions wherein the Collateral is located and where
Debtor's obligations which give rise to any of the Accounts,
General Intangibles or Related Rights are to be performed; Debtor
is duly authorized and empowered to execute, deliver and perform
the instruments evidencing any of the Indebtedness and this
Security Agreement; and all corporate action on Debtor's part
requisite for the due execution, delivery and performance of such
instruments and this Security Agreement has been duly and
effectively taken.
Section 3.10 Status of Instruments. Each Instrument now
existing is, and each Instrument hereafter will be, the valid and
legally enforceable indebtedness of a bona fide maker thereof for
good and valuable consideration, of which Debtor is the owner and
holder, and is not and will not be subject to set-offs,
counterclaims or defenses by any maker except as disclosed to
Secured Party in writing; and the amount shown on Debtor's books
in respect thereof will be the true and undisputed amount owing
and unpaid thereon. Each Instrument is endorsed to Secured Party
and is in the possession of Secured Party.
ARTICLE IV
----------
COVENANTS
---------
A deviation from the provisions of this Article IV shall not
constitute an event of default under this Security Agreement if,
prior to the occurrence thereof, such deviation is consented to
in writing by Secured Party. Without the prior written consent of
Secured Party, Debtor 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 Indebtedness is outstanding.
Section 4.01 Financing Statement Filings. Debtor
recognizes that financing statements pertaining to the Collateral
are being filed with the office of the Secretary of State of
Texas and the central filing office (or local filing offices as
may be required by law) of any other state where the Goods are
located. Debtor will immediately notify Secured Party of any
condition or event that may change the proper location for the
filing of any financing statements or other public notice or
recordings for the purpose of perfecting security interests in
the Collateral. Without limiting the generality of the foregoing,
Debtor will (a) immediately notify Secured Party of any change to
a state other than as represented in Section 3.06 of this
Security
-7-
Agreement (i) in the location of the Goods (other than Goods
constituting mobile goods), (ii) in the location of Debtor's
chief executive office or chief place of business, (iii) in the
location of the Books and Records, and (iv) in the "location" of
Debtor within the meaning of Section 9.103(c) of the Code; (b)
prior to any Collateral becoming so related to any particular
real estate so as to become a fixture on such real estate, notify
Secured Party of the description of such real estate and the name
of the record owner thereof; and (c) immediately notify Secured
Party of any change in any Debtor's name, identity or corporate
structure. In any notice furnished pursuant to this Section,
Debtor will expressly state that the notice is required by this
Security Agreement and contains facts that will or may require
additional filings of financing statements or other notices for
the purpose of continuing perfection of Secured Party's security
interest in the Collateral.
Section 4.02 Taxes, etc. Debtor agrees to pay prior to
any delinquency all taxes, charges, liens and assessments against
the Collateral, and upon the failure of Debtor to do so, Secured
Party, at its option, may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount
necessary to discharge the same.
Section 4.03 Satisfactory Collateral. Debtor will at all
times maintain with Secured Party Collateral of a character and
value satisfactory to Secured Party. If at any time any of the
Collateral shall depreciate in character or value or otherwise be
unsatisfactory to Secured Party, Secured Party in its discretion
may demand, and Debtor will upon said demand provide, such
further collateral or such payment on account of the Indebtedness
as will be satisfactory to Secured Party.
Section 4.04 Possession of Collateral. Secured Party
shall be deemed to have possession of any of the Collateral in
transit to it or set apart for it. Otherwise the Collateral shall
remain in Debtor's possession or control at all times at Debtor's
risk of loss and shall (except for temporary removal consistent
with its normal use) be kept at the locations represented
pursuant to Section 3.06 and any other location specified in
writing to Secured Party, where Secured Party may inspect it at
any time.
Section 4.05 Maintenance of Collateral. Debtor will
maintain the Collateral in good condition and will not misuse,
abuse, waste, destroy, endanger or allow the Collateral to
deteriorate. Debtor will forthwith, or in the case of any loss
or damage to any goods included in the Collateral as soon as
practicable, make or cause to be made all repairs, replacements
or other improvements to the Collateral as are necessary or
desirable to accomplish the foregoing. Debtor will not use the
Collateral in violation of any law, statute, ordinance or
regulation or suffer it to be so used.
Section 4.06 Further Assurances. Debtor will from time to
time sign, execute, deliver and file, alone or with Secured
Party, any financing statement, security agreements or other
documents, any document as may be requested by Secured Party, and
take all further action that may be necessary or desirable, or
that Secured Party may request to confirm, perfect and preserve
the security interest created hereby, and in addition, Debtor
hereby authorizes and appoints Secured Party as Debtor's true and
lawful attorney-in-fact and agent to execute and deliver on
behalf of Debtor and to file such financing statements, security
agreements and other documents
-8-
as Secured Party shall determine to be useful. Debtor shall do
all such additional and further acts, things, deeds, give such
assurances and execute such instruments as Secured Party requests
to vest more completely in and assure to Secured Party its rights
under this Security Agreement. Without limiting the foregoing,
(i) Debtor will not remove any Goods (other than mobile goods)
included in the Collateral from the jurisdiction in which such
Goods are located (as represented in Section 3.06 of this
Security Agreement) unless prior thereto all actions referenced
in Section 4.01 have been taken with respect thereto; (ii) Debtor
will xxxx conspicuously any and all chattel paper included in the
Collateral and its Books and Records pertaining to the Collateral
with a legend, in form and substance satisfactory to Secured
Party indicating that such chattel paper or Collateral is subject
to the security interest granted by this Security Agreement; and
(iii) in the event any Account, General Intangible or Related
Right is evidenced by a note or other instrument, Debtor will
transfer, deliver and assign to Secured Party such note or other
instrument duly endorsed and accompanied by duly executed
instruments of transfer and assignment, all in form and substance
satisfactory to Secured Party, to be held by Secured Party as
Collateral under this Security Agreement.
Section 4.07 Filing Reproductions. At the option of
Secured Party, a carbon, photographic or other reproduction of
this Security Agreement or of a financing statement covering the
Collateral shall be sufficient as a financing statement and may
be filed as a financing statement.
Section 4.08 Delivery of Information. Debtor will
transmit to Secured Party promptly all information that Debtor
may have or receive with respect to (i) the Collateral or (ii)
account debtors or obligors in respect of the Accounts, the
General Intangibles and the Related Rights which might in any way
materially affect the value of the Collateral or Secured Party's
rights or remedies with respect thereto.
Section 4.09 Compromise of Collateral. Debtor will not
adjust, settle or compromise any of the Collateral without the
prior written consent of Secured Party, except in the ordinary
course of business.
Section 4.10 Title; Prohibited Liens and Filings. Debtor
agrees to protect the title to the Collateral. Debtor will not
pledge, mortgage, lease or otherwise encumber, or create or
suffer a security interest to exist in any of the Collateral
(other than in favor of Secured Party) or sell, assign or
otherwise transfer any of the Collateral (other than inventory as
permitted by Section 4.13 of this Security Agreement) to or in
favor of anyone other than Secured Party. Debtor will not file
or permit to be filed or recorded any financing statement or
other security instrument with respect to the Collateral other
than in favor of Secured Party.
Section 4.11 Inspection. Debtor will, upon Secured
Party's demand, at any time and from time to time, during normal
business hours permit Secured Party to inspect Debtor's Books and
Records, originals of the Related Rights, the Goods and any other
Collateral.
Section 4.12 Account Obligations. Debtor will duly
perform or cause to be performed all obligations of Debtor with
respect to the goods or services, the sale or lease or rendition
of which gave rise or will give rise to each Account or
Instrument.
-9-
Section 4.13 Use of Inventory. Until the occurrence of
any event of default specified in Section 5.03 hereof, Debtor may
use its inventory in any lawful manner not inconsistent with this
Security Agreement and with the terms of insurance thereon and
may sell, lease or otherwise dispose of its inventory in the
ordinary course of business. Debtor will not be permitted to use
any item of inventory in a manner inconsistent with the holding
thereof for sale, lease or disposition in the ordinary course of
business or in contravention of the terms of any agreement. A
sale, lease or disposition in the ordinary course of business
does not include the exchange of items of inventory for goods in
kind or otherwise or transfers of items of inventory made in
satisfaction of present or future indebtedness.
Section 4.14 Collection and Enforcement of Accounts,
General Intangibles and Related Rights.
(a) Except as otherwise provided in subsection 4.14(b)
hereof, Debtor shall continue to collect, at its own
expense, all amounts due or to become due to Debtor with
respect to the Accounts, General Intangibles, Instruments
and Related Rights in accordance with the provisions of the
Agreement. In connection with such collections, Debtor may
take (and, at Secured Party's direction, shall take) such
action as Debtor or Secured Party may deem necessary or
advisable to enforce collection of the Accounts, General
Intangibles and Related Rights.
(b) Notwithstanding the provisions of subsection
4.14(a) hereof, Secured Party shall have the right at any
time and from time to time, whether with or without written
notice to Debtor of its intention to do so, to contact
account debtors or obligors under any or all of the
Accounts, General Intangibles, Instruments or Related Rights
in order to verify information about Debtor's accounts, to
notify such account debtors or obligors of the assignment
and security interest of Secured Party in such Accounts,
General Intangibles, Instruments or Related Rights and, upon
the occurrence of an event of default, to direct such
account debtors or obligors to make payment of all amounts
due or to become due Debtor thereunder directly to Secured
Party. Upon exercising such right, Secured Party may
additionally, at the expense of Debtor, enforce collection
of any or all of the Accounts, General Intangibles,
Instruments and Related Rights and may adjust, settle or
compromise the amount or payment thereof, in the same manner
and to the same extent as Debtor might have done.
(c) Upon notice by Secured Party to Debtor that Secured
Party either intends to exercise the rights and remedies
granted in subsection 4.14(b) hereof or that it has so
exercised one or more of the rights or remedies granted to
it in subsection 4.14(b) hereof, as the case may be (it
being understood and agreed that the foregoing shall not in
any fashion require the Secured Party to give notice of its
intent to exercise, or its exercise of, the right and
remedies granted to it in subsection 4.14(b) hereof), then,
(i) all amounts and proceeds (including chattel paper, notes
and instruments) received by Debtor in respect of the
Accounts, General Intangibles, Instruments and Related
Rights (1) shall be received in trust for the benefit of
Secured Party hereunder, (2) shall be segregated from other
funds of Debtor and shall not be commingled with other money
nor deposited in a deposit
-10-
account of Debtor, and (3) shall forthwith be paid over to
Secured Party in the same form as so received (together with
any necessary endorsement) to be held by Secured Party as
cash collateral and applied as set forth in Section 5.02
hereof; (ii) Debtor shall not adjust, settle or compromise
any of the Accounts, the General Intangibles, the
Instruments or the Related Rights nor release wholly or
partly any account debtor or obligor thereof, nor allow any
credit (other than proceeds subject to this subsection
4.14(c)) or discount thereon; and (iii) Debtor shall
forthwith deliver to Secured Party, to be maintained under
the exclusive control of Secured Party, the Books and
Records relating to the Accounts, the General Intangibles,
the Instruments and the Related Rights for the purpose of
enabling Secured Party to exercise its rights and remedies
under this Security Agreement.
Section 4.15 Reports. Debtor will promptly furnish to
Secured Party from time to time, upon request of Secured Party
(i) such copies, extracts and abstracts of its Books and Records
as Secured Party may request; (ii) an analysis of Debtor's
Accounts, General Intangibles, the Instruments and Related Rights
in such detail as Secured Party may direct and including, without
limitation, an identification of each Account by amount, invoice
number and/or date and account debtor or obligor; an age
analysis; and a summary for any relevant period identifying the
amount outstanding at the beginning of the period, amount billed
during the period, proceeds received during the period and amount
outstanding at the end of the period; and (iii) an analysis of
Debtor's inventory in such detail as Secured Party may direct and
including, without limitation, for any relevant period, inventory
comprising work in progress at the beginning of the period,
amount billed comprising finished goods at the beginning of the
period, inventory sold or otherwise disposed of during the
period, inventory subject to lease during the period, inventory
comprising work in progress at the end of the period, and
inventory comprising finished goods at the end of the period.
Section 4.16 Proceeds. Except as otherwise specified in
the Agreement, Debtor will deliver to Secured Party promptly upon
receipt, all proceeds received by Debtor from the sale or other
disposition of the Collateral in the exact form in which they are
received, or in such other form as Secured Party may from time to
time direct. To evidence Secured Party's rights in this regard,
Debtor will assign or endorse proceeds to Secured Party as
Secured Party requests. Upon request of Secured Party, Debtor
will notify obligors on all of the Collateral to take payments
directly to Secured Party, and Secured Party may endorse as
Debtor's agent any checks, instruments, chattel paper or other
documents connected with the Collateral, take control of proceeds
of the Collateral and may hold the proceeds as part of the
Collateral and may use cash proceeds to reduce any part of the
Indebtedness, or otherwise, and take any action necessary to
obtain, preserve and enforce the security interests and liens
granted hereunder and maintain and preserve the Collateral.
Section 4.17 Insurance. Debtor shall have and maintain,
with financially sound and reputable insurers, insurance
satisfactory in all respects to Secured Party covering the Goods
included in the Collateral against risk of fire, theft and such
other risks as Secured Party may require, including standard
extended coverage, in an amount at least equal to the value
thereof. Policies evidencing any such property insurance
(i) shall contain a standard loss payee endorsement and
mortgagee's endorsement, (ii) shall provide for payment of any
loss to Secured Party, (iii) shall contain the agreement by the
insurer that any loss thereunder shall be payable to
-11-
Secured Party notwithstanding any action, inaction or breach of
representation or warranty by Debtor, (iv) shall provide that
there shall be no recourse against Secured Party for payment of
premiums or other amounts with respect thereto and (v) shall
provide for a minimum of ten (10) days prior written notice to
Secured Party of any cancellation, modification or alteration of
such insurance coverage. Debtor shall furnish Secured Party with
certificates or other evidence of compliance with the foregoing
insurance provisions. Secured Party may act as attorney for
Debtor and Debtor hereby irrevocably appoints Secured Party as
Debtor's true and lawful attorney-in-fact and agent, with full
power of substitution, in Secured Party's name or Debtor's name
or otherwise, but at Debtor's cost and expense and without notice
to Debtor, to obtain, adjust, sell and cancel such insurance and
endorse any draft drawn by insurers of such Collateral. The
Secured Party may apply any proceeds of such insurance which may
be received by it in payment on account of the Indebtedness,
whether due or not. If any insurance policy covering the goods
included in the Collateral expires or is canceled before the
Indebtedness is paid in full or Secured Party's obligation, if
any, to advance additional monies has terminated, at the Secured
Party's option, the Secured Party may obtain replacement
insurance which may, but need not, be single interest insurance
in favor of the Secured Party and Secured Party may pay the
premiums thereunder.
Section 4.18 Expenses. Debtor agrees to pay to Secured
Party, at Secured Party's offices, all advances, charges, costs
and expenses (including reasonable attorneys' fees and legal
expenses) incurred by Secured Party in connection with the
transaction which gives rise to this Security Agreement, in
connection with confirming, perfecting and preserving the
security interest created under this Security Agreement, in
connection with protecting Secured Party against the claims or
interests of any third Person against the Collateral, and in
exercising any right, power or remedy conferred by this Security
Agreement or by law. The amount of all such advances, charges,
costs and expenses shall be due and payable by Debtor to Secured
Party upon demand together with interest thereon from the date of
demand at the maximum rate of nonusurious interest allowed by law
as of the date of demand; for purposes of determining such
maximum rate of nonusurious interest under this Section, the
amount of all such advances, charges, costs and expenses shall be
added to the amount of all other Indebtedness then outstanding,
and the aggregate amount shall be used.
Section 4.19 Financial Statements and Reports. Debtor
will promptly furnish to Secured Party from time to time upon
request such information regarding the business and affairs and
financial condition of Debtor as Secured Party may reasonably
request, and will furnish to Secured Party all financial
statements and other financial information as may be required
under the terms of the Agreement. All such financial statements
and information referred to above shall be in such detail as
Secured Party may reasonably request and such financial
statements shall conform to generally accepted accounting
principles.
Section 4.20 Fixtures or Accessions. Unless Subsection
2.01(d) has been completed, Debtor will not permit any Collateral
to become so related to any particular real estate so as to
become a fixture on such real estate or to be installed in or
affixed to other goods so as to become an accession to such other
goods; in the event that any Collateral is to become so related
to any particular real estate or so installed or affixed to other
goods, prior thereto Debtor will notify Secured Party of such
fact and upon demand of Secured Party furnish written consent(s)
to
-12-
Secured Party's security interest and/or disclaimer(s) signed by
any person having an interest in the real estate or other goods.
ARTICLE V
---------
RIGHTS AND REMEDIES
-------------------
Section 5.01 With Respect to Collateral. Secured Party is
hereby fully authorized and empowered (without necessity of any
further consent or authorization from Debtor) and the right is
expressly granted to Secured Party, and Debtor hereby
constitutes, irrevocably appoints and makes Secured Party
Debtor's true and lawful attorney-in-fact and agent for Debtor
and in Debtor's name, place and stead, which appointment is
coupled with an interest in the Collateral, with full power of
substitution, in Secured Party's name or Debtor's name or
otherwise, for Secured Party's sole use and benefit, but at
Debtor's cost and expense, to exercise without notice, all or any
of the following powers at any time with respect to all or any of
the Collateral (regardless of whether any of the Indebtedness is
due or not):
(a) to demand, xxx for, collect, receive and give
acquittance for any and all monies due or to become due by
virtue thereof and otherwise deal with proceeds;
(b) to receive, take, endorse, assign and deliver any
and all checks, notes, drafts, documents and other
negotiable and nonnegotiable instruments and chattel paper
taken or received by Secured Party in connection therewith;
(c) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto;
(d) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or avails thereof or the
relative goods, as fully and effectually as if Secured Party
were the absolute owner thereof;
(e) to extend the time of payment of any or all
thereof and to grant waivers and make any allowance or other
adjustment with reference thereto; and
(f) to enter any post office box and take all items
therefrom, to open the same and, after taking all
remittances, to return any remaining items to Debtor and to
change any post office box to any address or post office box
Secured Party chooses;
provided, however, Secured Party shall be under no
obligation or duty to exercise any of the powers hereby conferred
upon it and shall be without liability for any act or failure to
act in connection with the collection of, or the preservation of
any rights under, any Collateral.
Section 5.02 Application of Cash Sums. Prior to the
happening of any of the events of default specified in Section
5.03 hereof, all cash sums paid to and received by Secured Party
on account of the Collateral (i) shall be promptly applied by
Secured Party 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 Secured Party may
elect; provided, further, however, Secured
-13-
Party's failure to so apply any such sums shall not be a waiver
of Secured Party's right to so apply such sums or any other sums
at any time, (ii) released to Borrower, within one Business Day
of Borrower's request therefor, to the extent such collected sums
exceed the amount of the Indebtedness then owing, or then
expected to become owing to Secured Party, or (iii) otherwise, at
the option of Secured Party, shall be released to Debtor for use
in Debtor's business.
Section 5.03 Default, Events. At the option of Secured
Party and without necessity of demand or notice, all or any part
of the Indebtedness shall immediately become due and payable
irrespective of any agreed maturity or period of grace and any
obligation of Secured Party for further financial accommodation
shall terminate upon the happening of any of the following
events:
(a) the occurrence of an "Event of Default" under the
Agreement;
(b) default in the payment of any amount payable
hereunder when due;
(c) any deterioration, impairment or decline in
character or value of any part of the Collateral or any
other collateral subject to a security interest in favor of
Secured Party to secure the Indebtedness (whether actual or
reasonably anticipated) that causes the Collateral or any
such other collateral in the judgment of Secured Party to
become unsatisfactory as to character or value; or
(d) the entry of a judgment, issuance of an injunction
or order of attachment, or any other process against Debtor,
or any of the Collateral, or Other Liable Party;
(e) the application for the appointment or the
appointment of a receiver, trustee, liquidator, conservator,
rehabilitator, or similar individual, officer or committee
of, or for any property of, Debtor or Other Liable Party;
(f) the death, incapacity, insolvency, dissolution,
assignment for the benefit of creditors, calling of a
meeting of any creditors, appointment of a committee of any
creditors or a liquidating agent, offering to or receiving
from any creditors a composition or extension of any of the
indebtedness of any of them, making a bulk transfer,
granting a security interest in any property, the whole or
partial suspension, discontinuance, or liquidation or usual
business, or failure in business, of or by Debtor or Other
Liable Party, including the imminent or threatened
occurrence of any of the foregoing events;
(g) the commencement of any proceeding, suit or action
under any provisions of the Bankruptcy Code, as amended, or
any similar statute, for adjudication as a bankrupt,
reorganization, composition, extension, arrangement,
adjustment of debts if Debtor or any Other Liable Party is
an individual with regular income, receivership, liquidation
or dissolution by or against Debtor or Other Liable Party;
(h) the admission in writing by Debtor or Other Liable
Party of inability to pay, or Debtor's or Other Liable
Party's generally not pay, such Person's debts as they
become due;
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(i) failure of Debtor, Other Liable Party or the
Collateral to comply with Regulations U or X of the Board of
Governors of the Federal Reserve System, as amended;
(j) failure by Debtor or Other Liable Party, after
demand, to furnish any financial information to Secured
Party or to permit Secured Party to inspect books or records
of account; making any misrepresentation to Secured Party
for the purpose of obtaining credit; failure to pay any tax
or failure to withhold, collect or remit any tax or tax
deficiency when assessed or due; failure by Debtor or Other
Liable Party to pay any obligations, or any interest or
premiums thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) or
to perform or observe any term, covenant or condition on
such Person's part to be performed or observed under any
agreement or instrument relating to any such obligations,
when required to be performed or observed if the effect of
such failure to perform or observe is to accelerate, or to
permit the acceleration of (upon the giving of notice or
upon the lapse of time, or both), the maturity of such
obligations, or any such obligations shall be declared to be
due and payable, or required to be prepaid (other than by a
regularly scheduled prepayment), prior to the scheduled
maturity thereof;
(k) failure by Debtor, upon demand from Secured Party,
to furnish such further reasonable Collateral or take such
payment on account of the Indebtedness as will be
satisfactory to Secured Party; or
(l) if in the reasonable exercise of its judgment
Secured Party, in good faith, determines that the financial
responsibility of Debtor or Other Liable Party has become
otherwise unsatisfactory.
Section 5.04 Default, Remedies. If all or any part of the
Indebtedness shall become due and payable as specified in Section
5.03 hereof, Secured Party may then, or at any time thereafter
apply, set off, sell in one or more sales, lease or otherwise
dispose of, any or all of the Collateral, in its then condition
or following any commercially reasonable preparation or
processing, in such order as Secured Party may elect, and any
such sale may be made either at public or private sale at its
place of business or elsewhere, either for cash or upon credit or
for future delivery, at such price as Secured Party may deem
fair, and Secured Party may be the purchaser of any or all
Collateral so sold and hold the same thereafter in its own right
free from any claim of Debtor or right of redemption. No such
purchase or holding by Secured Party shall be deemed a retention
by Secured Party in satisfaction of the Indebtedness. All
demands, notices and advertisements, and the presentment of
property at sale, are hereby waived. If, notwithstanding the
foregoing provisions, any applicable provision of the Code or
other law requires Secured Party to give reasonable notice of any
such sale or disposition or other action, Debtor agrees that five
(5) days prior written notice shall constitute reasonable notice.
Secured Party may require Debtor to assemble the Collateral and
make it available to Secured Party at a place designated by
Secured Party which is reasonably convenient to Secured Party and
Debtor. Any sale hereunder may be conducted by an auctioneer or
any officer or agent of Secured Party.
-15-
Section 5.05 Proceeds. The proceeds of any sale or other
disposition of the Collateral and all sums received or collected
by Secured Party from or on account of the Collateral shall be
applied by Secured Party in the manner set forth in Section 9.504
of the Code as presently in effect.
Section 5.06 Deficiency. Debtor shall remain liable to
Secured Party for any Indebtedness, advances, costs, charges and
expenses, together with interest thereon remaining unpaid and
shall pay the same immediately to Secured Party at Secured
Party's offices.
Section 5.07 Secured Party's Duties. The powers and
remedies conferred upon Secured Party by this Security Agreement
are solely to protect its interest in the Collateral and shall
not impose any duty upon Secured Party to exercise any such power
or remedy. Secured Party shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor,
or other notice or demand in connection with the Collateral or
the Indebtedness, or to take any steps necessary to preserve any
rights against prior parties. Secured Party shall not be liable
for failure to collect or realize upon any or all of the
Indebtedness or Collateral, or for any delay in so doing, nor
shall Secured Party be under any duty to take any action
whatsoever with regard thereto. Secured Party shall use
reasonable care in the custody and preservation of any Collateral
in its possession but need not take any steps to keep the
Collateral identifiable. Secured Party shall have no duty to
comply with any recording, filing or other legal requirements
necessary to establish or maintain the validity, priority or
enforceability of, or Secured Party's rights in or to, any of the
Collateral.
Section 5.08 Secured Party's Actions. Debtor waives any
right to require Secured Party to proceed against any Person,
exhaust any Collateral, or have any Other Liable Party joined
with Debtor in any suit arising out of the Indebtedness or this
Security Agreement or pursue any other remedy in Secured Party's
power; waives any and all notice of acceptance of this Security
Agreement or of creation, modification, renewal or extension for
any period of any of the Indebtedness from time to time; and
waives any defense arising by reason of any disability or other
defense of Debtor or of any Other Liable Party, or by reason of
the cessation from any cause whatsoever of the liability of
Debtor or of any Other Liable Party. All dealings between Debtor
and Secured Party, whether or not resulting in the creation of
Indebtedness, shall conclusively be presumed to have been had or
consummated in reliance upon this Agreement. Until all
Indebtedness shall have been paid in full, Debtor shall not have
any right to subrogation, and Debtor waives any right to enforce
any remedy which Secured Party now has or may hereafter have
against Debtor or Other Liable Party and waives any benefit of
and any right to participate in any Collateral or security
whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting
Debtor's liability hereunder or on the Indebtedness, from time to
time to (a) take and hold any other Property as collateral, other
than the Collateral, for the payment of any or all of the
Indebtedness, and exchange, enforce, waive and release any or all
of the Collateral or such other Property; (b) apply the
Collateral or such other Property and direct the order or manner
of sale thereof as Secured Party in its discretion may determine;
(c) renew and/or extend for any period, accelerate, modify,
compromise, settle or release the obligation of Debtor or any
Other Liable Party with respect to any or all of the Indebtedness
or Collateral; and
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(d) release or substitute Debtor or any Other Liable Party.
Section 5.09 Transfer of Indebtedness and Collateral.
Secured Party may transfer any or all of the Indebtedness, and
upon any such transfer Secured Party may transfer any or all of
the Collateral and shall be fully discharged thereafter from all
liability with respect to the Collateral so transferred, and the
transferee shall be vested with all rights, powers and remedies
of Secured Party hereunder with respect to Collateral so
transferred; but with respect to any Collateral not so
transferred Secured Party shall retain all rights, powers and
remedies hereby given. Secured Party may at any time deliver any
or all of the Collateral to Debtor, whose receipt shall be a
complete and full acquittance for the Collateral so delivered,
and Secured Party shall thereafter be discharged from any
liability therefor.
Section 5.10 Cumulative Security. The execution and
delivery of this Security Agreement in no manner shall impair or
affect any other security (by endorsement or otherwise) for the
payment of the Indebtedness. No security taken hereafter as
security for payment of the Indebtedness shall impair in any
manner or affect this Security Agreement. All such present and
future additional security is to be considered as cumulative
security.
Section 5.11 Continuing Agreement. This is a continuing
agreement and all the rights, powers and remedies of Secured
Party hereunder shall continue to exist until the Indebtedness is
paid in full as the same becomes due and payable; until Secured
Party has no further obligation to advance monies to Debtor or
Other Liable Party; and until Secured Party, upon request of
Debtor, has executed a written termination statement.
Furthermore, it is contemplated by the parties hereto that there
may be times when no Indebtedness is owing; but notwithstanding
such occurrence, this Security Agreement shall remain valid and
shall be in full force and effect as to subsequent Indebtedness
provided that Secured Party has not executed a written
termination statement. Otherwise this Security Agreement shall
continue irrespective of the fact that the personal liability of
any Other Liable Party may have ceased, and notwithstanding the
death or incapacity of Debtor or the death, incapacity or
bankruptcy of any Other Liable Party or any other event or
proceeding affecting Debtor or Other Liable Party.
Section 5.12 Cumulative Rights. The rights, powers and
remedies of Secured Party hereunder shall be in addition to all
rights, powers and remedies given by statute or rule of law and
are cumulative. The exercise of any one or more of the rights,
powers and remedies provided herein shall not be construed as a
waiver of any of the other rights, powers and remedies of Secured
Party. Furthermore, regardless of whether or not the Uniform
Commercial Code is in effect in the jurisdiction where such
rights, powers and remedies are asserted, Secured Party shall
have the rights, powers and remedies of a secured party under the
Code, as amended.
Section 5.13 Exercise of Rights. Time shall be of the
essence for the performance of any act under this Security
Agreement or the Indebtedness by Debtor or Other Liable Party,
but neither Secured Party's acceptance of partial or delinquent
payment nor any forbearance, failure or delay by Secured Party in
exercising any right, power or remedy shall be deemed a waiver of
any obligation of Debtor or Other Liable Party or of any right,
power or remedy of Secured Party or preclude any other or further
exercise thereof; and no single or partial exercise of any right,
power or remedy shall preclude any other or further exercise
thereof, or of the exercise of any
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other right, power or remedy.
Section 5.14 Remedy and Waiver. Secured Party may remedy
any default and may waive any default without waiving the default
remedied or waiving any prior or subsequent default.
Section 5.15 Non-Judicial Remedies. Secured Party may
enforce its rights hereunder without resort to prior judicial
process or judicial hearing, and Debtor expressly waives,
renounces and knowingly relinquishes any and all legal rights
which might otherwise require Secured Party to enforce its rights
by judicial process. In so providing for non-judicial remedies,
Debtor recognizes and concedes that such remedies are consistent
with the usage of the trade, are responsive to commercial
necessity and are the result of bargaining at arm's length.
Nothing herein is intended to prevent Secured Party or Debtor
from resorting to judicial process at either party's option.
ARTICLE VI
----------
MISCELLANEOUS
-------------
Section 6.01 Debtor. The term "Debtor" as used throughout
this Security Agreement shall include the respective successors,
legal representatives, heirs and assigns of Debtor.
Section 6.02 Preservation of Liability. Neither this
Security Agreement nor the exercise by Secured Party (or any
failure to so exercise) any right, power or remedy conferred
herein or by law shall be construed as relieving any Person
liable on the Indebtedness from full liability on the
Indebtedness and for any deficiency thereon.
Section 6.03 Notices. Any notice or demand to Debtor
under this Security Agreement or in connection with this Security
Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit
thereof, in writing, duly stamped and addressed to Debtor at the
address of Debtor appearing on the records of the Secured Party,
in the U.S. Mail, but actual notice, however given or received,
shall always be effective.
Section 6.04 Construction. This Security Agreement has
been made in and the security interest granted hereby is granted
in and both shall be governed by the laws of the State of Texas
(except to the extent that the laws of any other jurisdiction
govern the perfection and priority of the security interest
granted hereby) and of the United States of America, as
applicable, in all respects, including matters of construction,
validity, enforcement and performance.
Section 6.05 Amendment and Waiver. This Security
Agreement may not be amended, altered, or modified (nor may any
of its terms be waived) except in writing duly signed by an
authorized officer of Secured Party and by Debtor.
Section 6.06 Invalidity. If any provision of this
Security Agreement is rendered or declared invalid, illegal or
unenforceable by reason of any existing or subsequently enacted
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legislation or by a judicial decision which shall have become
final, Debtor and Secured Party shall promptly meet and negotiate
substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain
in full force and effect.
Section 6.07 Successors and Assigns. The covenants,
representations, warranties and agreements herein set forth shall
be binding upon Debtor and shall inure to the benefit of Secured
Party, its successors and assigns.
Section 6.08 Survival of Agreements. All representations
and warranties of Debtor herein, and all covenants and agreements
herein not fully performed before the effective date of this
Security Agreement, shall survive such date.
Section 6.09 Titles of Articles and Sections. All titles
or headings to articles, sections or other divisions of this
Security Agreement are only for the convenience of the parties
and shall not be construed to have any effect or meaning with
respect to the other content of such articles, sections or other
divisions, such other content being controlling as to the
agreement between the parties hereto.
Section 6.10 Exhibits. All exhibits to this Security
Agreement are incorporated herein by reference for all purposes.
Section 6.11 Conflict of Terms. If any provision
contained in this Security Agreement is in direct conflict with,
or inconsistent with, any provision of the Agreement, the
provision in the Agreement shall govern and control.
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IN WITNESS WHEREOF, Debtor has executed this Agreement as of
the date set forth hereinabove.
DEBTOR:
TEMCO FIREPLACE PRODUCTS, INC.,
a Texas corporation
By: /s/ X. X. Xxxxxx
------------------------------
Name: X. X. Xxxxxx
Title: President
PATENT COLLATERAL SECURITY AGREEMENT
------------------------------------
THIS PATENT COLLATERAL SECURITY AGREEMENT is made as of the
6th day of September, 2000 by and between TEMCO FIREPLACE
PRODCUTS, INC, a Texas corporation (the "Borrower") having a
mailing address at 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000, and FROST NATIONAL BANK, a national banking association,
doing business as FROST CAPITAL GROUP and formerly known as
CREEKWOOD CAPITAL GROUP, having a mailing address at 0000 Xxxxx,
Xxxxx 000, Xxxxxxx, Xxxxx 00000 or at such other place as the
Lender shall designate in writing to the Company ("Lender").
BACKGROUND
Lender has entered into that certain Loan Agreement with
Borrower and Temtex Industries, Inc., dated as of September 6,
2000 (as amended from time to time, the "Agreement"), which
provides for certain credit accommodations from Lender to
Borrower and Temtex Industries, Inc. In order to induce Lender
to provide the credit accommodations set forth in the Agreement,
Borrower agreed to execute and deliver to Lender, this Patent
Collateral Security Agreement ("Security Agreement"). This
Security Agreement, covering Patents (as hereinafter defined), is
being executed in connection with the Agreement under which
Lender, is granted a lien on and security interest in the
Patents, whereby Lender shall have the right to foreclose
simultaneously, subject to grace periods set forth therein, on
the Patents in the event of the occurrence and continuance of an
Event of Default under the Agreement.
NOW, THEREFORE, in consideration of the premises, Borrower
and Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Agreement shall have their defined meanings when
used herein and the following terms shall have the following
meanings, unless the context otherwise requires:
"Code" shall mean the Uniform Commercial Code as the
same may from time to time be in effect in the State of Texas.
"Collateral" shall have the meaning assigned to it in
Section 2 of this Security Agreement.
"Excluded Property" means property encumbered by a Lien
existing on the date of this Agreement which is permitted by
Section 5.02 of the Agreement, but only if the security agreement
which created such Lien provides that the granting of any
additional Lien on such property constitutes a default under such
security agreement.
"Licenses" shall mean the patent license agreements of
Borrower designated on Schedule I hereto, as any of the same may
from time to time be amended or supplemented.
"Patents" shall mean all right, title and interest in
and to the U.S. patent applications and U.S. patents referred to
in the attached Schedule A and those patents which are hereafter
obtained or acquired by Borrower and all registrations,
applications and recordings
thereof, including, without limitation, all reissues, divisions,
continuations, renewals, extensions and continuations-in-part
thereof, and all applications, registrations and recordings in
the United States Patent and Trademark Office or in any similar
office or agency of the United States, or any State thereof, all
whether now owned or hereafter acquired by Borrower.
"Proceeds" shall have the meaning assigned to it under
Section 9-306 of the Code, and in any event, shall include, but
not be limited to, (i) any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to Borrower from time to
time with respect to any of the Collateral, (ii) any and all
payments (in any form whatsoever) made or due and payable to
Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of
governmental authority), and (iii) any and all other amounts from
time to time paid or payable under or in connection with any of
the Collateral.
"Security Agreement" shall mean this Patent Collateral
Security Agreement, as the same may from time to time be amended
or supplemented.
2. Grant of Security Interest. As collateral security for
the prompt payment of the Indebtedness (as defined in the
Agreement, and which includes obligations of Temtex Industries,
Inc.), Borrower hereby grants and conveys to Lender, a security
interest (the "Security Interest") in and to the following
property, but excluding the Excluded Property: (a) the entire
right, title and interest of Borrower in and to the Patents,
including the registrations and applications appurtenant thereto,
listed in Schedule A hereto (as the same may be amended pursuant
hereto from time to time), and in and to any and all patents, and
registrations and applications appurtenant thereto, hereafter
acquired or filed by Borrower, including without limitation all
renewals thereof, all proceeds of infringement suits, the rights
to xxx for past, present and future infringements and all rights
corresponding thereto in the United States and all reissues,
divisions, continuations, renewals, extensions and continuations-
in-part thereof, and (b) all of Borrower's right, title and
interest in, to and under the following:
(i) all Licenses;
(ii) all accounts, contract rights and general
intangibles arising under or relating to each and every License
(including, without limitation, (A) all moneys due and to become
due under any License, (B) any damages arising out of or for
breach or default in respect of any such License, (C) all other
amounts from time to time paid or payable under or in connection
with any such License, and (D) the right of Borrower to terminate
any such License or to perform and to exercise all remedies
thereunder); and
(iii) to the extent not otherwise included, all
Proceeds and products of any or all of the foregoing. All of the
property referred to in this paragraph 2 is hereafter
collectively called the "Collateral".
3. Representations and Warranties. Except as set forth on
Schedule 3, Borrower covenants and warrants that as of the date
of this Security Agreement:
(a) The Patents are existing and have not been
adjudged invalid or
unenforceable;
(b) Borrower is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to each
of the Patents, free and clear of any liens, charges and
encumbrances, (including without limitation pledges, assignments,
licenses, registered user agreements and covenants by Borrower
not to xxx third persons), expressly relating to such Patents),
except for (a) the Licenses referred to in Schedule I attached
hereto and (b) Permitted Liens;
(c) Borrower has the corporate power and authority to
enter into this Security Agreement and perform its terms;
(d) To the extent necessary to prevent the
abandonment, invalidation, unenforceability, avoidance or
substantial diminution of value, Borrower has used, and will
continue to use for the duration of this Security Agreement,
proper statutory notice, where appropriate, in connection with
its use of the Patents; and
(e) To the extent necessary to prevent the
abandonment, invalidation, unenforceability, avoidance or
substantial diminution of value, Borrower has used, and will
continue to use for the duration of this Security Agreement,
consistent standards of quality in its manufacture of products
sold under the Patents.
4. Covenants. Borrower covenants and agrees with Lender
that from and after the date of this Security Agreement and until
the Indebtedness is fully satisfied:
(a) Further Documentation; Pledge of Instruments. At
any time and from time to time, upon the written request of
Lender, Borrower will promptly and duly execute and deliver any
and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable in
obtaining the full benefits of this Security Agreement and of the
rights and powers herein granted, including, without limitation,
the filing of any financing or continuation statements under the
Code with respect to the liens and security interests granted
hereby. Borrower also hereby authorizes Lender to file any such
financing or continuation statement without the signature of
Borrower to the extent permitted by applicable law.
(b) Maintenance of Patents. Borrower will not do any
act, or omit to do any act, that causes the Patents or any
registration or application appurtenant thereto, to become
abandoned, invalidated, unenforceable, avoided, avoidable, or
otherwise substantially diminish in value. Borrower shall take
reasonable action at its expense, to halt the infringement of the
Patents and shall properly exercise its duty to control the
nature and quality of the goods offered by any licensees in
connection with the Licenses set forth in Schedule I to the
extent necessary to prevent the abandonment, invalidation,
unenforceability or avoidance of such licenses.
(c) Indemnification. (A) Borrower assumes all
responsibility and liability arising from its use of the Patents,
and Borrower hereby indemnifies and holds Lender harmless from
and against any claim, suit, loss, damage or expense (including
reasonable attorneys' fees) arising out of Borrower's operations
of its business from the use of the Patents except a claim, suit,
loss, damage or expense from Lender's gross negligence or willful
misconduct. (B) In any suit, proceeding or action brought by
Lender under any License for any sum owing thereunder, or
to enforce any provisions of such License, Borrower will
indemnify and keep Lender harmless from and against all expense,
loss or damage suffered by reason of any defense, set off,
counterclaim, recoupment or reduction or liability whatsoever of
the obligee thereunder, arising out of a breach of Borrower of
any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of
such obligee or its successors from Borrower, and all such
obligations of Borrower shall be and remain enforceable against
and only against Borrower and shall not be enforceable against
Lender unless attributable to the Lender's gross negligence or
willful misconduct.
(d) Limitation of Liens on Collateral. Except for
Permitted Liens, Borrower will not create, permit or suffer to
exist, any lien, security interest, encumbrance, claim or right,
in or to the Collateral, and to any of Borrower's rights under
any License and to the Proceeds thereof.
(e) Limitations on Modifications of Licenses. To the
extent necessary to prevent the abandonment, invalidation,
unenforceability or avoidance of any License, Borrower will not
(i) amend, modify, terminate (other than in accordance with its
terms) or waive any provision of any License in any manner, (ii)
fail to exercise promptly and diligently each and every material
right which it may have under each License (other than any right
of termination).
(f) Limitation on Further Uses of Patents. Except for
Permitted Liens, Borrower will not assign, sell, mortgage, lease,
transfer, pledge, hypothecate, grant a security interest in or
lien upon, encumber, grant an exclusive license or nonexclusive
license, or otherwise dispose of any of the Collateral, without
written consent of Lender.
5. Lender's Appointment as Attorney-in-Fact.
----------------------------------------
(a) Borrower hereby irrevocably constitutes and
appoints Lender and any officer or Lender thereof, with full
power of substitution, as its true and lawful attorney-in-fact
with full irrevocable power and authority in the place and stead
of Borrower and in the name of Borrower or in its own name, from
time to time in Lender's discretion, for the purposes of carrying
out the terms of this Security Agreement, upon the occurrence and
during the continuation of an Event of Default, to take any and
all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Lender the power and
right, on behalf of Borrower, to do the following:
(i) Upon the occurrence and during the
continuance of an Event of Default, to ask, demand, collect,
receive and give acquittances and receipts for any and all moneys
due and to become due under any License and, in the name of
Borrower or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any License
and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by
Lender for the purpose of collecting any and all such moneys due
under any License whenever payable;
(ii) Upon the occurrence and during the
continuance of an Event of Default, to pay or discharge taxes,
liens, security interests or other encumbrances levied or placed
on or threatened against the Collateral,
(iii) Upon the occurrence and during the
continuance of an Event of Default, (A) to direct any party
liable for any payment under any License to make payment of any
and all moneys due and to become due thereunder directly to
Lender or as Lender shall direct; (B) to receive payment of and
receipt for any and all moneys, claims and other amounts due and
to become due at any time in respect of or arising out of any
Collateral; (C) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (D) to
defend any suit, action or proceeding brought against Borrower
with respect to any Collateral; (E) to settle, compromise, or
adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as
Lender may reasonably deem appropriate; and (F) generally to
sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely
as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option all acts and things which
Lender reasonably deems necessary to protect, preserve or realize
upon the Collateral and Lender's security interest therein, in
order to effect the intent of this Security Agreement, all as
fully and effectively as Borrower might do.
This power of attorney is a power coupled with an interest and
shall be irrevocable. Notwithstanding the foregoing, Borrower
shall execute any additional documents which Lender may require
in order to confirm this power of attorney, or which Lender may
deem necessary to enforce any of its rights contained in this
Security Agreement.
(b) The powers conferred on Lender hereunder are
solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Lender shall
be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible
to Borrower for any act or failure to act, except for its or
their own gross negligence or willful misconduct.
(c) Borrower also authorizes Lender to execute, in
connection with the sale provided for in paragraph 8(b) of this
Security Agreement, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the
Collateral.
6. Execution of Power of Attorney. Concurrently with the
execution and delivery hereof, Borrower is executing and
delivering to Lender, in the form of Schedule II hereto, ten (10)
originals of a Power of Attorney for the implementation of the
assignment, sale or other disposal of the Patents pursuant to
paragraph 5 hereof.
7. Performance by Lender of Borrower's Indebtedness. If
Borrower fails to perform or comply with any of its agreements
contained herein and Lender, as provided for by the terms of this
Security Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the
reasonable expenses of Lender incurred in connection with such
performance or compliance shall be payable by Borrower to Lender
on demand and shall constitute Indebtedness secured hereby.
8. Remedies, Rights Upon Event of Default.
--------------------------------------
(a) If an Event of Default shall occur and be
continuing:
(i) All payments received by Borrower under or in
connection with any of the Collateral shall be held by Borrower
in trust for Lender, shall be segregated from other funds of
Borrower and shall forthwith upon receipt by Borrower, be turned
over to Lender, in the same form as received by Borrower (duly
endorsed by Borrower or Lender, if required); and
(ii) Any and all such payments so received by
Lender (whether from Borrower or otherwise) may, in the sole
discretion of Lender, be held by Lender as collateral security
for, and/or then or at any time thereafter applied in whole or in
part by Lender against all or any part of the Indebtedness as
provided in the Agreement. Any balance of such payments held by
Lender and remaining after payment in full of all the
Indebtedness shall be paid over to Borrower or to whomsoever may
be lawfully entitled to receive the same.
(b) If any Event of Default shall occur and be
continuing, Lender may exercise in addition to all other rights
and remedies granted to it in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to
the Indebtedness, all rights and remedies of a secured party
under the Code, including, without limitation, sale of the
Collateral. Borrower shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
Borrower shall also be liable for the reasonable fees of any
attorneys employed by Lender to collect any such deficiency and
also as to any reasonable attorney's fees incurred by Lender with
respect to the collection of any of the Indebtedness and the
enforcement of any of Lender's respective rights hereunder.
9. Termination. Upon payment in full of all Indebtedness
and the termination of all Commitments, the Security Interests
shall terminate and all rights to the Collateral shall revert to
Borrower. Upon such termination of the Security Interests or
release of any Collateral, Lender will, at the expense of
Borrower, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence the termination of
the Security Interests or the release of such Collateral, as the
case may be.
10. Notices. Any notice to Lender shall be deemed to have
been duly given when given under the Agreement.
11. No Waiver. No course of dealing between Borrower and
Lender, nor any failure to exercise, nor any delay in exercising,
on the part of Lender, any right, power or privilege hereunder or
under the Agreement shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege
hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
12. Cumulative Remedies. All of Lender's rights and
remedies with respect to the Collateral, whether established
hereby or by the Agreement, or by any other agreements or by law,
shall be cumulative and may be exercised singularly or
concurrently.
13. Severability. The provisions of this Security
Agreement are severable, and if any
clause or provision shall be held invalid and unenforceable in
whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner
affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Security Agreement in any
jurisdiction.
14. No Modification Except in Writing. This Security
Agreement is subject to modification only by a writing signed by
the parties.
15. Successors and Assigns. The benefits and burdens of
this Security Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of
the parties in accordance with the Agreement.
16. Governing Law. The validity and interpretation of this
Security Agreement and the rights and obligations of the parties
shall be governed by the laws of the State of Texas.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this
Security Agreement under the seal as of the day and first written
above.
WITNESS: TEMCO FIREPLACE PRODUCTS, INC.
/s/ Xxxx Xxxxxx Xxxxx By: /s/ X. X. Xxxxxxx
------------------------ ----------------------------
Name: X. X. Xxxxxx
Title: President
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
Before me, the undersigned, on this 6th day of September,
2000 personally appeared X. X. Xxxxxx, to me known personally,
and who being by me duly sworn, deposes and says that he is the
President and Director of TEMCO FIREPLACE PRODCUTS, INC., and
that said instrument was signed on behalf of said corporation by
authority of its Board of Directors, and he acknowledged said
instrument to be the free act and deed of said corporation.
/s/ Xxxxxxx Xxxxxxx
-----------------------------
Notary Public
My Commission Expires: 6/3/2003
--------
SCHEDULE A
----------
Schedule A to a Patent Collateral Security Agreement dated
as of September 6, 2000 by and between and THE FROST NATIONAL
BANK, a national banking association, doing business as FROST
CAPITAL GROUP and formerly known as CREEKWOOD CAPITAL GROUP, as
Lender.
Reg. No. or Reg. Or
Application No. Xxxx Filing Date
--------------- ---- -----------
5,471,973 Direct Vent Fireplace December 5, 1995
5,562,088 Termination Device for October 8, 1996
Horizontal Direct Vent
Gas Fireplaces or the
Like
5,669,374 Direct Vent Fireplace September 23, 1997
5,715,808 Direct Vent Fireplace February 10, 1998
5,782,231 Direct Vent Fireplace July 21, 1998
5,901,701 Unvented Fireplace May 11, 1999
Construction
6,029,654 Vented Fireplace February 29, 2000
Construction
(S/N 09456970) Direct Vent Fireplace filed December 7,
Construction 1999
(patent pending)
PLEDGE AND SECURITY AGREEMENT
-----------------------------
[TEMCO FIREPLACE PRODUCTS, INC.]
THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated
as of September 6, 2000, is made and entered into by TEMCO
FIREPLACE PRODUCTS, INC., a Texas corporation ("Pledgor") to THE
FROST NATIONAL BANK, a national banking association doing
business as FROST CAPITAL GROUP and formerly known as CREEKWOOD
CAPITAL GROUP ("Lender").
W I T N E S S E T H:
- - - - - - - - - - -
WHEREAS, Lender, Pledgor and Temtex Industries, Inc.
("Temtex") (Pledgor and Temtex collectively, the "Borrowers"),
are parties to a Loan Agreement, dated as of the date hereof (as
amended, modified, supplemented, or restated from time to time,
the "Loan Agreement"), pursuant to which Lender has agreed to
make available to Borrowers a credit facility in a maximum
aggregate principal amount of $4,000,000.00 at any one time
outstanding evidenced by a Revolving Credit Note executed or to
be executed by Borrowers (the "Note") (the Loan Agreement, the
Note, the Other Agreements defined hereinafter, and any and all
other documents, instruments and agreements arising therefrom or
in connection therewith, collectively referred to hereinafter as
the "Loan Documents");
WHEREAS, Pledgor is the legal and beneficial owner of all of
the issued and outstanding shares of capital stock of Temtex
International, Inc. (the "Subsidiary"), together with any stock
options or rights described in Section 3 of this Agreement, being
hereinafter sometimes referred to as the "Pledged Stock", and
will derive direct and indirect benefit from the extension of
credit to the Borrowers under the Loan Agreement; and
WHEREAS, it is a condition precedent to the agreement of
Lender to make the loan and advances provided for under the Loan
Agreement that Pledgor shall have executed and delivered this
Agreement to Lender;
NOW, THEREFORE, in consideration of the premises and in
order to induce Lender to make the loan provided for under the
Loan Agreement and for other good and valuable consideration,
receipt of which is hereby acknowledged, Pledgor hereby agrees
with Lender as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Loan Agreement shall have such defined meanings
when used herein.
2. Pledge. Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers all the Pledged Stock owned or hereafter
acquired by it and hereby grants to Lender a first lien on, and
security interest in, the Pledged Stock and in all proceeds
thereof, together with appropriate undated stock powers duly
executed in blank with respect to the Pledged Stock as collateral
security for (i) the prompt and complete payment when due
(whether at the stated maturity, by acceleration or otherwise) of
the unpaid principal of and interest on the Note issued to
evidence
-1-
loans made and to be made by Lender to Borrowers pursuant to the
Loan Agreement, and (ii) the due and punctual payment and
performance by Borrowers and Pledgor of all their respective
obligations and liabilities under, arising out of and in
connection with the Loan Documents and this Agreement (all the
foregoing being hereinafter called the "Indebtedness").
3. Stock Dividends, Interest Distributions, etc. If,
while this Agreement is in effect, Pledgor shall become entitled
to receive or shall receive any stock certificate (including,
without limitation, any certificate representing a stock dividend
or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with
any reorganization), option or rights, whether as an addition to,
in substitution of, or in exchange for any shares of any Pledged
Stock owned or hereafter acquired by it, or otherwise, Pledgor
agrees to accept the same as Lender's agent and to hold the same
in trust or behalf of and for the ratable benefit of Lender and
to deliver the same forthwith to Lender in the exact form
received, with the endorsement of Pledgor when necessary and/or
appropriate undated stock powers duly executed in blank, to be
held by Lender, subject to the terms hereof, as additional
collateral security for the Indebtedness. Any sums paid upon or
in respect of the Pledged Stock upon the liquidation or
dissolution of the issuer thereof shall be paid over to Lender to
be held by it in trust as additional collateral security for the
Indebtedness; and in case any distribution of capital shall be
made on or in respect of the Pledged Stock or any property shall
be distributed upon or with respect to the Pledged Stock pursuant
to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Lender to be
held by it as additional collateral security for the
Indebtedness. All sums of money and property so paid or
distributed in respect of any Pledged Stock which are received by
the Pledgor thereof shall, until paid or delivered to the Lender,
be held by Pledgor in trust as additional collateral security for
the Indebtedness.
4. Collateral. All property at any time pledged with
Lender hereunder (whether described herein or not), including,
without limitation, the Pledged Stock, and all income therefrom
and any cash or non-cash proceeds thereof, are herein
collectively sometimes referred to as the "Collateral".
5. Cash Dividends; Voting Rights. Unless an Event of
Default under the Loan Agreement, the Note, or any other
agreement executed to evidence and/or secure the Indebtedness
(the "Other Agreements") shall have occurred and be continuing,
Pledgor shall be entitled to receive all cash dividends paid in
respect of the Pledged Stock owned or hereafter acquired by it.
Unless and until an Event of Default (such term to mean an Event
of Default as defined herein) shall have occurred and be
continuing and the Lender has elected to exercise its rights and
remedies under Section 8 below, the Pledgor shall be entitled to
vote any and all Pledged Stock and to give consents, waivers or
ratifications in respect thereof; provided that no vote shall be
cast or any consent, waiver or ratification given or any action
taken which would impair the Collateral or violate or be
inconsistent with any of the terms of this Agreement, or the Loan
Documents; provided, further, that the Pledgor shall give the
Lender at least five (5) Business Days written notice of the
manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right if the exercise or non-
exercise of such right potentially may violate or be inconsistent
with the aforementioned agreements.
-2-
6. Subrogation. Notwithstanding any payment or payments
made by Pledgor hereunder, or the receipt of any amounts by
Lender with respect to the Collateral, or any setoff or
application of funds of Pledgor by Lender, Pledgor shall not be
entitled to be subrogated to any of the rights of Lender against
Borrowers of the Indebtedness until all amounts owing to Lender
by Borrowers on account of the Indebtedness are paid in full.
7. Amendments, Modifications and Waivers with Respect to
Indebtedness. Pledgor hereby consents that, without the
necessity of any reservation of rights against Pledgor, and
without notice to or further assent by Pledgor, any demand for
payment of any of the Indebtedness made by Lender may be
rescinded by Lender and any of the Indebtedness continued, and
the Indebtedness, or the liability of Borrowers or any other
party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered,
or released by Lender and the Loan Agreement, the Note, any
collateral security documents or guarantees or document in
connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as Lender may deem advisable
from time to time, and any collateral security at any time held
by Lender for the payment of the Indebtedness may be sold,
exchanged, waived, surrendered or released, all without the
necessity of any reservation of rights against the Pledgor and
without notice to or further assent by Pledgor, who will remain
bound hereunder, notwithstanding any such renewal, extension,
modification, acceleration, compromise, amendment, supplement,
termination, sale, exchange, waiver, surrender or release. The
Lender shall have no obligation to protect, secure, perfect or
insure any other collateral security document or property subject
thereto at any time held as security for the Indebtedness.
Pledgor waives any and all notice of the creation, renewal,
extension or accrual of any of the Indebtedness and notice of or
proof of reliance by Lender upon this Agreement, and the
Indebtedness, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between Borrowers and Lender shall
likewise be conclusively presumed to have been had or consummated
in reliance upon this Agreement. Pledgor waives diligence,
presentment, protest, demand for payment and, except as provided
in the Loan Agreement, notice of default or nonpayment to or upon
Pledgor with respect to the Indebtedness.
8. Rights of Lender. Lender shall not be liable for
failure to collect or realize upon the Indebtedness or any
collateral security or guarantee therefor, or any part thereof,
or for any delay in so doing nor shall it be under any obligation
to take any action whatsoever with regard thereto. Any or all
shares of the Pledged Stock held by Lender hereunder may, if any
Event of Default has occurred and is continuing, upon three days
written notice, be registered in the name of Lender or its
nominee, and Lender or its nominee may thereafter without notice,
exercise all voting and corporate rights at any meeting of any
corporation issuing any of the shares included in the Pledged
Stock and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the
absolute owner thereof, including, without limitation, the right
to exchange, at its discretion, any and all of the Pledged Stock
upon the merger, consolidation, reorganization, recapitalization
or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or Lender of any
right, privilege or option pertaining to any shares of the
Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with
-3-
any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may
determine, all without liability except to account for property
actually received by it, but Lender shall have no duty to
exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so
doing.
9. Events of Default. Any of the following specified
events shall constitute Events of Default under this Agreement:
(a) the occurrence of any Event of Default as provided
under the terms of the Loan Documents;
(b) any representation, warranty or statement made or
deemed to be made by the Pledgor under or in connection with this
Agreement shall have been false or misleading in any material
respect when made or deemed to be made;
(c) the Pledgor shall fail to observe or perform any
covenant or agreement set forth in Section 3, 5, 11, 13 or 16
hereof; or
(d) the Pledgor shall fail to observe or perform any
covenant or agreement set forth in this Agreement, other than
those referred to in paragraph (c) above, and such failure is not
cured to the Lender's satisfaction within thirty (30) days after
the earlier of the date the Pledgor acquires knowledge thereof or
the Lender or any lender gives the Pledgor written notice
thereof.
10. Remedies. In the event that any portion of the
Indebtedness has been declared due or payable, Lender, without
demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of
public or private sale) to or upon Pledgor or any other person
(all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to
purchase, contract to sell or otherwise dispose of and deliver
said Collateral, or any part thereof, in one or more parcels at
public or private sale or sales, at any exchange, broker's board
or at any of Lender's offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without
assumption of any credit risk, with the right to Lender upon any
such sale or sales, public or private, to purchase the whole or
any part of said Collateral so sold, free of any right or equity
or redemption in Pledgor, which right or equity is hereby
expressly waived or released. Lender shall pay over the net
proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all
of the Collateral or in any way relating to the rights of Lender
hereunder, including reasonable attorneys' fees and legal
expenses, to Lender for application by it to the payment in whole
or in part, of the Indebtedness in such order as Lender may
elect, and only after the payment by Lender of any other amount
required by any provision of law, including, without limitation,
Section 9-504 (a) (3) of the Uniform Commercial Code, need Lender
account for the surplus, if any, to Pledgor. Pledgor agrees that
Lender need not give more than ten (10) days notice of the time
and place of any
-4-
public sale or of the time after which a private sale or other
intended disposition is to take place and that such notice is
reasonable notification of such matters. No notification need be
given to Pledgor if it has signed after default a statement
renouncing or modifying any right to notification of sale or
other intended disposition. In addition to the rights and
remedies granted to it in this Agreement and in any other
instrument or agreement securing, evidencing or relating to any
of the Indebtedness, Lender shall have all the rights and
remedies of a secured party under the Uniform Commercial Code of
the State of Texas. Pledgor further agrees to waive and agrees
not to assert any rights or privileges which he may acquire under
Section 9-112 of the Uniform Commercial Code and Pledgor shall be
liable for the deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all amounts
to which Lender is entitled, and the fees of any attorneys
employed by Lender to collect such deficiency.
11. Representations, Warranties and Covenants of the
Pledgor. Pledgor represents and warrants that (a) it is the
legal record and beneficial owner of, and has good and
indefeasible title to, the Pledged Stock described herein as
being owned by it, subject to no pledge, lien, mortgage,
hypothecation, security interest, charge, option or other
encumbrance whatsoever, except the lien and security interest
created by this Agreement; (b) Pledgor owns 100% of the issued
and outstanding capital stock of Temtex International, Inc.; (c)
it has full power, authority and legal right to pledge the
Pledged Stock pledged by it pursuant to this Agreement; (d) all
the shares of the Pledged Stock pledged by it have been duly
validly issued, are fully paid and non-assessable; (e) no consent
of any other party (including, without limitation, any creditor
of the Pledgor or any of the Subsidiary) and no order, consent,
license, permit, approval, validation or authorization of,
exemption by, notice to or registration, recording, filing or
declaration with, any governmental or public body or authority is
required to be obtained by the Pledgor in connection with the
execution, delivery or performance of this Agreement or
consummation of the transactions contemplated hereby, including,
without limitation, the exercise by the Lender of the voting or
other rights provided for in this Agreement or the remedies in
respect of the Collateral pursuant to this Agreement; and (f) the
pledge, assignment and delivery of such Pledged Stock pursuant to
this Agreement creates a valid first lien on and a first
perfected security interest in such shares of the Pledged Stock,
and the proceeds thereof, subject to no prior pledge, lien,
mortgage, hypothecation, security interest, charge, option or
encumbrance or to any agreement purporting to grant to any third
party a security interest in the property or assets of such
Pledgor which would include the Pledged Stock. Pledgor covenants
and agrees that it will defend Lender's right, title and security
interest in and to the Pledged Stock and the proceeds thereof
against the claims and demands of all persons whomsoever; and
covenants and agrees that it will have like title to and right to
pledge any other property which at any time hereafter may be
pledged to Lender as Collateral hereunder and will likewise
defend Lender's right thereto and security interest therein; and
covenants and agrees that it will not, with respect to any
Collateral, without the prior written consent of the Lender,
enter into any shareholder agreements, voting agreements, voting
trusts, trust deeds, irrevocable proxies or any other similar
agreements or instruments.
12. No Disposition, etc. Without the prior written consent
of Lender, Pledgor agrees that it will not sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option
with respect to, the Collateral, nor will Pledgor create, incur
or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with
respect
-5-
to any of the Collateral, or any interest therein, or any
proceeds thereof, except for the lien and security interest
provided for by this Agreement. Without the prior written
consent of Lender, Pledgor agrees that it will not vote to enable
the issuer of the Pledged Stock owned by Pledgor to, and will not
otherwise permit such issuer to, issue any stock or other
securities of any nature in addition to or in exchange or
substitution for such Pledged Stock.
13. Private Sale Rights.
-------------------
(a) Pledgor recognizes that Lender may be unable to
effect a public sale of any or all the Pledged Stock by reason of
certain prohibitions contained in the Securities Act of 1933 as
amended ("Securities Act") and applicable state securities laws,
but may be compelled to resort to one or more private sales
thereof to a restricted group or purchasers who will be obliged
to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges and agrees
that any such private sale may result in prices and other terms
less favorable to the Lender than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially
reasonable manner. Lender shall be under no obligation to delay
a sale of any of the Pledged Stock for the period of time
necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act, or
under applicable state securities laws, even if the issuer would
agree to do so.
(b) Pledgor further agrees to do or cause to be done
all such other acts and things as may be reasonably necessary to
make such sale or sales of any portion or all of the Pledged
Stock owned by Pledgor valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators
or governmental instrumentalities, domestic or foreign, having
jurisdiction over any such sale or sales, all at Pledgor's
expense; provided, however, that the foregoing shall not be
construed as requiring that the Pledgor files any registration
statement or provide any other document or information not
readily available to Pledgor which may be required to register
the Pledged Stock under the Securities Act or obtain an exemption
therefrom. Pledgor further agrees that a breach of any of the
covenants contained in this Section 13 will cause irreparable
injury to the Lender, that Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each
and every covenant contained in this paragraph shall be
specifically enforceable against Pledgor and Pledgor hereby
waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense
that no Event of Default has occurred under the Loan Agreement.
14. Power of Attorney. The Pledgor hereby absolutely and
irrevocably constitutes and appoints the Lender the Pledgor's
true and lawful agent and attorney-in-fact, exercisable upon the
occurrence and during the continuation of an Event of Default,
with full power of substitution, in the name of the Pledgor:
(a) to execute and do all such assurances, acts and things which
the Pledgor ought to do but has failed to do under the covenants
and provisions contained in this Agreement; (b) to take any and
all such action as the Lender may, in its sole discretion,
determine as necessary or advisable for the purpose of
maintaining, preserving or protecting the security constituted by
this Agreement or any of the rights, remedies, powers or
privileges of the Lender under this Agreement; and (c) generally,
in the name of the Pledgor
-6-
exercise all or any of the powers, authorities, and discretions
conferred on or reserved to the Lender by or pursuant to this
Agreement, and (without prejudice to the generality of any of the
foregoing) to seal and deliver or otherwise perfect any
instrument or document of conveyance, agreement, or act as the
Lender may deem proper in or for the purpose of exercising any of
such powers, authorities or discretions. The Pledgor hereby
ratifies and confirms, and hereby agrees to ratify and confirm,
whatever lawful acts the Lender shall do or purport to do in the
exercise of the power of attorney granted to the Lender pursuant
to this Section 14, which power of attorney, being given for
security, is irrevocable.
15. Notices. All notices and other communications hereunder
shall be given in the manner specified in the Loan Agreement, and
if to Pledgor, to it at the address set forth under its signature
below.
16. Indemnity. The Pledgor shall: (i) whether or not the
transactions hereby contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Lender
incurred after the date hereof in connection with the
administration (including advice of counsel as to the rights and
duties of the Lender with respect thereto) of the Lender incurred
in connection with the preservation of rights under, and
enforcement of, and, after an Event of Default, the renegotiation
or restructuring of this Agreement and any amendment, waiver or
consent relating thereto (including, without limitation, the
reasonable fees and disbursements of counsel for the Lender);
(ii) pay and hold the Lender harmless from and against any and
all present and future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery
or registration of, or otherwise with respect to this Agreement
and save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or
omission to pay any such taxes, charges or levies; and
(iii) indemnify the Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless
against any and all costs, losses, liabilities, claims, damages
or expenses actually incurred by any of them (whether or not any
of them is designated a party thereto) arising out of or by
reason of any investigation, litigation or other proceeding
related to this Agreement, the Lender's holding or administration
of the Collateral or any transaction contemplated hereby,
including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding. Notwithstanding
anything in this Agreement to the contrary, the Pledgor shall not
be responsible to the Lender or any officer, director, employee,
representative or agent of the foregoing (an "Indemnified Party")
for any losses, damages, liabilities or expenses which result
from such Indemnified Party's gross negligence or willful
misconduct. The Pledgor's obligations under this Section 16
shall survive any termination of this Agreement.
17. Further Assurances. Pledgor agrees that at any time and
from time to time upon the written request of Lender, Pledgor
will execute and deliver such further documents and do such
further acts and things as Lender may reasonably request in order
to effect the purposes of this Agreement.
18. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any
-7-
such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any
other jurisdiction.
19. No Waiver, Cumulative Remedies. Lender shall not by
any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder and no waiver shall be
valid unless in writing, signed by Lender, and then only to the
extent therein set forth. A waiver by Lender of any right or
remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Lender would otherwise have on
any future occasion. No failure to exercise nor any delay in
exercising on the part of Lender, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of
any rights or remedies provided by law.
20. Waivers, Amendments: Applicable Law. None of the terms
or provisions of this Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by
Lender. This Agreement and all obligations of Pledgor hereunder
shall be binding upon the successors and assigns of Pledgor, and
shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender and its successors and assigns.
This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of Texas.
21. Gender. For the purposes of this Agreement, "he" or
"it" shall refer to both masculine and feminine gender and to a
corporation or partnership, as the context may require.
22. Termination. Upon the full performance of all
obligations of the Borrowers under the Loan Agreement and the
pledge under this Agreement (a) the Lender shall forthwith sign
and deliver to the Pledgor such of the Pledged Stock and any
property received in respect thereof, as has not therefore been
sold or otherwise applied pursuant to the provisions of this
Agreement and (b) this Agreement shall terminate and the Lender
shall, at such time, execute and deliver such documents, and take
such other action, as the Pledgor may reasonably request in order
to effectuate the termination of this Agreement and the security
interest created hereby.
23. Waiver of Trial by Jury. THE PLEDGOR HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (II) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO. IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE,
-8-
THE PLEDGOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTIONS SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT THE LENDER MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PLEDGOR TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.
24. Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or relating to this Agreement or any
transaction contemplated hereby may be instituted in any state or
federal court in Xxxxxx County, Texas, and Pledgor waives any
objection which it may now or hereinafter have to the laying of
the venue of any such suit, action or proceeding, and irrevocably
submits to the jurisdiction of any such court in any such suit,
action or proceeding.
-9-
IN WITNESS WHEREOF, Pledgor has caused this Agreement to be
duly executed and delivered on the day and year first above
written.
TEMCO FIREPLACE PRODUCTS, INC.,
a Texas corporation
By: /s/ X. X. Xxxxxx
-----------------------------
Name: X. X. Xxxxxx
Title: President
PLEDGE AND SECURITY AGREEMENT
-----------------------------
[TEMTEX INDUSTRIES, INC.]
THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated
as of September 6, 2000, is made and entered into by TEMTEX
INDUSTRIES, INC., a Delaware corporation ("Pledgor") to THE FROST
NATIONAL BANK, a national banking association doing business as
FROST CAPITAL GROUP and formerly known as CREEKWOOD CAPITAL GROUP
("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Lender, Pledgor and Temco Fireplace Products, Inc.
("Temco") (Pledgor and Temco collectively, the "Borrowers"), are
parties to a Loan Agreement, dated as of the date hereof (as
amended, modified, supplemented, or restated from time to time,
the "Loan Agreement"), pursuant to which Lender has agreed to
make available to Borrowers a credit facility in a maximum
aggregate principal amount of $4,000,000.00 at any one time
outstanding evidenced by a Revolving Credit Note executed or to
be executed by Borrowers (the "Note") (the Loan Agreement, the
Note, the Other Agreements defined hereinafter, and any and all
other documents, instruments and agreements arising therefrom or
in connection therewith, collectively referred to hereinafter as
the "Loan Documents");
WHEREAS, Pledgor is the legal and beneficial owner of all of
the issued and outstanding shares of capital stock of Temco
Fireplace Products, Inc. ( the "Subsidiary"), together with any
stock options or rights described in Section 3 of this Agreement,
being hereinafter sometimes referred to as the "Pledged Stock",
and will derive direct and indirect benefit from the extension of
credit to the Borrowers under the Loan Agreement; and
WHEREAS, it is a condition precedent to the agreement of
Lender to make the loan and advances provided for under the Loan
Agreement that Pledgor shall have executed and delivered this
Agreement to Lender;
NOW, THEREFORE, in consideration of the premises and in
order to induce Lender to make the loan provided for under the
Loan Agreement and for other good and valuable consideration,
receipt of which is hereby acknowledged, Pledgor hereby agrees
with Lender as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Loan Agreement shall have such defined meanings
when used herein.
2. Pledge. Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers all the Pledged Stock owned or hereafter
acquired by it and hereby grants to Lender a first lien on, and
security interest in, the Pledged Stock and in all proceeds
thereof, together with appropriate undated stock powers duly
executed in blank with respect to the Pledged Stock as collateral
security for (i) the prompt and complete payment when due
(whether at the stated maturity, by acceleration or otherwise) of
the unpaid principal of and interest on the Note issued to
evidence
loans made and to be made by Lender to Borrowers pursuant to the
Loan Agreement, and (ii) the due and punctual payment and
performance by Borrowers and Pledgor of all their respective
obligations and liabilities under, arising out of and in
connection with the Loan Documents and this Agreement (all the
foregoing being hereinafter called the "Indebtedness").
3. Stock Dividends, Interest Distributions, etc. If,
while this Agreement is in effect, Pledgor shall become entitled
to receive or shall receive any stock certificate (including,
without limitation, any certificate representing a stock dividend
or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with
any reorganization), option or rights, whether as an addition to,
in substitution of, or in exchange for any shares of any Pledged
Stock owned or hereafter acquired by it, or otherwise, Pledgor
agrees to accept the same as Lender's agent and to hold the same
in trust or behalf of and for the ratable benefit of Lender and
to deliver the same forthwith to Lender in the exact form
received, with the endorsement of Pledgor when necessary and/or
appropriate undated stock powers duly executed in blank, to be
held by Lender, subject to the terms hereof, as additional
collateral security for the Indebtedness. Any sums paid upon or
in respect of the Pledged Stock upon the liquidation or
dissolution of the issuer thereof shall be paid over to Lender to
be held by it in trust as additional collateral security for the
Indebtedness; and in case any distribution of capital shall be
made on or in respect of the Pledged Stock or any property shall
be distributed upon or with respect to the Pledged Stock pursuant
to the recapitalization or reclassification of the capital of the
issuer thereof or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Lender to be
held by it as additional collateral security for the
Indebtedness. All sums of money and property so paid or
distributed in respect of any Pledged Stock which are received by
the Pledgor thereof shall, until paid or delivered to the Lender,
be held by Pledgor in trust as additional collateral security for
the Indebtedness.
4. Collateral. All property at any time pledged with
Lender hereunder (whether described herein or not), including,
without limitation, the Pledged Stock, and all income therefrom
and any cash or non-cash proceeds thereof, are herein
collectively sometimes referred to as the "Collateral".
5. Cash Dividends; Voting Rights. Unless an Event of
Default under the Loan Agreement, the Note, or any other
agreement executed to evidence and/or secure the Indebtedness
(the "Other Agreements") shall have occurred and be continuing,
Pledgor shall be entitled to receive all cash dividends paid in
respect of the Pledged Stock owned or hereafter acquired by it.
Unless and until an Event of Default (such term to mean an Event
of Default as defined herein) shall have occurred and be
continuing and the Lender has elected to exercise its rights and
remedies under Section 8 below, the Pledgor shall be entitled to
vote any and all Pledged Stock and to give consents, waivers or
ratifications in respect thereof; provided that no vote shall be
cast or any consent, waiver or ratification given or any action
taken which would impair the Collateral or violate or be
inconsistent with any of the terms of this Agreement, or the Loan
Documents; provided, further, that the Pledgor shall give the
Lender at least five (5) Business Days written notice of the
manner in which it intends to exercise, or the reasons for
refraining from exercising, any such right if the exercise or non-
exercise of such right potentially may violate or be inconsistent
with the aforementioned agreements.
6. Subrogation. Notwithstanding any payment or payments
made by Pledgor hereunder, or the receipt of any amounts by
Lender with respect to the Collateral, or any setoff or
application of funds of Pledgor by Lender, Pledgor shall not be
entitled to be subrogated to any of the rights of Lender against
Borrowers of the Indebtedness until all amounts owing to Lender
by Borrowers on account of the Indebtedness are paid in full.
7. Amendments, Modifications and Waivers with Respect to
Indebtedness. Pledgor hereby consents that, without the
necessity of any reservation of rights against Pledgor, and
without notice to or further assent by Pledgor, any demand for
payment of any of the Indebtedness made by Lender may be
rescinded by Lender and any of the Indebtedness continued, and
the Indebtedness, or the liability of Borrowers or any other
party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered,
or released by Lender and the Loan Agreement, the Note, any
collateral security documents or guarantees or document in
connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as Lender may deem advisable
from time to time, and any collateral security at any time held
by Lender for the payment of the Indebtedness may be sold,
exchanged, waived, surrendered or released, all without the
necessity of any reservation of rights against the Pledgor and
without notice to or further assent by Pledgor, who will remain
bound hereunder, notwithstanding any such renewal, extension,
modification, acceleration, compromise, amendment, supplement,
termination, sale, exchange, waiver, surrender or release. The
Lender shall have no obligation to protect, secure, perfect or
insure any other collateral security document or property subject
thereto at any time held as security for the Indebtedness.
Pledgor waives any and all notice of the creation, renewal,
extension or accrual of any of the Indebtedness and notice of or
proof of reliance by Lender upon this Agreement, and the
Indebtedness, and any of them, shall conclusively be deemed to
have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between Borrowers and Lender shall
likewise be conclusively presumed to have been had or consummated
in reliance upon this Agreement. Pledgor waives diligence,
presentment, protest, demand for payment and, except as provided
in the Loan Agreement, notice of default or nonpayment to or upon
Pledgor with respect to the Indebtedness.
8. Rights of Lender. Lender shall not be liable for
failure to collect or realize upon the Indebtedness or any
collateral security or guarantee therefor, or any part thereof,
or for any delay in so doing nor shall it be under any obligation
to take any action whatsoever with regard thereto. Any or all
shares of the Pledged Stock held by Lender hereunder may, if any
Event of Default has occurred and is continuing, upon three days
written notice, be registered in the name of Lender or its
nominee, and Lender or its nominee may thereafter without notice,
exercise all voting and corporate rights at any meeting of any
corporation issuing any of the shares included in the Pledged
Stock and exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the
absolute owner thereof, including, without limitation, the right
to exchange, at its discretion, any and all of the Pledged Stock
upon the merger, consolidation, reorganization, recapitalization
or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or Lender of any
right, privilege or option pertaining to any shares of the
Pledged Stock, and in connection therewith, to deposit and
deliver any and all of the Pledged Stock with
any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may
determine, all without liability except to account for property
actually received by it, but Lender shall have no duty to
exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so
doing.
9. Events of Default. Any of the following specified
events shall constitute Events of Default under this Agreement:
(a) the occurrence of any Event of Default as provided
under the terms of the Loan Documents;
(b) any representation, warranty or statement made or
deemed to be made by the Pledgor under or in connection with this
Agreement shall have been false or misleading in any material
respect when made or deemed to be made;
(c) the Pledgor shall fail to observe or perform any
covenant or agreement set forth in Section 3, 5, 11, 13 or 16
hereof; or
(d) the Pledgor shall fail to observe or perform any
covenant or agreement set forth in this Agreement, other than
those referred to in paragraph (c) above, and such failure is not
cured to the Lender's satisfaction within thirty (30) days after
the earlier of the date the Pledgor acquires knowledge thereof or
the Lender or any lender gives the Pledgor written notice
thereof.
10. Remedies. In the event that any portion of the
Indebtedness has been declared due or payable, Lender, without
demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of
public or private sale) to or upon Pledgor or any other person
(all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to
purchase, contract to sell or otherwise dispose of and deliver
said Collateral, or any part thereof, in one or more parcels at
public or private sale or sales, at any exchange, broker's board
or at any of Lender's offices or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without
assumption of any credit risk, with the right to Lender upon any
such sale or sales, public or private, to purchase the whole or
any part of said Collateral so sold, free of any right or equity
or redemption in Pledgor, which right or equity is hereby
expressly waived or released. Lender shall pay over the net
proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or
incidental to the care, safekeeping or otherwise of any and all
of the Collateral or in any way relating to the rights of Lender
hereunder, including reasonable attorneys' fees and legal
expenses, to Lender for application by it to the payment in whole
or in part, of the Indebtedness in such order as Lender may
elect, and only after the payment by Lender of any other amount
required by any provision of law, including, without limitation,
Section 9-504 (a) (3) of the Uniform Commercial Code, need Lender
account for the surplus, if any, to Pledgor. Pledgor agrees that
Lender need not give more than ten (10) days notice of the time
and place of any
public sale or of the time after which a private sale or other
intended disposition is to take place and that such notice is
reasonable notification of such matters. No notification need be
given to Pledgor if it has signed after default a statement
renouncing or modifying any right to notification of sale or
other intended disposition. In addition to the rights and
remedies granted to it in this Agreement and in any other
instrument or agreement securing, evidencing or relating to any
of the Indebtedness, Lender shall have all the rights and
remedies of a secured party under the Uniform Commercial Code of
the State of Texas. Pledgor further agrees to waive and agrees
not to assert any rights or privileges which he may acquire under
Section 9-112 of the Uniform Commercial Code and Pledgor shall be
liable for the deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay all amounts
to which Lender is entitled, and the fees of any attorneys
employed by Lender to collect such deficiency.
11. Representations, Warranties and Covenants of the
Pledgor. Pledgor represents and warrants that (a) it is the
legal record and beneficial owner of, and has good and
indefeasible title to, the Pledged Stock described herein as
being owned by it, subject to no pledge, lien, mortgage,
hypothecation, security interest, charge, option or other
encumbrance whatsoever, except the lien and security interest
created by this Agreement; (b) Pledgor owns 100% of the issued
and outstanding capital stock of Temco Fireplace Products, Inc.;
(c) it has full power, authority and legal right to pledge the
Pledged Stock pledged by it pursuant to this Agreement; (d) all
the shares of the Pledged Stock pledged by it have been duly
validly issued, are fully paid and non-assessable; (e) no consent
of any other party (including, without limitation, any creditor
of the Pledgor or the Subsidiary) and no order, consent, license,
permit, approval, validation or authorization of, exemption by,
notice to or registration, recording, filing or declaration with,
any governmental or public body or authority is required to be
obtained by the Pledgor in connection with the execution,
delivery or performance of this Agreement or consummation of the
transactions contemplated hereby, including, without limitation,
the exercise by the Lender of the voting or other rights provided
for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement; and (f) the pledge,
assignment and delivery of such Pledged Stock pursuant to this
Agreement creates a valid first lien on and a first perfected
security interest in such shares of the Pledged Stock, and the
proceeds thereof, subject to no prior pledge, lien, mortgage,
hypothecation, security interest, charge, option or encumbrance
or to any agreement purporting to grant to any third party a
security interest in the property or assets of such Pledgor which
would include the Pledged Stock. Pledgor covenants and agrees
that it will defend Lender's right, title and security interest
in and to the Pledged Stock and the proceeds thereof against the
claims and demands of all persons whomsoever; and covenants and
agrees that it will have like title to and right to pledge any
other property which at any time hereafter may be pledged to
Lender as Collateral hereunder and will likewise defend Lender's
right thereto and security interest therein; and covenants and
agrees that it will not, with respect to any Collateral, without
the prior written consent of the Lender, enter into any
shareholder agreements, voting agreements, voting trusts, trust
deeds, irrevocable proxies or any other similar agreements or
instruments.
12. No Disposition, etc. Without the prior written consent
of Lender, Pledgor agrees that it will not sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option
with respect to, the Collateral, nor will Pledgor create, incur
or permit to exist any pledge, lien, mortgage, hypothecation,
security interest, charge, option or any other encumbrance with
respect
to any of the Collateral, or any interest therein, or any
proceeds thereof, except for the lien and security interest
provided for by this Agreement. Without the prior written
consent of Lender, Pledgor agrees that it will not vote to enable
the issuer of the Pledged Stock owned by Pledgor to, and will not
otherwise permit such issuer to, issue any stock or other
securities of any nature in addition to or in exchange or
substitution for such Pledged Stock.
13. Private Sale Rights.
(a) Pledgor recognizes that Lender may be unable to
effect a public sale of any or all the Pledged Stock by reason of
certain prohibitions contained in the Securities Act of 1933 as
amended ("Securities Act") and applicable state securities laws,
but may be compelled to resort to one or more private sales
thereof to a restricted group or purchasers who will be obliged
to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges and agrees
that any such private sale may result in prices and other terms
less favorable to the Lender than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially
reasonable manner. Lender shall be under no obligation to delay
a sale of any of the Pledged Stock for the period of time
necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act, or
under applicable state securities laws, even if the issuer would
agree to do so.
(b) Pledgor further agrees to do or cause to be done
all such other acts and things as may be reasonably necessary to
make such sale or sales of any portion or all of the Pledged
Stock owned by Pledgor valid and binding and in compliance with
any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators
or governmental instrumentalities, domestic or foreign, having
jurisdiction over any such sale or sales, all at Pledgor's
expense; provided, however, that the foregoing shall not be
construed as requiring that the Pledgor files any registration
statement or provide any other document or information not
readily available to Pledgor which may be required to register
the Pledged Stock under the Securities Act or obtain an exemption
therefrom. Pledgor further agrees that a breach of any of the
covenants contained in this Section 13 will cause irreparable
injury to the Lender, that Lender has no adequate remedy at law
in respect of such breach and, as a consequence, agrees that each
and every covenant contained in this paragraph shall be
specifically enforceable against Pledgor and Pledgor hereby
waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense
that no Event of Default has occurred under the Loan Agreement.
14. Power of Attorney. The Pledgor hereby absolutely and
irrevocably constitutes and appoints the Lender the Pledgor's
true and lawful agent and attorney-in-fact, exercisable upon the
occurrence and during the continuation of an Event of Default,
with full power of substitution, in the name of the Pledgor:
(a) to execute and do all such assurances, acts and things which
the Pledgor ought to do but has failed to do under the covenants
and provisions contained in this Agreement; (b) to take any and
all such action as the Lender may, in its sole discretion,
determine as necessary or advisable for the purpose of
maintaining, preserving or protecting the security constituted by
this Agreement or any of the rights, remedies, powers or
privileges of the Lender under this Agreement; and (c) generally,
in the name of the Pledgor
exercise all or any of the powers, authorities, and discretions
conferred on or reserved to the Lender by or pursuant to this
Agreement, and (without prejudice to the generality of any of the
foregoing) to seal and deliver or otherwise perfect any
instrument or document of conveyance, agreement, or act as the
Lender may deem proper in or for the purpose of exercising any of
such powers, authorities or discretions. The Pledgor hereby
ratifies and confirms, and hereby agrees to ratify and confirm,
whatever lawful acts the Lender shall do or purport to do in the
exercise of the power of attorney granted to the Lender pursuant
to this Section 14, which power of attorney, being given for
security, is irrevocable.
15. Notices. All notices and other communications hereunder
shall be given in the manner specified in the Loan Agreement, and
if to Pledgor, to it at the address set forth under its signature
below.
16. Indemnity. The Pledgor shall: (i) whether or not the
transactions hereby contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Lender
incurred after the date hereof in connection with the
administration (including advice of counsel as to the rights and
duties of the Lender with respect thereto) of the Lender incurred
in connection with the preservation of rights under, and
enforcement of, and, after an Event of Default, the renegotiation
or restructuring of this Agreement and any amendment, waiver or
consent relating thereto (including, without limitation, the
reasonable fees and disbursements of counsel for the Lender);
(ii) pay and hold the Lender harmless from and against any and
all present and future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery
or registration of, or otherwise with respect to this Agreement
and save the Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or
omission to pay any such taxes, charges or levies; and
(iii) indemnify the Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless
against any and all costs, losses, liabilities, claims, damages
or expenses actually incurred by any of them (whether or not any
of them is designated a party thereto) arising out of or by
reason of any investigation, litigation or other proceeding
related to this Agreement, the Lender's holding or administration
of the Collateral or any transaction contemplated hereby,
including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such
investigation, litigation or other proceeding. Notwithstanding
anything in this Agreement to the contrary, the Pledgor shall not
be responsible to the Lender or any officer, director, employee,
representative or agent of the foregoing (an "Indemnified Party")
for any losses, damages, liabilities or expenses which result
from such Indemnified Party's gross negligence or willful
misconduct. The Pledgor's obligations under this Section 16
shall survive any termination of this Agreement.
17. Further Assurances. Pledgor agrees that at any time and
from time to time upon the written request of Lender, Pledgor
will execute and deliver such further documents and do such
further acts and things as Lender may reasonably request in order
to effect the purposes of this Agreement.
18. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any
such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any
other jurisdiction.
19. No Waiver, Cumulative Remedies. Lender shall not by
any act, delay, omission or otherwise be deemed to have waived
any of its rights or remedies hereunder and no waiver shall be
valid unless in writing, signed by Lender, and then only to the
extent therein set forth. A waiver by Lender of any right or
remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Lender would otherwise have on
any future occasion. No failure to exercise nor any delay in
exercising on the part of Lender, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of
any rights or remedies provided by law.
20. Waivers, Amendments: Applicable Law. None of the terms
or provisions of this Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by
Lender. This Agreement and all obligations of Pledgor hereunder
shall be binding upon the successors and assigns of Pledgor, and
shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender and its successors and assigns.
This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of Texas.
21. Gender. For the purposes of this Agreement, "he" or
"it" shall refer to both masculine and feminine gender and to a
corporation or partnership, as the context may require.
22. Termination. Upon the full performance of all
obligations of the Borrowers under the Loan Agreement and the
pledge under this Agreement (a) the Lender shall forthwith sign
and deliver to the Pledgor such of the Pledged Stock and any
property received in respect thereof, as has not therefore been
sold or otherwise applied pursuant to the provisions of this
Agreement and (b) this Agreement shall terminate and the Lender
shall, at such time, execute and deliver such documents, and take
such other action, as the Pledgor may reasonably request in order
to effectuate the termination of this Agreement and the security
interest created hereby.
23. Waiver of Trial by Jury. THE PLEDGOR HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR (II) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF
THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO. IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE,
THE PLEDGOR HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTIONS SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT THE LENDER MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PLEDGOR TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.
24. Consent to Jurisdiction. Any legal suit, action or
proceeding arising out of or relating to this Agreement or any
transaction contemplated hereby may be instituted in any state or
federal court in Xxxxxx County, Texas, and Pledgor waives any
objection which it may now or hereinafter have to the laying of
the venue of any such suit, action or proceeding, and irrevocably
submits to the jurisdiction of any such court in any such suit,
action or proceeding.
IN WITNESS WHEREOF, Pledgor has caused this Agreement to be
duly executed and delivered on the day and year first above
written.
TEMTEX INDUSTRIES, INC.,
a Delaware corporation
By:/s/ X. X. Xxxxxx
--------------------------
Name: X. X. Xxxxxx
Title: President
TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
------------------------------------------------------
THIS TRADEMARK COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
is made as of the 6th day of September, 2000 by and between TEMCO
FIREPLACE PRODUCTS, INC., a Texas corporation (the "Borrower")
having a mailing address at 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx,
Xxxxx 00000 and FROST NATIONAL BANK, a national banking
association, doing business as FROST CAPITAL GROUP and formerly
known as CREEKWOOD CAPITAL GROUP, having a mailing address at
0000 Xxxxx, Xxxxx 000 Xxxxxxx, Xxxxx 00000 or at such other
place as the Lender shall designate in writing to the Company
("Lender").
BACKGROUND
----------
Lender has entered into that certain Loan Agreement with
Borrower and Temtex Industries, Inc., dated as of September 6,
2000 (as amended from time to time, the "Agreement"), which
provides for certain credit accommodations from Lender to
Borrower and Temtex Industries, Inc. In order to induce Lender
to provide the credit accommodations set forth in the Agreement,
Borrower agreed to execute and deliver to Lender, this Trademark
Collateral Assignment and Security Agreement ("Security
Agreement"). This Security Agreement, covering Trademarks (as
hereinafter defined), is being executed in connection with the
Agreement under which Lender, is granted a lien on and security
interest in the Trademarks, whereby Lender shall have the right
to foreclose simultaneously, subject to grace periods set forth
therein, on the Trademarks in the event of the occurrence and
continuance of an Event of Default under the Agreement.
NOW, THEREFORE, in consideration of the premises, Borrower
and Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Agreement shall have their defined meanings when
used herein and the following terms shall have the following
meanings, unless the context otherwise requires:
"Code" shall mean the Uniform Commercial Code as the
same may from time to time be in effect in the State of Texas.
"Collateral" shall have the meaning assigned to it in
Section 2 of this Security Agreement.
"Excluded Property" means property encumbered by a Lien
existing on the date of this Agreement which is listed on
Schedule 5.02 of the Agreement, but only if the security
agreement which created such Lien provides that the granting of
any additional Lien on such property constitutes a default under
such security agreement.
"Licenses" shall mean the trademark license agreements
of Borrower designated on Schedule I hereto, as any of the same
may from time to time be amended or supplemented.
-1-
"Proceeds" shall have the meaning assigned to it under
Section 9-306 of the Code, and in any event, shall include, but
not be limited to, (i) any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to Borrower from time to
time with respect to any of the Collateral, (ii) any and all
payments (in any form whatsoever) made or due and payable to
Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of
governmental authority), and (iii) any and all other amounts from
time to time paid or payable under or in connection with any of
the Collateral.
"Security Agreement" shall mean this Trademark
Collateral Security Agreement, as the same may from time to time
be amended or supplemented.
"Trademarks" shall mean the U.S. registered trademarks
and pending applications referenced to in the attached Schedule
A, and those trademarks which are hereafter adopted or acquired
by Borrower, and all right, title and interest therein and
thereto, and all registrations, applications, and recordings
thereof, including, without limitation, applications,
registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United
States, any State thereof, all whether now owned or hereafter
acquired by Borrower.
2. Grant of Security Interest. As collateral security for
the prompt payment of the Indebtedness (as defined in the
Agreement and which includes Indebtedness of Temtex Industries,
Inc.), Borrower hereby grants and conveys to Lender a security
interest (the "Security Interest"), a general lien in and to, and
a conditional assignment of the following property, but excluding
the Excluded Property: (a) the entire right, title and interest
of Borrower in and to the Trademarks, including the registrations
and applications appurtenant thereto, listed in Schedule A hereto
(as the same may be amended pursuant hereto from time to time),
and in and to any and all trademarks, and registrations and
applications appurtenant thereto, hereafter acquired or filed by
Borrower, including without limitation all renewals thereof, all
proceeds of infringement suits, the rights to xxx for past,
present and future infringements and all rights corresponding
thereto in the United States and all reissues, divisions,
continuations, renewals, extensions and continuations-in-part
thereof and the goodwill of the business to which each of the
Trademarks relates and (b) all of Borrower's right, title and
interest in, to and under the following:
(i) all Licenses;
(ii) all accounts, contract rights and general
intangibles arising under or relating to each and every License
(including, without limitation, (A) all moneys due and to become
due under any License, (B) any damages arising out of or for
breach or default in respect of any such License, (C) all other
amounts from time to time paid or payable under or in connection
with any such License, and (D) the right of Borrower to terminate
any such License or to perform and to exercise all remedies
thereunder); and
(iii) to the extent not otherwise included, all
Proceeds and products of any or all of the foregoing. All of the
property referred to in this paragraph 2 is hereinafter
collectively called the "Collateral."
-2-
3. Representations and Warranties. Borrower covenants and
warrants that as of the date of this Security Agreement:
(a) The Trademarks are subsisting and have not been
adjudged invalid or unenforceable except where a lack of
subsistence or invalidity would not cause a Material Adverse
Effect;
(b) Borrower is the sole and exclusive owner of the
entire and unencumbered right, title and interest in and to each
of the Trademarks, free and clear of any liens, charges and
encumbrances, (including without limitation pledges, assignments,
licenses, registered user agreements and covenants by Borrower
not to xxx third persons expressly relating to such Trademarks),
except for (a) the Licenses referred to in Schedule I attached
hereto, (b) Permitted Liens, and (c) liens, charges and
encumbrances not causing a Material Adverse Effect;
(c) Borrower has the corporate power and authority to
enter into this Security Agreement and perform its terms;
(d) To the extent necessary to prevent the
abandonment, invalidation, unenforceability, avoidance or
substantial diminution of value, Borrower has used, and will
continue to use for the duration of this Security Agreement,
proper statutory notice, where appropriate, in connection with
its use of the Trademarks except where such a lack of notice
would not cause a Material Adverse Effect; and
(e) To the extent necessary to prevent the
abandonment, invalidation, unenforceability, avoidance or
substantial diminution of value, Borrower has used, and will
continue to use for the duration of this Security Agreement,
consistent standards of quality in its manufacture of products
sold under the Trademarks except where such an inconsistency
would not cause a Material Adverse Effect.
4. Covenants. Borrower covenants and agrees with Lender
that from and after the date of this Security Agreement and until
the Indebtedness is fully satisfied:
(a) Further Documentation; Pledge of Instruments. At
any time and from time to time, upon the written request of
Lender, Borrower will promptly and duly execute and deliver any
and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable in
obtaining the full benefits of this Security Agreement and of the
rights and powers herein granted, including, without limitation,
the filing of any financing or continuation statements under the
Code with respect to the liens and security interests granted
hereby. Borrower also hereby authorizes Lender to file any such
financing or continuation statement without the signature of
Borrower to the extent permitted by applicable law.
(b) Maintenance of Trademarks. If such action or
omission would cause a Material Adverse Effect, Borrower will not
do any act, or omit to do any act, that causes the Trademarks or
any registration or application appurtenant thereto, to become
abandoned, invalidated, unenforceable, avoided, avoidable, or
otherwise substantially diminish in value. If the failure to do
so would cause a Material Adverse Effect, Borrower shall take
reasonable action
-3-
at its expense, to halt the infringement of the Trademarks and
shall properly exercise its duty to control the nature and
quality of the goods offered by any licensees in connection with
the Licenses set forth in Schedule I to the extent necessary to
prevent the abandonment, invalidation, unenforceability or
avoidance of such licenses.
(c) Indemnification. (A) Borrower assumes all
responsibility and liability arising from its use of the
Trademarks, and Borrower hereby indemnifies and holds Lender
harmless from and against any claim, suit, loss, damage or
expense (including reasonable attorneys' fees) arising out of
Borrower's operations of its business from the use of the
Trademarks except a claim, suit, loss, damage or expense from
Lender's gross negligence or willful misconduct. (B) In any
suit, proceeding or action brought by Lender under any License
for any sum owing thereunder, or to enforce any provisions of
such License, Borrower will indemnify and keep Lender harmless
from and against all expense, loss or damage suffered by reason
of any defense, set off, counterclaim, recoupment or reduction or
liability whatsoever of the obligee thereunder arising out of a
breach of Borrower of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing
to or in favor of such obligee or its successors from Borrower,
and all such obligations of Borrower shall be and remain
enforceable against and only against Borrower and shall not be
enforceable against Lender unless attributable to the Lender's
gross negligence or willful misconduct.
(d) Limitation of Liens on Collateral. Except for
Permitted Liens, Borrower will not create, permit or suffer to
exist any lien, security interest, encumbrance, claim or right,
in or to the Collateral, and to any of Borrower's rights under
the Licenses and to the Proceeds thereof unless such a lien,
security interest, encumbrance, claim or right would not cause a
Material Adverse Effect.
(e) Limitations on Modifications of Licenses. To the
extent necessary to prevent the abandonment, invalidation,
unenforceability or avoidance of any License, Borrower will not
(i) amend, modify, terminate (other than in accordance with its
terms) or waive any provision of any License in any manner, (ii)
fail to exercise promptly and diligently each and every material
right which it may have under each License (other than any right
of termination) unless such amendment, modification, termination
or failure to exercise would not cause a Material Adverse Effect.
(f) Limitation on Further Uses of Trademarks. Except
for Permitted Liens, Borrower will not assign, sell, mortgage,
lease, transfer, pledge, hypothecate, grant a security interest
in or lien upon, encumber, grant an exclusive or non-exclusive
license, or otherwise dispose of any of the Collateral, without
written consent of Lender, unless such actions would not cause a
Material Adverse Effect.
5. Lender's Appointment as Attorney-in-Fact.
----------------------------------------
(a) Borrower hereby irrevocably constitutes and
appoints Lender and any officer or Lender thereof, with full
power of substitution, as its true and lawful attorney-in-fact
with full irrevocable power and authority in the place and stead
of Borrower and in the name of Borrower or in its own name, from
time to time in Lender's discretion, for the purposes of carrying
out the terms of this Security Agreement, upon the occurrence and
during the
-4-
continuation of an Event of Default, to take any and all
appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the
purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Lender the power and
right, on behalf of Borrower, to do the following:
(i) Upon the occurrence and during the
continuance of an Event of Default, to ask, demand, collect,
receive and give acquittances and receipts for any and all moneys
due and to become due under any License and, in the name of
Borrower or its own name or otherwise, to take possession of and
endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any License
and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by
Lender for the purpose of collecting any and all such moneys due
under any License whenever payable;
(ii) Upon the occurrence and during the
continuance of an Event of Default, to pay or discharge taxes,
liens, security interests or other encumbrances levied or placed
on or threatened against the Collateral,
(iii) Upon the occurrence and during the
continuance of an Event of Default, (A) to direct any party
liable for any payment under any of the Licenses to make payment
of any and all moneys due and to become due thereunder directly
to Lender or as Lender shall direct; (B) to receive payment of
and receipt for any and all moneys, claims and other amounts due
and to become due at any time in respect of or arising out of any
Collateral; (C) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (D) to
defend any suit, action or proceeding brought against Borrower
with respect to any Collateral; (E) to settle, compromise, or
adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as
Lender may reasonably deem appropriate; and (F) generally to
sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely
as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option all acts and things which
Lender reasonably deems necessary to protect, preserve or realize
upon the Collateral and Lender's security interest therein, in
order to effect the intent of this Security Agreement, all as
fully and effectively as Borrower might do.
This power of attorney is a power coupled with an interest
and shall be irrevocable. Notwithstanding the foregoing,
Borrower further agrees to execute any additional documents which
Lender may require in order to confirm this power of attorney, or
which Lender may deem necessary to enforce any of its rights
contained in this Security Agreement.
(b) The powers conferred on Lender hereunder are
solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Lender
shall be accountable only for amounts that it actually receives
as a result of the exercise of such powers and neither it nor any
of its officers, directors, employees or agents shall be
responsible to Borrower for any act or failure to act, except for
its or their own gross negligence or willful misconduct.
-5-
(c) Borrower also authorizes Lender to execute, in
connection with the sale provided for in paragraph 8(b) of this
Security Agreement, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the
Collateral.
6. Execution of Power of Attorney. Concurrently with the
execution and delivery hereof, Borrower is executing and
delivering to Lender, in the form of Schedule II hereto, ten (10)
originals of a Power of Attorney for the implementation of the
assignment, sale or other disposal of the Trademarks pursuant to
paragraph 5 hereof.
7. Performance by Lender of Borrower's Indebtedness. If
Borrower fails to perform or comply with any of its agreements
contained herein and Lender, as provided for by the terms of this
Security Agreement, shall itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the
reasonable expenses of Lender incurred in connection with such
performance or compliance shall be payable by Borrower to Lender
on demand and shall constitute Indebtedness secured hereby.
8. Remedies, Rights Upon Event of Default.
--------------------------------------
(a) If an Event of Default shall occur and be
continuing:
(i) All payments received by Borrower under or in
connection with any of the Collateral shall be held by Borrower
in trust for Lender, shall be segregated from other funds of
Borrower and shall forthwith upon receipt by Borrower, be turned
over to Lender, in the same form as received by Borrower (duly
endorsed by Borrower to Lender, if required); and
(ii) Any and all such payments so received by
Lender (whether from Borrower or otherwise) may, in the sole
discretion of Lender, be held by Lender as collateral security
for, and/or then or at any time thereafter applied in whole or in
part by Lender against all or any part of the Indebtedness as
provided in the Agreement. Any balance of such payments held by
Lender and remaining after payment in full of all the
Indebtedness shall be paid over to Borrower or to whomsoever may
be lawfully entitled to receive the same.
(b) If any Event of Default shall occur and be
continuing, Lender may exercise in addition to all other rights
and remedies granted to it in this Security Agreement and in any
other instrument or agreement securing, evidencing or relating to
the Indebtedness, all rights and remedies of a secured party
under the Code, including, without limitation, sale of the
Collateral. Borrower shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled.
Borrower shall also be liable for the reasonable fees of any
attorneys employed by Lender to collect any such deficiency and
also as to any reasonable attorney's fees incurred by Lender with
respect to the collection of any of the Indebtedness and the
enforcement of any of Lender's respective rights hereunder.
9. Termination. Upon payment in full of all Indebtedness
and the termination of all Commitments, the Security Interests
shall terminate and all rights to the Collateral shall revert to
Borrower. Upon such termination of the Security Interests or
release of any Collateral, Lender will, at the expense of
Borrower, execute and deliver to Borrower such documents as
Borrower
-6-
shall reasonably request to evidence the termination of the
Security Interests or the release of such Collateral, as the case
may be.
10. Notices. Any notice to Lender shall be deemed to have
been duly given when given under the Agreement.
11. No Waiver. No course of dealing between Borrower and
Lender, nor any failure to exercise, nor any delay in exercising,
on the part of Lender, any right, power or privilege hereunder or
under the Agreement shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege
hereunder or thereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
12. Cumulative Remedies. All of Lender's rights and
remedies with respect to the Collateral, whether established
hereby or by the Agreement, or by any other agreements or by law,
shall be cumulative and may be exercised singularly or
concurrently.
13. Severability. The provisions of this Security
Agreement are severable, and if any clause or provision shall be
held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or
provision of this Security Agreement in any jurisdiction.
14. No Modification Except in Writing. This Security
Agreement is subject to modification only by a writing signed by
the parties.
15. Successors and Assigns. The benefits and burdens of
this Security Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of
the parties in accordance with the Agreement.
16. Governing Law. The validity and interpretation of this
Security Agreement and the rights and obligations of the parties
shall be governed by the laws of the State of Texas.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
IN WITNESS WHEREOF, the parties hereto have executed this
Security Agreement as of the day and year first above written.
WITNESS: TEMCO FIREPLACE PRODUCTS, INC.
/s/ Xxxx Xxxxxx Xxxxxx By: /s/ X. X. Xxxxxx
----------------------- ---------------------------
Name: X. X. Xxxxxx
Title: President
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
Before me, the undersigned, on this 6th day of September, 2000
personally appeared X. X. Xxxxxx, to me known personally, and who
being by me duly sworn, deposes and says that he is the President
and Director of Temco Fireplace Products, Inc. and that said
instrument was signed on behalf of said corporation by authority
of its Board of Directors, and he acknowledged said instrument to
be the free act and deed of said corporation.
/s/ Xxxxxxx Xxxxxxx
------------------------------
Notary Public
My Commission Expires: 6/3/2003
SCHEDULE A
Schedule A to a Trademark Collateral Security Agreement
dated as of September 6, 2000 by and between TEMCO FIREPLACE
PRODUCTS, INC. and FROST NATIONAL BANK, a national banking
association, doing business as FROST CAPITAL GROUP and formerly
known as CREEKWOOD CAPITAL GROUP, as Lender.
Reg No. or
Application Reg. or
No. Xxxx Filing Date
----------- --------------- -----------------
2267897 CHARRED OAK August 3, 1999
2118575 SOF-SEAL December 2, 1997
2082042 MASTERWORKS July 22, 1997
2062377 SPLIT BARK May 13, 1997
2041127 DREAMGLOW February 25, 1997
1845541 AMERICAN DREAM July 19, 1994
1802656 FIRETECH 2000 November 2, 1993
1102056 TEMCO September 12, 1978
pending ELEGANCE pending
SCHEDULE I
-----------
(NONE)
SCHEDULE II
-----------
SPECIAL POWER OF ATTORNEY
-------------------------
[TEMCO FIREPLACE PRODUCTS, INC.]
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
KNOW ALL MEN BY THESE PRESENTS, that TEMCO FIREPLACE
PRODUCTS, INC., a corporation formed under the laws of Texas,
with its principal office at 0000 XXX Xxxxxxx, Xxxxx 0000,
Xxxxxx, Xxxxx 00000 ("Borrower") pursuant to a Trademark
Collateral Security Agreement, dated the date hereof (the
"Security Agreement"), hereby appoints and constitutes FROST
NATIONAL BANK, a national banking association, doing business as
FROST CAPITAL GROUP and formerly known as CREEKWOOD CAPITAL
GROUP, having a mailing address at 0000 Xxxxx, Xxxxx 000,
Xxxxxxx, Xxxxx 00000, as Lender (hereinafter called the
"Lender"), its true and lawful attorney, with full power of
substitution, and with full power and authority to perform the
following acts on behalf of Borrower:
1. In accordance with the Security Agreement, assigning,
selling or otherwise disposing of all right, title and
interest of Borrower in and to the Trademarks listed on
Schedule A of the Security Agreement, and including
those Trademarks which are added to the same subsequent
hereto, and all registrations and recordings thereof,
and all pending applications therefor, and for the
purpose of the recording, registering and filing of, or
accomplishing any other formality with respect to the
foregoing, and to execute and deliver any and all
agreements, documents, instruments of assignment or
other papers necessary or advisable to effect such
purpose;
2. In accordance with the Security Agreement, to execute
any and all documents, statements, certificates or
other papers necessary or advisable in order to obtain
the purposes described above as Lender may in its sole
discretion determine.
This power of attorney is made pursuant to the Security
Agreement, dated the date hereof, between Borrower and Lender and
may not be revoked until the payment in full of all Indebtedness
as defined in such Security Agreement.
TEMCO FIREPLACE PRODUCTS, INC.
Dated: September 6, 2000 By: /s/ X. X. Xxxxxx
---------------------------
Name: X. X. Xxxxxx
Title: President
STATE OF TEXAS )
: ss.:
COUNTY OF DALLAS )
On this 6th day of September, 2000 before me personally came
X. X. Xxxxxx, to me known, who, being by me duly sworn, did
depose and say that he is the President and Director of Temco
Fireplace Products, Inc., the corporation described in and which
executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ Xxxxxxx Xxxxxxx
---------------------------
Notary Public
My Commission Expires:6/3/2003
