EXHIBIT 10.6
LOAN AND SECURITY AGREEMENT
Loan No. 3700692971
THIS LOAN AND SECURITY AGREEMENT ("Agreement) is dated as of June 29, 2005,
by and between XXXXXXX FOODS, INC., an Oklahoma corporation ("Borrower"), and
COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK ("Bank").
R E C I T A L S:
BACKGROUND. Borrower has requested that Bank lend to Borrower up to Four
Million Dollars ($4,000,000.00) ("Loan"), on a revolving credit line basis, and
Bank is willing to do so upon the terms and conditions set forth herein and in
other documents and instruments executed on an even date herewith.
NOW, THEREFORE, in consideration of the promises herein contained, and each
intending to be legally bound thereby, the parties agree as follows:
SECTION I
DEFINITIONS AND USED HEREIN
1. "Accounts," "Chattel Paper," "Commercial Tort Claims," "Contracts,"
Contract Rights," "Documents," "Equipment," "Fixtures," "Furniture," "General
Intangibles," "Goods," "Instruments," "Intellectual Property," "Inventory," and
"Letter-of-Credit Rights," shall have the same meanings as are given to those
terms in the Uniform Commercial Code as presently adopted and in effect in the
State of Oklahoma or as otherwise defined by applicable law. The term
"Instruments" shall also include all forms of chattel paper, including chattel
paper involving related software as well as electronic chattel paper and
tangible chattel paper.
2. Accounting terms used and not otherwise defined in this Agreement have
the meanings determined by, and all calculations with respect to accounting or
financial matters unless otherwise provided herein shall be computed in
accordance with GAAP.
3. "Affiliate" means as to any Person, each other Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
under common control with, such Person.
4. "Agreement" means this Agreement, as the same may from time to time be
amended or supplemented.
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5. "Borrowing Base" means, at any time, the amount computed as total
Borrowing Base on the Borrowing Base Certificate most recently delivered to, and
accepted by Bank, in accordance with this Agreement, and equal to the lesser of:
a. Four Million Dollars ($4,000,000.00); or
b. Eighty percent (80.00%) of Eligible Accounts of Borrower, plus
fifty percent (50.00%) of the Inventory of Borrower at cost, not including
materials used or consumed in Borrower's business and except that advances
on Inventory shall not exceed Five Hundred Thousand Dollars ($500,000.00).
In addition, Bank may in its sole discretion at any time reduce the amount
that may be advanced on Eligible Accounts to seventy-five percent (75.00%)
of Eligible Accounts if at any time the aggregate losses incurred by
Borrower due to unpaid Accounts (realized by Borrower utilizing GAAP
accounting principles) for the then most current consecutive four (4)
business quarters exceed one percent (1.00%) of gross revenues of Borrower
for the same period, and shall remain at such limit of l75.00% of Eligible
Accounts until the level of losses for a four (4) consecutive business
quarter period drops below one percent (1.00%).
6. "Borrowing Base Certificate" means a fully completed certificate in the
form of Exhibit I(6) to this Agreement certified by the President or Chief
Financial Officer or Borrower to be correct and delivered to, and accepted by,
Bank.
7. "Business Day" means other than a Saturday, a Sunday, or a day on which
commercial banks in Oklahoma are authorized to close.
8. "Closing" has the meaning given to such term in Section III.
9. "Collateral" has the meaning given to such term in Section IV.
10. Collateral Documents" means the Note, financing statements, security
agreement, guaranty agreements, and other documents and instruments required by
Bank as set forth herein.
11. "Eligible Account" means, at any time, an Account that conforms and
continues to conform to the following conditions:
a. The Account arose from a bona fide outright sale of Goods by
Borrower or from services performed by Borrower, and such Goods have been
shipped to the appropriate account debtors or their designees (or the sale
has otherwise been consummated), or the services have been performed for
the appropriate account debtors;
b. The Account is based upon an enforceable order or contract,
written or oral, for Goods shipped or held, or for services performed, and
the same were shipped or held, or performed in accordance with such order
or contract;
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c. The title of Borrower to the Account and except as to the
Account debtor, to any Goods, is absolute and is not subject to any prior
assignment, claim, lien, or security interests, except Permitted Liens;
d. The amount shown on the books of Borrower and on any invoice or
statement delivered to Bank is owing to Borrower, less any partial payment
that has been made thereon by anyone;
e. The Account shall be eligible only to the extent that it is not
subject to any claim or reduction, counterclaim, setoff, recoupment, or any
claim or credits, allowances, or adjustments by the Account debtor because
of returned, inferior, or damaged Goods or unsatisfactory services, or for
any other reason;
f. The Account debtor has not returned or otherwise notified Borrower
of any dispute concerning, or claimed nonconformity of any of the Goods or
services from the sale of which the Account arose;
g. The Account is due and payable not more than thirty (30) days from
the statement date, and the statement must be dated contemporaneously with
the shipment of goods sold or services performed.
h. The Account or any portion thereof is not more than sixty (60)
days due from the date of the invoice thereof;
i. If more than ten percent (10%) of the amount of all invoices to a
particular Account debtor are ineligible, than all invoices to such Account
debtor shall become ineligible for borrowing purposes;
j. Borrower has not received any note, trade acceptance, draft, or
other Instrument with respect to, or in payment of the Account, nor any
Chattel Paper with respect to the Goods giving rise to the Account, unless,
if any such Instrument or Chattel Paper has been received, Borrower
immediately notified Bank and, at the latter's request, endorses or assigns
and delivers the same to Bank and Bank agrees to accept an endorsement or
assignment of the same;
k. Borrower has not received any notice of the filing of a petition
in bankruptcy or insolvency laws by or against the Account debtor. Upon the
receipt by Borrower of any such notice, it will immediately give Bank
written advice thereof;
l. The Account debtor is not a subsidiary or other Affiliate of
Borrower;
m. The Account is not subject to a bond or other surety made or
issued by any third party;
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n. The Account is not due from the United States government or any
agency thereof or related entity thereto:
o. The Account is not owed by any foreign government or foreign
(non-U.S.) originated business entity, unless the Account is fully secured
by a letter of credit acceptable in all respects to Bank and issued by a
creditworthy United States based financial institution acceptable to Bank;
p. The Account is not with an Account debtor (which for purposes
hereof includes all Affiliates of the Account debtor) that generates more
than thirty-five percent (35.00%) of the total annual sales revenues of
Borrower, unless Bank is fully advised as to the circumstances and agrees
in writing to waive this condition, which waiver may be given or withheld
by Bank in its sole discretion; and
q. Bank has not deemed such Account ineligible because of uncertainty
about the creditworthiness of the Account debtor or because Bank otherwise
reasonably considers the Collateral value thereof to Bank to be impaired or
its ability to realize such value to be insecure.
In addition to the foregoing, Eligible Account shall mean any amount
receivable by Borrower under any insurance policy covering Goods which have,
within the preceding forty-five (45) days, been damaged or destroyed by fire or
other direct casualty loss, provided that a claim thereof has been made in
compliance with such insurance policy, to the extent that such claim has not
been in any way denied or contested by the insurer and provided that such
insurer, if such insurer were an Account debtor of Borrower, would be a
qualified Account debtor under this paragraph.
In the event of any dispute, under the foregoing criteria, about whether an
Account is or has ceased to be an Eligible Account, the decision of Bank shall
control.
12. "Event of Default" has the meaning provided for in Section VII.
13. "Financial Statements" means the balance sheet of Borrower and
statements of income and expenses, stockholders' equity, and statements of cash
flow, and notes thereto, of Borrower for the years or, as appropriate, month or
quarter end as prepared, audited and/or reviewed by independent certified public
accountants or recognized standing to present fairly the consolidated financial
position and results of operations of Borrower at such dates and for such
periods in accordance with GAAP.
14. "GAAP" means generally accepted accounting principles applied
consistently with such changes or modifications hereto as may be approved in
writing by Bank.
15. "Indebtedness" means, as to Borrower, all items of indebtedness,
obligation, or liability, whether matured or unmatured, liquidated or
unliquidated, direct or contingent, joint or several.
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16. "Intellectual Property" means all of Borrower's now owned or
subsequently acquired or developed designs, patents, patent rights (and
applications therefor), trademarks and registrations (and applications
therefor), trade names, inventions, copyrights, software and computer programs,
license rights, trade secrets, methods, processes, know-how, drawings,
specifications, descriptions, and all memoranda, notes, and records with respect
to any research and development, whether now owned or subsequently acquired or
developed by Borrower and whether in tangible or intangible form.
17. "Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any government or political subdivision or
agency thereof, or of any court or similar entity established by any thereof.
18. "Loan Termination Date" means the earliest to occur of the following:
(i) as to the Revolving Loan--June 28, 2006; (ii) the date the Obligations are
accelerated pursuant to this Agreement; and (iii) the date Bank receives (a)
notice in writing from Borrower of Borrower's election to terminate this
Agreement; and (b) indefeasible payment in full of the Obligations, or such
other date or dates as may later be agreed to by Bank and Borrower in a written
amendment to this Agreement.
19. "Note" means the promissory note referred to in Section II.
20. "Obligations" means the obligation of Borrower.
a. To pay the principal of, and interest on the promissory note in
accordance with the terms thereof and to satisfy all of its other
liabilities to Bank, whether hereunder or otherwise, whether now existing
or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, including any extensions, modifications, renewals thereof, and
substitutions therefor and including but not limited to, any obligations
under letter of credit agreements;
b. To repay to Bank all amounts advanced by Bank hereunder or
otherwise on behalf of Borrower, including, but without limitation,
advances for principal or interest payments to prior secured parties,
mortgages, or licensors, or taxes, levies, insurance, rent, or repairs to,
or maintenance or storage of, any of the collateral; and
c. To reimburse Bank, on demand, for all of Bank's expenses and
costs, including the reasonable fees and expenses of its counsel, in
connection with the preparation, administration, amendment, modification,
or enforcement of this Agreement and the documents required hereunder,
including, without limitation, any proceeding brought or threatened, to
enforce payment of any of the Obligations referred to in the foregoing
subparagraphs (a) and (b).
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21. "Permitted Liens" means:
a. Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business that are not yet delinquent;
b. Pledges or deposits made in the ordinary course of business to
secure payment of workers' compensation, or to participate in any fund in
connection with workers' compensation, unemployment insurance, old-age
pensions or other social security programs;
c. Liens of mechanics, materialmen, warehousemen, carriers, or other
like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable; and
d. Liens in favor of Bank.
22. "Person" means any individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization, joint venture, court,
or government or political subdivision or agency thereof.
23. "Records" means correspondence, memoranda, tapes, discs, papers,
books and other documents, or transcribed information of any type, whether
expressed in ordinary or machine readable language.
SECTION II
THE LOAN
1. REVOLVING LOAN. Bank agrees to lend up to Four Million Dollars
($4,000,000.00) to Borrower pursuant to this facility. Bank will credit proceeds
of this revolving loan from time to time ("Revolving Loan") to "Borrower's
deposit account with Bank.
a. Subject to the terms hereof, Bank will lend to Borrower, from time
to time until the Revolving Loan Termination Date, such sums in integral
multiples of One thousand Dollars ($1,000.00) as Borrower may request by
reasonable same day notice to Bank, received by Bank not later than 11:00
A.M. of such day, but which shall not exceed in the aggregate principal
amount at any one time outstanding, the lesser of Four Million Dollars
($4,000,000.00) ("Loan Commitment") or the Borrowing Base amount. Borrower
may borrow, repay without penalty or premium, and re-borrow hereunder, from
the date of this Agreement until the Loan Termination Date, up to the full
amount of the Loan Commitment, subject to the limitation of the Borrowing
Base, or any lesser sum which is One Thousand Dollars ($1,000.00) or an
integral multiple thereof. It is the intention of the parties that the
outstanding principal amount of the Revolving Loan shall at no time exceed
the amount of the then existing Borrowing Base and if, at any time, an
excess shall for any reason exist, the full amount of such excess,
together with accrued and unpaid interest thereon as herein provided, shall
be immediately due and payable in full to Bank.
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b. The Loan Commitment shall be evidenced by a Note having a stated
maturity on the Revolving Loan Termination Date. The Note shall specify the
manner of principal and interest payments and rate of interest accrual.
4. PAYMENT TO BANK AND COLLECTIONS.
a. AMOUNTS PAYABLE TO BANK. All sums payable to Bank hereunder shall
be paid directly to Bank in immediately available funds. Bank shall provide
Borrower statements of all amounts due hereunder, which statements shall be
considered correct and conclusively binding on Borrower unless Borrower
notifies Bank to the contrary within thirty (30) days of its receipt of any
statement that it deems to be incorrect. Alternatively, at its sole
discretion, Bank may charge against any deposit account of Borrower all or
any portion of any amount due hereunder.
b. COLLECTION OF ACCOUNTS.
i. Borrower will take usual and customary steps to collect
Accounts in full, and will take such other action with respect to the
collection of Accounts and of the proceeds thereof as Bank may
reasonably request.
ii. Bank shall have at any time or times hereafter all the rights
of a secured creditor holding a valid, and indefeasibly perfected
security interest in accounts pursuant to the Oklahoma Uniform
Commercial Code, as well as the rights conferred by the Collateral
Documents.
iii. Borrower hereby authorizes Bank to endorse, in the name
of Borrower, any item, howsoever received by Bank representing payment
on or other proceeds of any Collateral or on any of the Accounts.
iv. For purposes of determining the amount of the Obligations,
including, without limitation, the computations of interest which may
from time to time be owing by Borrower to Bank, the receipt of any
check or other item of payment on any Account or otherwise with respect
to any of the Collateral by Bank shall not be treated as a payment on
account of the liabilities until such check or other item of payment is
actually paid in cash or cash equivalent.
SECTION III
CONDITIONS PRECEDENT
The obligations of Bank to make the Revolving Loan are subject to the
following conditions precedent:
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1. DOCUMENTS REQUIRED FOR CLOSING. Borrower shall have delivered to
Bank, prior to the initial disbursement of the funds ("Closing"), the
following:
a. The Collateral Documents and the financing statements, duly
executed by Borrower.
b. Corporate resolutions of authority and incumbency, as Bank may
require.
c. A duly executed Borrowing Base Certificate acceptable to Bank
and certifying a Borrowing Base of not less than the initial principal
amount requested by Borrower to be advanced by Bank.
d. Financial statements of Borrower, prepared according to GAAP,
showing no material adverse change in the financial condition of
Borrower.
e. Hazard, fire and extended coverage insurance policies on all
Collateral, with Bank named as loss payee and in amounts acceptable to
Bank in its sole discretion. Hazard insurance shall include coverage
related to fire, windstorm, lightning, hail, explosion, riot, civil
commotion, aircraft, vehicle, marine, smoke, and property damage.
f. Evidence of payment of all costs and expenses incurred by Bank
in connection with the Loan, including, but not limited to, all
attorneys' fees, environmental investigation and/or audit fees,
appraisal fees, inspection fee, and filing fees.
g. Evidence of worker's compensation coverage in amounts and
types as required by the laws of the State of Oklahoma.
h. A fully executed lockbox control agreement, in form and
content acceptable to Bank in all respects.
i. A detailed listing, certified by Borrower as true and correct
in all material respects, of all Account debtors, including current
addresses, showing the status of the Account and amount owed, which
list shall include all Accounts, whether or not the same are also
Eligible Accounts.
2. CERTAIN EVENTS. At the time of, and as a condition to Closing and
each disbursement of any part of the Revolving Loan to be made by Bank at or
subsequent to Closing:
a. No Event of Default shall have occurred and be continuing, and
no event shall have occurred and be continuing that, with the giving of
notice or passage of time or both, would be an Event of Default;
b. No material adverse change shall have occurred in the business
prospects, financial condition, or results of operations of Borrower
since the dates of any financial statements provided by Borrower at any
time; and
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c. All of the Collateral Documents shall be in full force and
effect.
SECTION IV
COLLATERAL SECURITY
1. COMPOSITION OF THE COLLATERAL. The property in which a security interest
is granted pursuant to the provisions of this Agreement is herein collectively
called "Collateral." The term "Collateral" shall mean all Accounts, Inventory,
General Intangibles, Chattel Paper, Commercial Tort Claims, Contracts, Contract
Rights, Documents, Furniture, Equipment, Fixtures, Goods, Instruments,
Intellectual Property, rights as seller of goods, rights to returned or
repossessed goods, Letter of Credit Rights and all other assets and rights of
any nature or type owned by Borrower or as to which Borrower may exercise
control or rights. The Collateral, together with all other property of Borrower
of any kind held by Bank, shall stand as one general, continuing collateral
security for all Obligations and may be retained by Bank until all Obligations
have been satisfied in full. This security interest and Agreement are intended
by the parties to include all Obligations of Borrower to Bank which have arisen
in the past or which arise in the future, regardless of form or purpose,
including, without limitation, loans for consumer, agricultural or business
purposes; Obligations which are primary or secondary, absolute or contingent,
sole or joint; and credit evidence by promissory notes, open accounts,
overdrafts or letters of credit.
2. RIGHTS IN PROPERTY HELD BY BANK. As security for the prompt satisfaction
of all Obligations Borrower hereby assigns, transfers, and sets over to Bank all
of its right, title, and interest in and to, and grants Bank a lien on and a
security interest in, all amounts that may be owing, from time to time, by Bank
to Borrower in any capacity, including, but without limitation, any balance or
share belonging to Borrower in any capacity, including, but without limitation,
any balance or share belonging to Borrower, or any deposit or other account with
Bank, which lien and security interest shall be independent of, and in addition
to, any right of setoff that Bank has under applicable Laws or otherwise.
3. RIGHTS IN PROPERTY HELD EITHER BY BORROWER OR BY BANK. As further
security for the prompt satisfaction of all Obligations, Borrower hereby assigns
to Bank all of its right, title, and interest in and to, and grants Bank a lien
upon and a security interest in, all Collateral, wherever located, whether owned
or hereafter acquired, together with all replacements therefor and proceeds
(including without limitation, insurance proceeds) and products thereof.
4. PRIORITY OF LIENS. The foregoing liens shall be first and prior liens
except for Permitted Liens to Persons other than Bank.
5. FINANCING STATEMENTS.
a. Borrower:
i. Authorized Bank to file such Uniform Commercial Code
Financing Statements (which, together with amendments thereto and
continuation statements
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thereof are called "Financing Statements") in form satisfactory to Bank
as Bank, from time to time, may determine;
ii. Shall pay, or reimburse Bank for paying, all costs and taxes
of filing or recording the same in such public offices as Bank may
designate; and
iii. Shall take such other steps as Bank, from time to time, may
direct, including the noting of Bank's lien on the Collateral and on
any certificates of title therefor, all to perfect to the satisfaction
of Bank, Bank's interest in the Collateral.
b. In addition to the foregoing, and not in limitation thereof;
i. A carbon, photographic, or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed
in any appropriate office in lieu thereof; and
ii. To the extent lawful, Borrower hereby appoints Bank as its
attorney-in-fact (without requiring Bank to act as such) to prepare and
file any financing statement in the name of Borrower, and to perform
all other acts that Bank deems appropriate to perfect and continue its
security interest in, and to protect and preserve, the Collateral.
SECTION V
REPRESENTATIONS AND WARRANTIES
1. REPRESENTATIONS AND WARRANTIES BY BORROWER. To induce Bank to enter
into this Agreement, Borrower represents and warrants to Bank as follows:
a. Borrower is a corporation, duly organized, validly existing, and
in good standing under the Laws of the State of Oklahoma; Borrower has no
subsidiaries; Borrower has the lawful power to own its properties and to
engage in the businesses it conducts and is duly qualified and in good
standing as a foreign company in the jurisdictions wherein the nature of
the business transacted by it or property owned by it make such
qualification necessary; the states in which Borrower is qualified to do
business are disclosed to Bank in writing; the addresses of all places of
business of Borrower are disclosed to Bank in writing; and Borrower has not
changed its name, been the surviving company in a merger, acquired any
business, or changed its principal executive office within five (5) years
and one (1) month prior to the date hereof, nor acquired any assets from a
transferor which remain subject to a security interest granted by such
transferor within one (1) year prior to the date hereof, nor moved any
Collateral to its present location from another state where it was subject
to a security interest granted to another entity;
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b. Borrower is not directly or indirectly controlled by, or
acting on behalf of, any Person which is an "Investment Company" within
the meaning of the Investment Company Act of 1940, as amended;
c. Borrower is the sole and exclusive owner of all of the
Collateral and no Affiliate or any other Person has any right, claim or
interest in any of the Collateral;
d. Borrower is not in default with respect to any of its debt to
anyone, and the making and performance of this Agreement and the
Collateral Documents will not (immediately or with the passage of time,
the giving of notice, or both):
i. Violate the organizational documents and agreements of
Borrower, or violate any laws or result in a default under any
contract, agreement, or instrument to which Borrower is a party or
by which Borrower or its property is bound; or
ii. Result in the creation or imposition of any security
interest in, or lien or encumbrance upon, any of the assets of
Borrower except in favor of Bank;
e. Borrower has the power and authority to enter into and perform
this Agreement, the Note, and the Collateral Documents, and to incur the
obligations herein and therein provided for, and has taken all actions
necessary to authorize the execution, delivery, and performance of this
Agreement, the Note, and the Collateral Documents;
f. This Agreement, the Note, and the Collateral Documents are, or
when delivered will be, valid, binding, and enforceable in accordance with
their respective terms;
g. There is no pending order, notice, claim, litigation, or
proceeding against or affecting Borrower, whether or not covered by
insurance, that would materially or adversely affect the financial
condition or business prospects of Borrower if adversely determined;
h. Borrower has good and marketable title to all of its assets,
none of which is subject to any security interest, encumbrance or lien, or
claim of any third Person except for Permitted Liens;
i. The Financial Statements of Borrower that Borrower has
previously provided to Bank, including any schedules and notes pertaining
thereto, have, to the best knowledge of Borrower, been prepared in
accordance with GAAP, and to the best knowledge of Borrower, fully and
fairly present the financial condition of Borrower at the dates thereof
and the results of operations for the periods covered thereby, and to the
best knowledge of Borrower, there have been no material adverse changes in
the consolidated financial condition or business of Borrower from the date
of such statements to the date hereof;
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j. As of the date hereof Borrower has no material Indebtedness of
any nature, including but without limitation, liabilities for taxes and
any interest or penalties relating thereto except to the extent reflected
(in a footnote or otherwise) in the financial statements previously
provided to Bank or as disclosed in, or permitted by this Agreement; and
Borrower does not know or have reasonable ground to know of any basis for
the assertion against it of any such Indebtedness as of the date of
Closing;
k. Except as otherwise permitted herein, Borrower has filed all
federal, state, and local tax returns and other reports required by an
applicable Laws to have been filed prior to the date hereof, has paid or
caused to be paid all taxes, assessments, and other governmental charges
that are due and payable prior to the date hereof, and has made adequate
provisions for the payment of such taxes, assessments, or other charges
accruing but not yet payable; Borrower has no knowledge of any deficiency
or additional assessment in a materially important amount in connection
with any taxes, assessments, or charges not provided for on its books;
l. Except to the extent that the failure to comply would not
materially interfere with the conduct of the business of Borrower,
Borrower has complied with all applicable Laws with respect to (i) any
restrictions, specifications, or other requirements pertaining to products
that it manufactures or sells or to the services it performs; (ii) the
conduct of its business; and (iii) the use, maintenance, and operation of
the real and personal properties owned or leased by it in the conduct of
its business;
m. No representation or warranty by or with respect to Borrower
contained herein or in any certificate or other document furnished by
Borrower pursuant hereto contains any untrue statement of a material fact
or omits to state a material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it was
made;
n. Each consent, approval or authorization of, or filing,
registration or qualification with, any Person required to be obtained or
effected by Borrower in connection with the execution and delivery of this
Agreement, the Note, and the Collateral Documents or the undertaking or
performance of any obligation hereunder or thereunder has been duly
obtained or effected;
o. Except as disclosed to Bank in writing (1) Borrower has no
material leases, contracts, or commitments of any kind (including, without
limitation, employment agreements, collective bargaining agreements,
powers of attorney, distribution arrangements, patent license agreements,
contracts for future purchase or delivery of goods or rendering of
services, bonuses, pension, and retirement plans accrued vacation pay,
insurance and welfare agreements); (2) to the best of the Borrower's
knowledge, all parties to all such material leases, contracts and other
commitments to which Borrower is a party have complied with the provisions
of such leases, contracts, and other commitments; and (3) to the best of
Borrower's knowledge, no party is in default under
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any provisions thereof and no event has occurred which, but for the
giving of notice or the passage of time, or both, would constitute a
default;
p. Borrower has not made any agreement or taken any action which
may cause anyone to become entitled to a commission or finder's fee as a
result of or in connection with the making of this Agreement;
q. Any Employee Pension Benefit Plans as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower
meet, as of the date hereof, the minimum funding standards of 29 U.S.C.
ss. 1082 (Section 302 of ERISA), and no Reportable Event or Prohibited
Transaction as defined in ERISA, has occurred with respect to any Employee
Benefit Plans, as defined in ERISA, of Borrower;
r. The liens and security interests created pursuant to this
Agreement, including any separate real estate liens granted in connection
herewith, are in all cases first and prior liens except for Permitted
Liens;
s. Borrower warrants (and this shall be a continuing warranty
which shall survive until all of the Obligations of Borrower to Bank have
been fully satisfied) that it is in compliance with all federal, state,
and local environmental laws and regulations and has obtained all
environmental permits necessary or appropriate to the conduct of its
business. There is not pending or, to the best of Borrower's knowledge
after due inquiry, are there any threatened environmental enforcement
actions, suits, or proceedings before any court, tribunal, or
administrative body or official. Responsible officers and agents of
Borrower have made an extensive investigation and have determined that
Borrower has not, nor has any former owner of any real property occupied
by Borrower, stored, used or disposed of any toxic or hazardous substance
on its properties or transported any such substance to or from its
properties in violation of any presently existing or previously existing
laws, regulations or policies. Borrower will not store, use, or dispose of
such substances on its properties, except in accordance with applicable
laws.
t. Borrower is not a party to any stock repurchase or redemption
agreement, or any similar type of agreement concerning potential transfer
of shares of stock in Borrower;
u. Borrower shall permit Bank to conduct such inspection of the
Collateral as and when Bank shall require.
2. SURVIVAL. All of the representations and warranties set forth in
this Agreement shall survive until all Obligations are satisfied in full and
there remain no outstanding commitments hereunder.
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SECTION VI
COVENANTS OF BORROWER
1. AFFIRMATIVE COVENANTS. Borrower does hereby covenant and agree with
Bank that, so long as any portion of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, it will comply at all times with the
following covenants:
a. Borrower will furnish to Bank:
i. Within forty-five (45) days after the close of each
quarterly accounting period in each fiscal year, commencing with the
quarter ending June 30, 2005, an accountant prepared compiled
financial statement that includes an income statement and balance
sheet of Borrower for such quarter in reasonable detail as required
by Bank, subject to normal year end audit adjustments and certified
by Borrower's President or Chief Financial Officer to have been
prepared in accordance with GAAP and being true and correct in all
material respects.
ii. Within thirty (30) days after the close of each month
(and at any additional time in the discretion of Bank or if any
material deterioration in the Borrowing Base would be disclosed
thereby) a Borrowing Base Certificate as of the end of such month.
Each Borrowing Base Certificate shall be effective only as accepted
by Bank (and with such revisions, if any, as Bank may require as a
condition to such acceptance), and shall be accompanied by such
detailed Account and Inventory information as Bank shall require.
iii. Within one hundred twenty (120) days after the close of
each fiscal year, year end financial statements including, income
statements, balance sheets, and statement of cash flow of Borrower
for such fiscal year. These financial statements shall be audited by
independent certified public accountants of recognized standing to
present fairly the consolidated financial position and results of
operations of Borrower in accordance with GAAP; and accompanied by
such accountants' opinion thereof that such documents have been
reviewed in compliance with the American Institute of Certified
Public Accountants Statements of Auditing Standards in effect as of
the execution hereof; such accountants' opinion and certification
shall be directed to Bank, providing that the client representation
of the accountants extends to Bank and shall also be certified by
Borrower's President or Chief Financial Officer as being true and
correct in all material respects.
iv. Within forty-five (45) days after the close of each
quarter, commencing with the quarter ending June 30, 2005, (a) a
trial balance reflecting an aging of all accounts payable of
Borrower, and (b) a list containing the names and current addresses
of all Account debtors (i.e. customers owing payment to Borrower,
whether or not the Accounts are Eligible Accounts).
v. Annual federal tax returns, with all schedules, within
thirty (30) days after submission of the same to the Internal
Revenue Service.
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iv. within forty-five (45) days after the close of each
quarter, commencing with the quarter ending June 30, 2005, a written
certification to Bank by Borrower's President that Borrower is in
strict compliance with the requirements of all city, county, state
and federal laws and regulations applicable to Borrower, including,
but not limited to, worker's compensation and occupational safety.
vii. Inventory reports in such detail and when required by
Bank from time to time in Bank's discretion.
viii. A detailed report of any failure of Borrower to comply
with any audit standards of any state or federal government or
agency, including, but not limited to, the United States Food and
Drug Administration or the United States Department of Agriculture.
ix. Commencing March 31, 2006, and annually thereafter, a
written certification by Borrower's President that Borrower is in
compliance with all covenants and obligations of Borrower to the
Cleveland County Bond Authority (or similar agency).
x. Within ninety (90) days after the end of each calendar
year, updated and signed personal financial statements of each
guarantor of the obligations of the Note, certified as true and
correct in all material respects by each respective guarantor, and
each guarantor's annual federal tax returns, with all schedules,
within thirty (30) days after submission to the Internal Revenue
Service.
xi. Such other interim financial statements, projections and
other information as Bank may reasonably request from time to time.
b. Borrower will maintain a Borrowing Base such that the amount
of Borrower's outstanding Revolving Loan will not, at any time, exceed the
lesser of its Borrowing Base or the maximum amount of the Revolving Loan.
c. Borrower will maintain a debt service coverage ratio of 1.50
to 1.00 or better, tested and measured quarterly, beginning with the
quarter ended as of March 31, 2006, with such ratio defined by Bank in
accordance with GAAP.
d. Borrowing will maintain a Long Term Debt to Net Worth Ratio,
as defined in accordance with GAAP and computed as of the end of each
calendar quarter, which shall not be greater than 4.00 to 1.00 for any
quarter, commencing with the quarter ended as of March 31, 2006.
-15-
e. Borrower shall maintain a minimum Current Ratio, as defined in
accordance with GAAP, and computed quarterly, commencing with the quarter
ended March 31, 2006, of at least 1.10 to 1.00.
f. Borrower will take all necessary steps to preserve its company
existence and business relationships and to comply with all present and
future laws applicable to it in the operation of its business and all
material agreements to which it is subject.
g. Borrower will give immediate notice to Bank of (i) any
litigation or proceeding in which it is a party if an adverse decision
therein would require it to pay more than Twenty-Five Thousand Dollars
($25,000.00) or deliver assets the value of which exceeds such sum
(whether or not the claim is considered to be covered by insurance); and
(ii) the institution of any other suit or proceeding involving it that
might materially and adversely affect its operations, financial condition,
property, or business prospects.
h. Borrower will pay when due all of its Indebtedness due third
persons except when the amount thereof is being contested in good faith by
appropriate proceedings and with adequate reserves therefor being set
aside on its books.
i. Borrower will notify Bank immediately if (i) it becomes aware
of the occurrence of any Event of Default or of any fact, condition, or
event that only with the giving of notice or passage of time or both,
could become an Event of Default; (ii) it becomes aware of any material
adverse change in the business prospects, financial condition (including,
without limitation, proceedings in Bankruptcy, insolvency, or
reorganization), or results of operations of Borrower; or (iii) upon the
failure of Borrower to observe any of its respective undertakings
hereunder or under the Collateral Documents.
j. Borrower will (i) fund any of its Employee Pension Benefit
Plans in accordance with no less than the minimum funding standards of 29
U.S.C. ss. 1082 (Section 302 of ERISA); (ii) furnish Bank, promptly after
the filing of the same, with copies of any reports or other statements
filed with the United States Department of Labor or the Internal Revenue
Service with respect to any such Plan; and (iii) promptly advise Bank of
the occurrence of any Reportable Event or Prohibited Transaction with
respect to any Employee Benefit Plan.
k. Borrower shall establish and maintain Borrower's primary
depository business accounts with Bank.
l. If Borrower causes new business entities to be created to
conduct business activities similar to, or related to, Borrower's current
business activities, such new entities shall immediately upon creation
execute guaranty agreements as to the Note, in form and content as
required by Bank.
-16-
m. Borrower shall remain bound at all times to Bank under the
terms of a lockbox control agreement acceptable to Bank and shall take
all actions required by Bank in its sole discretion to maintain at all
times Bank's immediate access to the post office box maintained by
Borrower as the sole designated delivery address for payments made on
Accounts owed to Borrower. Borrower shall not change such designated
address and shall immediately deliver to Bank all payments received by
Borrower through any other method on any Accounts.
2. NEGATIVE COVENANTS. Borrower does hereby covenant and agree with
Bank that, so long as any portion of the Obligations remain unsatisfied or any
commitments hereunder remain outstanding, it will comply at all times with the
following negative covenants, unless Bank shall otherwise have agreed in
writing:
a. Borrower will not mortgage, pledge, grant, or permit to exist
a security interest in, or a lien upon, any of its assets of any kind, now
owned or hereafter acquired, except for liens in favor of Bank or
Permitted Liens;
b. Borrower will not become liable, directly or indirectly, as
guarantor or otherwise for any Obligation of any other person;
c. Borrower will not declare or pay any dividends, or make any
other payment or distribution on account of its capital stock, or make any
assignment or transfer of Accounts or ownership of Inventory, than in the
ordinary course of business of sale of Inventory to customers of Borrower;
d. Borrower will not form or have any entity or subsidiary which
will be the transferee of any Accounts or Inventory from Borrower or make
any loan in the nature of an investment of any person;
f. Borrower will not make any loan or advance to any officer,
shareholder, director, or employee of Borrower, except for business travel
and similar temporary advances in the ordinary course of business;
g. Borrower will not make payments on account of the purchase or
lease of fixed assets that, in the aggregate, in any fiscal year
(commencing with the current fiscal year) will exceed the depreciation
taken or to be taken with respect to fixed assets during such year;
h. Borrower will not redeem, purchase, or retire any of its
capital stock or grant or issue, or purchase or retire for any
consideration, any warrant, right or option pertaining thereto, or permit
any redemption, retirement or other acquisition by Borrower of the
ownership of capital stock of Borrower;
i. Borrower shall not furnish to Bank any certificate or other
document that contains any untrue statement of material fact or that omits
to state a material fact
-17-
necessary to make it not misleading in light of the circumstances under
which it was furnished;
j. Borrower will not directly or indirectly apply any part of the
proceeds of the Obligations to the purchasing or carrying of any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, or any regulations, interpretations, or rulings
thereunder;
k. Borrower shall not suffer or permit majority control of
Borrower to be sold, assigned or otherwise transferred, or make or permit
any change in its current management, or otherwise dispose of a
substantial part of its assets or properties;
l. Borrower shall not violate in any material respect any
federal, state, county or city statutes, orders, rules or regulations
concerning occupational safety;
m. The Collateral shall not be situated at any time within any
federal or state designated flood zone;
n. Borrower shall not compensate officers and owners more than an
amount that, when taken together, will not adversely affect the repayment
ability of Borrower with respect to the Obligations and the Note. This
amount may not be increased year to year unless (i) an after-tax profit
was made in the preceding fiscal year; (ii) Borrower is and will remain in
compliance with covenants of this Agreement; (iii) all of Borrower's debts
are paid on a current status; and (iv) Borrower has obtained the prior
written consent of Bank.
SECTION VII
DEFAULT
1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
a. Borrower shall fail to perform any covenant, promise, or
payment obligation made in this Agreement or any Collateral Documents, and
fails to cure such default within any applicable grace and/or cure period
as provided in the Note;
b. Any financial statement, representation, warranty, or
certificate made or furnished by or with respect to Borrower to Bank in
connection with this Agreement, or as an inducement to Bank to enter into
this Agreement, or in any separate statement or document to be delivered
to Bank hereunder, shall be materially false, incorrect, or incomplete
when made.
2. ACCELERATION. At the option of Bank upon the occurrence of any Event
of Default, the Obligations, whether hereunder or otherwise, shall immediately
become due and payable.
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3. REMEDIES. After any acceleration, Bank shall have, in addition to
the rights and remedies given it by this Agreement and the Collateral Documents,
all those allowed by all applicable Laws, including, but without limitation, the
Uniform Commercial Code as enacted in the applicable jurisdiction in which any
Collateral may be located. The rights of Bank under this Agreement are in
addition to the other rights and remedies (including, without limitation, other
rights of setoff) which Bank may have.
4. RIGHT OF SETOFF. Upon the occurrence of any Event of Default, Bank
may, and is hereby authorized by Borrower, at any time and from time to time, to
the fullest extent permitted by applicable Laws, without advance notice to
Borrower (any such notice being expressly waived by Borrower), setoff and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and any other indebtedness at any time owing by Bank to or for
the credit or the account of, Borrower against any or all of the Obligations of
Borrower now or hereafter existing, whether or not such Obligations have matured
and irrespective of whether Bank has exercised any other rights that it has or
may have with respect to such Obligations, including without limitation any
acceleration rights. Bank agrees promptly to notify Borrower after any 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 Bank under
this Agreement are in addition to the other rights and remedies (including,
without limitation, other rights of setoff) which Bank may have.
SECTION VIII
MISCELLANEOUS
1. CONSTRUCTION. Nothing herein contained shall prevent Bank from
enforcing any or all guaranty, pledge, or security agreements, notes, mortgages,
deeds of trust, other evidences of liability, or other Collateral Documents in
accordance with their respective terms.
2. ENFORCEMENT AND WAIVER BY BANK. Bank shall have the right at all
times to enforce the provisions of this Agreement and the Collateral Documents
in strict accordance with the terms hereof and thereof, notwithstanding any
conduct or custom on the part of Bank in refraining from so doing at any time or
times to enforce its rights under such provisions, strictly in accordance with
the same, shall not be construed as having created a custom in any way or manner
contrary to specific provisions of this Agreement or as having in any way or
manner modified or waived the same. All rights and remedies of Bank are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
3. EXPENSE OF BANK. Borrower will, on demand, reimburse Bank for all
expenses, including the reasonable fees and expenses of legal counsel for Bank,
incurred by Bank in connection with the preparation, administration, amendment,
modification, or enforcement of this Agreement, the Collateral Documents, and
the collection or attempted collection of the Obligations.
-19-
4. NOTICES. Any notice or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
or facsimile transmission, as follows, unless such address is changed by written
notice hereunder:
If to Borrower: Xxxxxxx Foods, Inc.
000 Xxxxxxxx 00xx Xxxxxx
Xxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx
Fax No.: __________________
If to Bank: Commercial Federal Bank
000 X.X. Xxxxx Xxxxxxxxx, Xxxxx 000,
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax No.: ___________________
5. WAIVER AND RELEASE BY BORROWER. To the maximum extent permitted by
applicable laws, Borrower:
a. Waives notice of acceleration and of intention to accelerate;
and notice and opportunity to be heard, after acceleration in the manner
provided in this Agreement, before exercise by Bank of the remedies of
self-help, setoff, or of other summary procedures permitted by any
applicable laws or by any agreement with Borrower, and, except where
required hereby or by any applicable law notice of any other action taken
by Bank; and
b. Releases Bank and its officers, attorneys, agents, and
employees from all claims for loss or damage caused by any act or omission
on the part of any of them except willful misconduct or gross negligence.
6. APPLICABLE LAW. This Agreement is entered into and performable in
Oklahoma City, Oklahoma, and shall be subject to and construed and enforced in
accordance with the laws of the State of Oklahoma.
7. BINDING EFFECT, ASSIGNMENT, AND ENTIRE AGREEMENT. This Agreement
shall inure to the benefit of, and shall be binding upon, the respective
successors and permitted assigns of the parties hereto. Borrower has no right to
assign any of its rights or Obligations hereunder without the prior written
consent of Bank. This Agreement, including the exhibits hereto, all of which are
hereby incorporated herein by reference, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties
and may be amended only by a writing signed on behalf of each party.
-20-
8. SEVERABILITY. If any provision of this Agreement shall be held
invalid under any applicable law, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end the provisions hereof are severable.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and first year above written.
COMMERCIAL FEDERAL BANK, A FEDERAL
SAVINGS BANK
By: /s/ Xxxx Xxxxxxx
------------------------------
Its: Vice President
-----------------------------
XXXXXXX FOODS, INC., an Oklahoma
corporation, Borrower
By: /s/ Xxxx X. Xxxxxxx, President
------------------------------
Xxxx X. Xxxxxxx
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[graphic omitted] Commercial
Federal Bank
EXHIBIT "I (6)"
BORROWING BASE CERTIFICATE
To: Commercial Federal Bank, a FSB ("Bank")
From: Xxxxxxx Foods, Inc. ("Borrower")
---------------------------------------------
This Borrowing Base Certificate is delivered pursuant to the Loan and Security
Agreement dated 6/28/2005, between the Borrower and the Bank and accurately
reflects values of the following Collateral as of __________________________.
ACCOUNTS RECEIVABLE
Total Accounts Receivable as of this date
SUBTRACT--INELIGIBLE ACCOUNTS-
(Per attached) LESS ___________
ELIGIBLE Accounts Receivable Subtotal
Borrowing Base Factor (Receivables) X _______80%_
(maximum advance)
TOTAL ELIGIBLE ACCOUNTS RECEIVABLE VALUE (1) ___________
INVENTORY
Total Inventory Book Value as of this date
SUBTRACT--INELIGIBLE Inventory
(Obsolete, Inventory with offsetting claims) LESS ___________
ELIGIBLE Inventory Subtotal
Borrowing Base Factor X _______50%_
TOTAL ELIGIBLE INVENTORY VALUE (2) ___________
(ELIGIBLE INVENTORY (2) MAY NOT EXCEED $500,000)
AVAILABLE CREDIT BASE (1+2)
CURRENT BALANCE ON REVOLVING LINE OF CREDIT LESS ___________ INITIAL ADVANCE
TOTAL AVAILABLE OR (OVER) LINE
(MAXIMUM ALLOWED $4,000,000) ___________
AMOUNT REQUESTED ___________
The undersigned represents and warrants that the foregoing is true complete and
correct and that the information reflected in this Borrowing Base complies with
the representations and warranties set forth in the Security Agreement and in
the Loan Agreement between the undersigned and Commercial Federal Bank, a FSB
dated __________ . The undersigned also represents and warrants that all the
payroll taxes are current.
By: _____________________
Xxxx Xxxxxxx - President
AMENDMENT OF PROMISSORY NOTE AND
ACKNOWLEDGMENT OF CROSS-DEFAULT
--------------------------------
Loan No. 3700692743
THIS AMENDMENT OF PROMISSORY NOTE AND ACKNOWLEDGMENT OF CROSS-DEFAULT is
entered into by and between XXXXXXX FOODS, INC., an Oklahoma corporation
("Borrower"), and COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK ("Lender").
R E C I T A L S:
----------------
A. On or about March 22, 2005, Borrower executed and delivered to
Lender a Promissory Note in the original principal sum of Two Hundred
Twenty-Four Thousand One Hundred Dollars ($224,100.00) which provided financing
to Borrower related to Borrower's acquisition of certain truck trailers and
related refrigeration units ("March Note"); and
B. On or about an even date herewith, Lender is entering into a new
revolving credit line loan made or to be made by Lender to Borrower in an
original maximum principal amount of up to Four Million Dollars ($4,000,000.00)
("Revolving Note"); and
C. As an inducement to Lender to enter into the Revolving Note, and
in consideration of Lender actually entering into the same, Borrower is willing
to modify the March Note to cross-default it with the Revolving Note.
NOW, THEREFORE, the parties agree as follows:
1. The "Default" section of the March Note is modified by adding a
new subsection, which provides as follows:
DEFAULT UNDER REVOLVING NOTE. A default occurs and is not cured
within the applicable cure period under the Revolving Note or related
loan documents with Lender in the original principal sum of up to Four
Million Dollars ($4,000,000.00).
Default under the March Note that is produced as a result of a default
in the Revolving Note shall constitute an immediate acceleration, without
further notice or right to cure, of the obligations of the March Note and will
authorize Lender to exercise any and all remedies available with respect to such
default, including, but not limited to, those remedies available to Lender under
Oklahoma law and under the documents and instruments securing the March Note.
2. Except as amended herein, the March Note and all other documents
evidencing and/or securing the obligations thereof shall remain in full force
and effect as written.
-1-
