1
EXHIBIT 10.2
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made effective as of the 16th day of
June, 1997, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island
corporation with an office at 2711 North Xxxxxxx, Suite 2100, LB 21, Xxxxxx,
Xxxxx 00000, DXP ACQUISITION, INC. D/B/A STRATEGIC ACQUISITION, INC., a Nevada
corporation ("Borrower"), with offices at 000 Xxxxxxxx Xxxx Xxxxxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxx 00000.
SECTION 1. GENERAL DEFINITIONS
1.1. Defined Terms. When used herein, the following terms shall have
the following meanings (terms defined in the singular to have the same meaning
when used in the plural and vice versa):
Accounts - all accounts, contract rights, chattel paper, instruments and
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquires any interest.
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Acquisition - the purchase by Borrower of the assets of Strategic
Supply, Inc., pursuant to the Purchase Documents.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) of Borrower after provision for income
taxes for such fiscal period of Borrower, all as reflected on the financial
statement of Borrower supplied to Lender pursuant to Section 9.1(J) hereof, but
excluding: (a) any gain or loss arising from the sale of capital assets; (b)
any gain arising from any write-up of assets; (c) earnings of any Subsidiary
accrued prior to the date it became a Subsidiary; (d) earnings of any
corporation, substantially all the assets of which have been acquired in any
manner by Borrower, realized by such corporation prior to the date of such
acquisition; (e) net earnings of any business entity (other than a Subsidiary)
in which Borrower has an ownership interest unless such net earnings shall have
actually been received by Borrower in the form of cash distributions; (f) any
portion of the net earnings of any Subsidiary of Borrower which for any reason
is unavailable for payment of dividends to Borrower; (g) the earnings of any
Person to which any assets of Borrower shall have been sold, transferred or
disposed of, or into which Borrower shall have merged, or been a party to any
consolidation or other form of reorganization, prior to the date of such
transaction; (h) any gain arising from the acquisition of any Securities of
Borrower; and (i) any gain arising from extraordinary or non-recurring items.
Adjusted Tangible Assets - all assets except: (a) deferred assets,
other than prepaid insurance and prepaid taxes; (b) patents, copyrights,
trademarks, trade names, non-compete agreements, franchises and other similar
intangibles; (c) good will; (d) Restricted Investments; (e) unamortized debt
discount and expense; (f) assets located and notes and receivables due from
LOAN AND SECURITY AGREEMENT - Page 1
2
obligors outside of the United States of America; and (g) Accounts, notes and
other receivables due from Affiliates or employees.
Adjusted Tangible Net Worth - at any date means a sum equal to: (a) the
net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of a Person would be shown on a balance sheet at such date in
accordance with GAAP, less (b) the amount at which such Person's liabilities
(other than capital stock and surplus) would be shown on such balance sheet in
accordance with GAAP, plus (c) Subordinated Debt.
Affiliate - a Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (b) which beneficially owns or holds 5%
or more of any class of the voting Securities of Borrower; or (c) 5% or more of
the voting Securities (or in the case of a Person which is not a corporation,
5% or more of the equity interest) of which is beneficially owned or held by
Borrower or a Subsidiary of Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting Securities, by contract or otherwise.
Agreement- this Loan and Security Agreement, as amended, modified,
supplemented or restated from time to time.
American MRO - American MRO, Inc., a Nevada corporation.
Applicable Annual Rate - as defined in Section 3.1(A) of this Agreement.
Asset Purchase Agreement - that certain Asset Purchase Agreement made
and entered into effective as of May 27, 1997, by and among Parent, Borrower,
Seller, Xxxxxxx Technologies, Inc. and Strategic Distribution, Inc.
Availability - The amount of money which Borrower is entitled to borrow
from time to time as Revolving Credit Loans, such amount being the difference
derived when the sum of the principal amount of Revolving Credit Loans then
outstanding (including any amounts which Lender may have paid for the account
of Borrower pursuant to any of the Loan Documents and which have not been
reimbursed by Borrower) and the undrawn amount of all LC Guaranties then
outstanding is subtracted from the Borrowing Base. If the amount outstanding
is equal to or greater than the Borrowing Base, Availability is 0.
Average Daily Availability - the amount obtained by adding the
Availability at the end of each day during the period in question and by
dividing such sum by the number of days in such period.
LOAN AND SECURITY AGREEMENT - Page 2
3
Average Monthly Loan Balance - the amount obtained by adding the unpaid
balance of Revolving Credit Loans owing by Borrower to Lender at the end of
each day for each day during the month in question and by dividing such sum by
the number of days in such month.
Bank - Fleet National Bank, and its successors or assigns.
Base Rate - the rate of interest announced or quoted by Bank from time
to time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if the prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Bayou - Bayou Pumps, Inc., a Texas corporation.
Borrower - Strategic Acquisition, Inc., a Nevada corporation.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(a) an amount equal to: (i) Twelve Million Dollars
($12,000,000); minus (ii) an amount equal to the sum of (A) the face
amount of all LC Guaranties and Letters of Credit issued by Lender or
Affiliates of Lender and outstanding at such date, and (B) any amounts
which Lender may be obligated to pay in the future for the account of
Borrower pursuant to this Agreement, the Other Agreements or otherwise;
or
(b) an amount equal to:
(i) 85% of the net amount of Eligible Accounts
outstanding at such date (as determined by Lender in its
sole discretion);
PLUS
(ii) the lesser of (A) Six Million Dollars
($6,000,000) or (B) the sum of (x) 50% of the value of
Eligible Inventory (as determined by Lender in its sole
discretion) at such date consisting of finished goods,
calculated on the basis of the lower of cost or fair
market value (as determined by Lender in its sole
discretion) with the cost of finished goods calculated on
a first-in, first-out basis, and (y) the lesser of (I)
$600,000 or (II) 25% of the value of Eligible Slow-Moving
Inventory (as determined by Lender in its sole discretion)
at such date consisting of finished goods calculated on
the basis of the lower of cost or fair market value (as
determined by Lender in its sole discretion) with the cost
of finished goods calculated on a first-in, first-out
basis, and (z) the lesser of (I) $500,000 or (II) 50% of
the value of Eligible Off-Site Inventory (as determined by
Lender in its sole discretion) at such date consisting of
finished goods
LOAN AND SECURITY AGREEMENT - Page 3
4
calculated on the basis of the lower of cost or fair
market value (as determined by Lender in its sole
discretion) with the cost of finished goods calculated on
a first-in, first-out basis;
MINUS (subtract from the sum of clauses (i) and (ii)
above)
(iii) an amount equal to the sum of (A) the face
amount of all LC Guaranties and Letters of Credit issued
by Lender or Affiliates of Lender and outstanding at such
date and (B) any amounts which Lender may be obligated to
pay in the future for the account of Borrower pursuant to
this Agreement, the Other Agreements or otherwise.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all returns,
rebates, discounts, (which may, at Lender's option, be calculated on shortest
terms), credits, allowances or sales, excise or withholding taxes of any nature
at any time issued, owing, claimed by Account Debtors, granted, outstanding or
payable in connection with such Accounts at such time.
Business Day - a day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Texas or is a day on which banking
institutions in such state are closed.
Capital Expenditures - expenditures made and liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise and the
principal portion of payments with respect to capitalized lease obligations.
Cash Flow - with respect to any fiscal period, means the Adjusted Net
Earnings From Operations of Borrower for such period, plus non-cash charges of
Borrower in respect to depreciation and amortization for such period minus
Capital Expenditures made by Borrower during such period, minus scheduled
principal payments on Indebtedness of Borrower for such period, minus
distributions made on the capital stock of Borrower during such period, all of
the above being determined on a consolidated basis in accordance with GAAP.
Notwithstanding the provisions of the documentation evidencing the Strategic
Supply Subordinated Debt, for the purposes of this definition of "Cash Flow",
the regularly scheduled principal payments during the first two years of the
Strategic Supply Subordinated Debt shall be assumed to be amortized over such
two years in 24 equal monthly installments.
Closing Date - the date on which all of the conditions precedent in
Section 10 are satisfied and the initial Loan is made hereunder.
Code - the Uniform Commercial Code as adopted and in force in the State
of Texas, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 4 hereof, and all other Property and interests in Property that now or
hereafter secure the payment and performance of any of the Obligations.
LOAN AND SECURITY AGREEMENT - Page 4
5
Commitment - Twelve Million Dollars ($12,000,000.00).
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets on a
balance sheet at such date in accordance with GAAP except that amounts due from
Affiliates and investments in Affiliates shall be excluded there from.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP excluding
the Loans and current maturities of any long-term indebtedness.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 3.1(A) of this Agreement.
Distribution - in respect of any corporation means and includes: (a)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (b) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds
of the sale of Securities.
Dominion Account - a special account of Borrower established by Borrower
pursuant to this Agreement at a bank selected by Borrower, but acceptable to
Lender, in its sole discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition or services which
Lender, in its credit judgment, deems to be an Eligible Account. Without
limiting the generality of the foregoing, no Account shall be an Eligible
Account if:
(a) it arises out of a sale made by Borrower to a Subsidiary
or an Affiliate of Borrower or to a Person controlled by an Affiliate of
Borrower; or
(b) it is unpaid for more than 60 days after the original due
date shown on the invoice; or
(c) it is due or unpaid more than 90 days after the original
invoice date; or
(d) 20% or more of the Accounts from the Account Debtor are
not deemed Eligible Accounts hereunder; or
(e) the total unpaid Accounts of the Account Debtor exceed 25%
of the net amount of all Accounts, to the extent of such excess; or
LOAN AND SECURITY AGREEMENT - Page 5
6
(f) any covenant, representation or warranty contained in this
Agreement with respect to such Account has been breached; or
(g) the Account Debtor is also Borrower's creditor or
supplier, or the Account Debtor has disputed liability with respect to
such Account, or the Account Debtor has made any claim with respect to
any other Account due from such Account Debtor to Borrower, or the
Account otherwise is or may become subject to any right of setoff by the
Account Debtor; or
(h) the Account Debtor has commenced a voluntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or a decree or order
for relief has been entered by a court having jurisdiction in the
premises in respect of the Account Debtor in an involuntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or
if the Account Debtor has ceased to be Solvent or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed
for it or for all or a significant portion of its assets or affairs; or
(i) it arises from a sale to an Account Debtor outside the
United States; or
(j) it arises from a sale to the Account Debtor on a xxxx-and-
hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or
any other repurchase or return basis; or
(k) Lender in good faith believes that collection of such
Account is insecure or that payment thereof is doubtful or will be
delayed by reason of the Account Debtor's financial condition; or
(l) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof; or
(m) the Account Debtor is located in the State of New Jersey,
Indiana, West Virginia or Minnesota, or any other state imposing similar
conditions on the right of a creditor to collect accounts, unless
Borrower has either qualified to transact business in such state as a
foreign corporation or filed a Notice of Business Activities Report or
other required report with the appropriate officials in those states for
the then current year; or
(n) the Account is subject to a Lien other than a Permitted
Lien; or
(o) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the services giving
rise to such Account have not been performed by Borrower and accepted by
the Account Debtor or the Account otherwise does not represent a final
sale; or
LOAN AND SECURITY AGREEMENT - Page 6
7
(p) the total unpaid Accounts of the Account Debtor exceed a
credit limit determined by Lender, to the extent such Account exceeds
such limit; or
(q) the Account is evidenced by chattel paper or an instrument
of any kind, or has been reduced to judgment; or
(r) Borrower has made any agreement with the Account Debtor
for any deduction therefrom, except for discounts or allowances which
are made in the ordinary course of business for prompt payment and which
discounts or allowances are reflected in the calculation of the face
value of each invoice related to such Account; or
(s) Borrower has made an agreement with the Account Debtor to
extend the time of payment thereof; or
(t) the Account arises from a retail sale of goods to a Person
who is purchasing same primarily for personal, family or household
purposes.
Eligible Inventory - such Inventory of Borrower which Lender, in its
credit judgment, deems to be Eligible Inventory. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory unless,
in Lender's credit judgment, it
(a) is finished goods,
(b) is in good, new and saleable condition,
(c) is not obsolete or unmerchantable,
(d) has been owned by Borrower for not more than twelve
months,
(e) meets all standards imposed by any governmental agency or
authority,
(f) conforms in all respects to the warranties and
representations set forth in Section 6.1 hereof,
(g) is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien,
(h) is situated at a location in compliance with Section 4.4
hereof and is not in transit, and
(i) it is not Slow-Moving Inventory.
Eligible Off-Site Inventory - such Off-Site Inventory of Borrower which
Lender, in its credit judgment, deems to be Eligible Off-Site Inventory.
Without limiting the generality of the foregoing, no Off-Site Inventory shall
be Eligible Off-Site Inventory unless:
LOAN AND SECURITY AGREEMENT - Page 7
8
(a) in Lender's credit judgment, it otherwise would constitute
"Eligible Inventory" except for the fact that it is located at a
location of a customer of Borrower; and
(b) prior to the delivery of such Inventory to such site of
the customer, all of the following shall have been effectuated in a
manner satisfactory to Lender:
(i) Borrower shall have conducted a search of all
filings made against the customer in the
jurisdiction in which such site of customer is
located, and delivered to Lender copies of the
results of such search;
(ii) Borrower shall have notified in writing all the
creditors of such customer which are or may be
holders of Liens in any "inventory" of such
customer, that Borrower expects to deliver certain
Inventory to such customer, all of which Inventory
shall be described in such notice by item or type;
and
(iii) Borrower shall have of record in such jurisdiction
such duly executed financing statements as shall be
required by Lender covering such Inventory, showing
such customer as "debtor", Borrower as "secured
party" and Lender as "assignee of secured party."
Eligible Slow-Moving Inventory - such Slow-Moving Inventory of Borrower
which Lender, in its credit judgment, deems to be Eligible Slow-Moving
Inventory. Without limiting the generality of the foregoing, no Inventory
shall be Eligible Slow-Moving Inventory unless, in Lender's credit judgment, it
(a) is finished goods,
(b) is in good, new and saleable condition,
(c) is not obsolete or unmerchantable,
(d) has been owned by Borrower for not more than twelve
months,
(e) meets all standards imposed by any governmental agency or
authority,
(f) conforms in all respects to the warranties and
representations set forth in Section 6.1 hereof,
(g) is at all times subject to Lender's duly perfected, first
priority security interest and no other Lien except a Permitted Lien,
LOAN AND SECURITY AGREEMENT - Page 8
9
(h) is situated at a location in compliance with Section 4.4
hereof and is not in transit, and
(i) it is not Eligible Inventory.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or
hereafter acquired and wherever located, and all parts, accessories and special
tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, and all
rules and regulations from time to time promulgated thereunder.
Eurodollar Base Rate - with respect to a Eurodollar Loan for the
relevant Eurodollar Interest Period, a rate per annum equal to the quotient of
the following: (a) the rate at which deposits in U.S. dollars in immediately
available funds are offered by Lender or Bank to first-class banks in the
London interbank market at approximately 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Eurodollar Interest Period, in the
approximate amount of the Eurodollar Loan and having a maturity approximately
equal to the Eurodollar Interest Period divided by (b) the difference of 1.00
minus the Eurodollar Reserve Requirement.
Eurodollar Borrowing Notice - as defined in Section 3.7(A) of this
Agreement.
Eurodollar Interest Period - with respect to a Eurodollar Loan, a period
of one (1), two (2), three (3) or six (6) months commencing on a Business Day
selected by Borrower pursuant to this Agreement. Such Eurodollar Interest
Period shall end on (but exclude) the day which corresponds numerically to such
date one (1), two (2), three (3) or six (6) months thereafter, provided,
however, that if there is no such numerically corresponding day in such first
(1st), second (2nd), third (3rd) or sixth (6th) succeeding month, such
Eurodollar Interest Period shall end on the last Business Day of such first
(1st), second (2nd), third (3rd) or sixth (6th) succeeding month. If a
Eurodollar Interest Period would otherwise end on a day which is not a Business
Day, such Eurodollar Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a
new month, such Eurodollar Interest Period shall end on the immediately
preceding Business Day.
Eurodollar Loan - a Revolving Credit Loan which bears interest at a
Eurodollar Base Rate.
LOAN AND SECURITY AGREEMENT - Page 9
10
Eurodollar Reserve Requirement - on any day, means that percentage
(expressed as a decimal fraction) which is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the maximum reserve requirements
(including, without limitation, basic, supplemental, marginal and emergency
reserves) under Regulation D with respect to "eurocurrency liabilities" as
currently defined in Regulation D, or under any similar or successor regulation
with respect to eurocurrency liabilities or eurocurrency funding. Each
determination by Lender of the Eurodollar Reserve Requirement shall, in the
absence of manifest error, be conclusive and binding.
Excess - as defined in Section 3.1(C) of this Agreement.
Event of Default - as defined in Section 11.1 of this Agreement.
GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
General Intangibles - all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, deposit accounts, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, tax refund claims, computer programs, all
claims under guaranties, security interests or other security held by or
granted to Borrower to secure payment of any of the Accounts by an Account
Debtor, all rights to indemnification and all other intangible property of
every kind and nature (other than Accounts).
Guarantors - Parent, Sepco, Bayou Pumps, American MRO, Pelican and any
other Person who may hereafter guarantee payment or performance of the whole or
any part of the Obligations.
Guaranty Agreements - the Continuing Guaranty Agreements which are to be
executed by Guarantors in form and substance satisfactory to Lender.
Indebtedness - as applied to a Person means, without duplication (i) all
items which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of a balance sheet of such Person as
at the date as of which Indebtedness is to be determined, including, without
limitation, capitalized lease obligations, (ii) all obligations of other
Persons which such Person has guaranteed and (iii) in the case of Borrower
(without duplication), the Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired, and wherever located, including, but not limited to, all goods
intended for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of every
nature and description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing or
furnishing of such goods
LOAN AND SECURITY AGREEMENT - Page 10
11
or otherwise used or consumed in Borrower's business; and all documents
evidencing and General Intangibles relating to any of the foregoing.
LC Guaranty - a guaranty executed by Lender at Borrower's request in
favor of a Person who has issued a Letter of Credit.
Letter of Credit - a letter of credit at any time issued for the account
of Borrower.
Leverage Ratio - at any date means the ratio of the Indebtedness of
Borrower to Adjusted Tangible Net Worth of Borrower.
Lien - 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, security title or lien arising from a security
agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 2.4 of this Agreement.
Loan Documents - this Agreement and the Other Agreements.
Loans - all loans and advances made by Lender pursuant to this
Agreement, including, without limitation, all Revolving Credit Loans.
Lufkin Mortgage - the Mortgage to be executed by Borrower on or about
the Term Loan Closing Date for the benefit of Lender, as collateral for the
Obligations, which shall be in the form of Exhibit I attached hereto.
Lufkin Real Property - the real property of Borrower in Lufkin, Texas,
legally described on Exhibit G attached hereto.
Maximum Legal Rate - as defined in Section 3.1(B) of this Agreement.
Mortgages - each respective mortgage and deed of trust, to be executed
by Borrower on or about the Term Loan Closing Date in favor of Lender and by
which Borrower shall grant and convey to Lender, as security for the
Obligations, a first priority Lien upon all real Property owned in fee by
Borrower wherever located, including, without limitation, the Lufkin Real
Property.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties owing, arising, due or payable from Borrower
to Lender of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, whether arising under this Agreement or
any of the Other Agreements or otherwise, whether direct or indirect (including
those acquired by assignment), absolute or contingent, primary or secondary,
due or to
LOAN AND SECURITY AGREEMENT - Page 11
12
become due, now existing or hereafter arising and however acquired. The term
includes, without limitation, the reimbursement obligations of Borrower under
Section 2.4 of this Agreement and all other interest, charges, expenses, fees,
attorney's fees and any other sums chargeable to Borrower under this Agreement
or any of the Other Agreements.
Off-Site Inventory - at any date such Inventory of Borrower which is
located at the site of a customer of Borrower.
Original Term - as defined in Section 3.3(A) of this Agreement.
Other Agreements - any and all agreements, instruments and documents
heretofore, now or hereafter executed by Borrower or Guarantors, as the case
may be, and delivered to Lender in respect to the transactions contemplated by
this Agreement, including, without limitation, the Term Note, the Shareholder
Pledge Agreement, and the Guaranty Agreements and the Mortgages.
Overadvance - as defined in Section 2.1 of this Agreement.
Parent - DXP Enterprises, Inc., a Texas corporation.
Parent Adjusted Net Earnings From Operations - with respect to any
fiscal period, means the consolidated (in accordance with GAAP) net earnings
(or loss) of Parent and its Subsidiaries after provision for income taxes for
such fiscal period of Parent, all as reflected on the consolidated financial
statement of Parent and its Subsidiaries supplied to Lender pursuant to Section
9.1(J) hereof, but excluding: (a) any gain or loss arising from the sale of
capital assets; (b) any gain arising from any write-up of assets; (c) earnings
of any Subsidiary accrued prior to the date it became a Subsidiary; (d)
earnings of any corporation, substantially all the assets of which have been
acquired in any manner by Parent or a Subsidiary of Parent, realized by such
corporation prior to the date of such acquisition; (e) net earnings of any
business entity (other than a Subsidiary) in which Parent or a Subsidiary of
Parent has an ownership interest unless such net earnings shall have actually
been received by Parent or such Subsidiary of Parent in the form of cash
distributions; (f) any portion of the net earnings of any Subsidiary which for
any reason is unavailable for payment of dividends to Parent or a Subsidiary of
Parent; (g) the earnings of any Person to which any assets of Parent or a
Subsidiary of Parent shall have been sold, transferred or disposed of, or into
which Parent or a Subsidiary of Parent shall have merged, or been a party to
any consolidation or other form of reorganization, prior to the date of such
transaction; (h) any gain arising from the acquisition of any Securities of
Parent or a Subsidiary of Parent; and (i) any gain arising from extraordinary
or non-recurring items.
Parent Cash Flow - with respect to any fiscal period, means the Parent
Adjusted Net Earnings From Operations of Parent and its Subsidiaries for such
period, plus non-cash charges of Parent and its Subsidiaries in respect to
depreciation and amortization for such period minus Capital Expenditures made
by Parent and its Subsidiaries during such period, minus scheduled principal
payments on Indebtedness of Parent and its Subsidiaries for such period, minus
LOAN AND SECURITY AGREEMENT - Page 12
13
Distributions made on the capital stock of Parent and its Subsidiaries during
such period, all of the above being determined on a consolidated basis in
accordance with GAAP.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in this Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
Pelican - Pelican State Supply Company, Inc., a Nevada corporation.
Permitted Liens - any Lien of a kind specified in subparagraphs (i)
through (vii) of Section 9.2(E) of this Agreement.
Person - an individual, partnership, corporation, joint stock company,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Prohibited Transaction - any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and
loss statements, (c) cash flow statements, and (d) capitalization statements,
all prepared on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Documents - the Asset Purchase Agreement and all documents and
instruments to be executed or delivered in connection therewith.
Purchase Money Lien - a Lien upon fixed assets granted by Borrower to
secure Indebtedness incurred by Borrower to purchase such fixed assets.
Renewal Terms - as defined in Section 3.3(A) of this Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following: (a) investments in one or
more Subsidiaries of Borrower; (b) Property to be used in the ordinary course
of business; (c) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower; (d) investments in direct
obligations of the United States of America, or any agency
LOAN AND SECURITY AGREEMENT - Page 13
14
thereof or obligations guaranteed by the United States of America, provided
that such obligations mature within one year from the date of acquisition
thereof; (e) investments in certificates of deposit maturing within one year
from the date of acquisition issued by a bank or trust company organized under
the laws of the United States or any state thereof having capital surplus and
undivided profits aggregating at least $100,000,000; and (f) investments in
commercial paper given the highest rating by a national credit rating agency
and maturing not more than 270 days from the date of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section 2.1
of this Agreement.
Schedule of Accounts - as defined in Section 5.2 of this Agreement.
Security - shall have the same meaning as in Section 2(l) of the
Securities Act of 1933, as amended.
Sepco - Sepco Industries, Inc., a Texas corporation.
Sepco Loan Agreement - that certain Second Amended and Restated Loan and
Security Agreement, dated as of April 1, 1994, executed by Sepco and Lender, as
renewed, extended, modified and restated from time to time.
Shareholder Pledge Agreement - the Pledge Agreement to be executed by
Parent, in form and substance acceptable to Lender, by which Parent grants to
Lender a first priority security interest in and to all of the common stock of
Borrower.
Slow-Moving Inventory - at any date stock Inventory of Borrower as to
which there is a greater than twelve-month supply, i.e. the value (calculated
on the basis of the lower of cost or fair market value, as determined by
Lender) of such Inventory in the possession or under the control of Borrower is
greater than the dollar amount of such Inventory sold by Borrower during the
twelve-month period preceding such date.
Solvent - as to any Person, such Person (a) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (b) is able to pay all of its
Indebtedness as such Indebtedness matures, and (c) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Strategic Supply Subordinated Debt - Indebtedness of Borrower to
Strategic Supply, Inc. incurred in connection with the Acquisition.
Subordinated Debt - Indebtedness of Borrower to whose existence Lender
has consented in writing and that is subordinated to the Obligations pursuant
to a written agreement acceptable to Lender in all respects as to both form and
substance, including, without limitation, the Strategic Supply Subordinated
Debt.
LOAN AND SECURITY AGREEMENT - Page 14
15
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the voting
Securities at the time of determination.
Term Loan - the Loan described in Section 2.2 of this Agreement.
Term Loan Closing Date - the date on which all of the conditions
precedent to the advance of the Term Loan are satisfied and the Term Loan is
made.
Term Note - the Secured Promissory Note to be executed by Borrower on or
about the Term Loan Closing Date in favor of Lender to evidence the Term Loan,
which shall be in the form of Exhibit H attached hereto.
Working Capital - at any date means Current Assets minus Current
Liabilities.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP
consistent with that applied in preparation of the financial statements
referred to in Section 9.1(J), and all financial data pursuant to the Agreement
shall be prepared in accordance with such principles. All other terms
contained in this Agreement shall have, when the context so indicates, the
meanings provided for by the Code to the extent the same are used or defined
therein.
1.3. Certain Matters of Construction. The terms "herein", "hereof"
and "hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. The section titles, table of
contents and list of exhibits appear as a matter of convenience only and shall
not affect the interpretation of this Agreement. All references to statutes
and related regulations shall include any amendments of same and any successor
statutes and regulations. All references to any instruments or agreements,
including, without limitation, references to this Agreement or any of the Other
Agreements, shall include any and all modifications or amendments thereto and
any and all extensions or renewals thereof.
SECTION 2. CREDIT FACILITY
2.1. Revolving Credit Loans. Subject to the terms and conditions of
this Agreement, Lender agrees to make Revolving Credit Loans to Borrower from
time to time, in amounts determined by Lender in its sole discretion, up to a
maximum principal amount at any time outstanding equal to the Borrowing Base at
such time. If the unpaid balance of the Revolving Credit Loans should exceed
the Borrowing Base or any other limitation set forth in this Agreement, such
Revolving Credit Loans shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all benefits thereof. Insofar as
Borrower may request and Lender may be willing in its sole and absolute
discretion to make Revolving Credit Loans to Borrower at a time when the unpaid
balance of Revolving Credit Loans exceeds, or would exceed with the making of
any such Revolving Credit Loan, the Borrowing Base (any such Loan or Loans
being herein referred to individually as an "Overadvance" and collectively as
LOAN AND SECURITY AGREEMENT - Page 15
16
"Overadvances"), Lender shall enter such Overadvances as debits in the Loan
Account. All Overadvances shall be payable ON DEMAND, shall be secured by the
Collateral and shall bear interest as provided herein for Revolving Credit
Loans generally. The Revolving Credit Loans shall be used solely for the
satisfaction of existing Indebtedness of Borrower to and for Borrower's general
operating capital needs to the extent not inconsistent with the provisions of
this Agreement.
A request for a Revolving Credit Loan shall be made or shall be deemed
to be made, in the following manner: (i) Borrower may give Lender notice of
its intention to borrow, in which notice Borrower shall specify the amount of
the proposed borrowing and the proposed borrowing date (which notice shall be
in the form of a Eurodollar Borrowing Notice pursuant to Section 3.7(A) hereof
if Borrower intends to borrow a Eurodollar Loan); (ii) the becoming due of any
amount required to be paid under this Agreement, under the Term Note or under
any of the other Loan Documents as interest shall be deemed irrevocably to be a
request for a Revolving Credit Loan on the due date in the amount required to
pay such interest; (iii) the becoming due of any amount required to be paid
under this Agreement, under the term Note or under any of the other Loan
Documents as principal shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date for the amount required to pay such
principal; (iv) any payment made by Lender pursuant to a Letter of Credit or LC
Guaranty which is not immediately reimbursed by Borrower shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the date of such
payment by Lender; and (v) the becoming due of any other Obligations shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
in the amount then so due.
2.2. Term Loan. Subject to the terms and conditions of this
Agreement, Lender agrees to make a term loan (the "Term Loan") to Borrower on
the Closing Date in the principal amount of $500,000. The Term Loan shall be
repayable in accordance with the terms of the Term Note and shall be secured by
all of the Collateral. The proceeds of the Term Loan shall be used solely to
pay off in full all existing Indebtedness which is presently secured by a Lien
against the Lufkin Real Property, with any proceeds remaining after paying in
full such Indebtedness to be used for purposes for which the proceeds of the
Revolving Credit Loans are authorized to be used. Borrower may not reborrow
any amount repaid with respect to the Term Loan. If Borrower sells any of the
Equipment or real Property, or if any of the Collateral is lost or destroyed or
is taken by condemnation, Borrower shall pay to Lender, unless otherwise agreed
to by Lender, as and when received by Borrower and as a mandatory prepayment of
the Term Loan (or, at Lender's option, such of the other Obligations as Lender
shall elect), a sum equal to the net proceeds (including insurance payments)
received by Borrower from such sale, loss, destruction or condemnation.
Notwithstanding any other provision of this Agreement or any of the other Loan
Documents, and without affecting in any manner the rights of Lender under the
other Sections of this Agreement (including, without limitation, Sections 10.1
and 10.2), it is understood and agreed that Lender will not make the Term Loan
unless and until each of the following additional conditions has been and
continues to be satisfied, all in form and substance satisfactory to Lender and
its counsel:
(A) Borrower shall have executed and delivered to Lender the
Term Note;
LOAN AND SECURITY AGREEMENT - Page 16
17
(B) Borrower shall have executed and delivered to Lender the
Lufkin Mortgage, which Lufkin Mortgage shall have been recorded with the
appropriate filing officers;
(C) Borrower shall have delivered to Lender, at Borrower's
expense, a mortgagee title insurance policy (or commitment to issue a mortgagee
title insurance policy, provided Borrower simultaneously pays all premiums and
satisfies all conditions necessary for issuance of such policy) covering the
Lufkin Real Property issued by a title insurance company satisfactory to Lender
insuring Lender as mortgagee; such policy shall be in form and substance
satisfactory to Lender and shall insure a valid first Lien in favor of Lender
on the Lufkin Real Property, subject only to those exceptions acceptable to
Lender and its counsel;
(D) Borrower shall have delivered to Lender such other
documents, including, without limitation, surveys of the Lufkin Real Property,
certificates of corporate resolutions and incumbency of officers, opinions of
counsel, and other documents and instruments as Lender and its counsel may
reasonably request relating to the Lufkin Real Property, the Term Note and the
Lufkin Mortgage;
(E) If requested by Lender, Lender shall have received a
current, fair market appraisal of the Lufkin Real Property, prepared by an
appraiser satisfactory to Lender, in its sole discretion, in an amount and in
form and substance satisfactory to Lender, in its sole discretion;
(F) Lender shall have received a current, complete Phase I
environmental site assessment regarding the Lufkin Real Property, performed by
a qualified environmental engineer or specialist acceptable to Lender, in its
sole discretion, such environmental site assessment to be in form and substance
satisfactory to Lender, in its sole discretion, together with such other
satisfactory environmental studies, reports, and reviews as shall be required
by Lender, in its sole discretion; and
(G) The Term Loan Closing Date must occur August 31, 1997.
2.3. All Loans to Constitute One Obligation. All Loans shall
constitute one general obligation of Borrower, and shall be secured by Lender's
security interest in and Lien upon all of the Collateral, and by all other
security interests and Liens heretofore, now or at any time or times hereafter
granted by Borrower to Lender.
2.4. Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrower and any
other Obligation.
2.5 Reimbursement Obligations. If Lender shall pay any amount under
a Letter of Credit or LC Guaranty, then Borrower shall automatically become
obligated to immediately reimburse such amount to Lender, together with
interest from and after the date Lender makes
LOAN AND SECURITY AGREEMENT - Page 17
18
such payment under such Letter of Credit or LC Guaranty until payment in full
to Lender by Borrower of Borrower's reimbursement obligation which shall accrue
at the applicable per annum rate of interest then applicable for Revolving
Credit Loans.
SECTION 3. INTEREST, FEES, TERM AND REPAYMENT
3.1. Interest and Charges.
(A) Interest shall accrue on the principal amount of the Term
Loan in accordance with the terms of the Term Note, and the principal amount of
the Revolving Credit Loans outstanding at the end of each day shall bear
interest at the following rates per annum (individually called, as applicable,
an "Applicable Annual Rate"): (i) Eurodollar Loans shall bear interest at a
rate per annum equal to 2.00% above the Eurodollar Base Rate for the Eurodollar
Interest Period applicable thereto and (ii) all other Revolving Credit Loans
shall bear interest at a rate per annum equal to .50% above the Base Rate.
Revolving Credit Loans shall bear interest at a rate per annum equal to .50%
above the Base Rate unless the Borrower provides a Eurodollar Borrowing Notice
to the Lender in accordance with Section 3.7(A) irrevocably electing that all
or a portion of the Revolving Credit Loans are to bear interest at a Eurodollar
Base Rate. Each Revolving Credit Loan that is not a Eurodollar Loan shall be
increased or decreased, as the case may be, by an amount equal to any increase
or decrease in the Base Rate, with such adjustments to be effective as of the
opening of business on the day that any such change in the Base Rate becomes
effective. The Base Rate in effect on the date hereof shall be the Base Rate
effective as of the opening of business on the date hereof, but if this
Agreement is executed on a day that is not a Business Day, the Base Rate in
effect on the date hereof shall be the Base Rate effective as of the opening of
business on the last Business Day immediately preceding the date hereof.
Interest shall be calculated on a daily basis (computed on the actual number of
days elapsed over a year of 360 days), commencing on the date hereof, and shall
be payable monthly, in arrears, on the first day of each month; provided,
however, that interest at the Maximum Legal Rate shall be computed on the
actual number of days elapsed over a year of 365 or 366 days, as the case may
be. Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the principal amount of the Obligations shall bear
interest at the lesser of (i) the Maximum Legal Rate or (ii) a fluctuating rate
per annum, calculated daily (computed on the actual days elapsed over a year of
360 days), equal to 4.0% above the Applicable Annual Rate or other applicable
rate of interest (the "Default Rate").
(B) Notwithstanding the foregoing or any other provision in
this Agreement, (i) if at any time the amount of interest computed on the basis
of the Applicable Annual Rate or the Default Rate would exceed the amount of
such interest computed upon the basis of the maximum rate of interest permitted
by applicable state or federal law in effect from time to time hereafter (the
"Maximum Legal Rate"), the interest payable under this Agreement shall be
computed upon the basis of the Maximum Legal Rate, but any subsequent reduction
in the Applicable Annual Rate or Default Rate, as applicable, shall not reduce
such interest thereafter payable hereunder below the amount computed on the
basis of the Maximum Legal Rate until the aggregate amount of such interest
accrued and payable under this Agreement equals the total amount of interest
which would have accrued if such interest had been at all times computed
LOAN AND SECURITY AGREEMENT - Page 18
19
solely on the basis of the Applicable Annual Rate or Default Rate, as
applicable; and (ii) unless preempted by federal law, the Applicable Annual
Rate or Default Rate, as applicable, from time to time in effect hereunder may
not exceed the "indicated ceiling rate" from time to time in effect under Tex.
Rev. Civ. Stat. Xxx. art 5069-1.04(c) (Xxxxxx 1987).
(C) No agreements, conditions, provisions or stipulations
contained in this Agreement or any other instrument, document or agreement
between Borrower and Lender or default of Borrower, or the exercise by Lender
of the right to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this Agreement or
any other agreement between Borrower and Lender, or the arising of any
contingency whatsoever, shall entitle Lender to contract for, charge, or
receive, in any event, interest exceeding the Maximum Legal Rate. In no event
shall Borrower be obligated to pay interest exceeding such Maximum Legal Rate
and all agreements, conditions or stipulations, if any, which may in any event
or contingency whatsoever operate to bind, obligate or compel Borrower to pay a
rate of interest exceeding the Maximum Legal Rate, shall be without binding
force or effect, at law or in equity, to the extent only of the excess of
interest over such Maximum Legal Rate. In the event any interest is contracted
for, charged or received in excess of the Maximum Legal Rate ("Excess"),
Borrower acknowledges and stipulates that any such contract, charge, or receipt
shall be the result of an accident and bona fide error, and that any Excess
received by Lender shall be applied, first, to reduce the principal then unpaid
hereunder; second, to reduce the other Obligations; and third, returned to
Borrower, it being the intention of the parties hereto not to enter at any time
into a usurious or otherwise illegal relationship. Borrower recognizes that,
with fluctuations in the Base Rate, the Eurodollar Base Rate and the Maximum
Legal Rate, such a result could inadvertently occur. By the execution of this
Agreement, Borrower covenants that (i) the credit or return of any Excess shall
constitute the acceptance by Borrower of such Excess, and (ii) Borrower shall
not seek or pursue any other remedy, legal or equitable, against Lender, based
in whole or in part upon contracting for, charging or receiving of any interest
in excess of the maximum authorized by applicable law. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or
received by Lender in connection with this Agreement shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement.
(D) The provisions of Section 3.1(C) shall be deemed to be
incorporated into every document or communication relating to the Obligations
which sets forth or prescribes any account, right or claim or alleged account,
right or claim of Lender with respect to Borrower (or any other obligor in
respect of Obligations), whether or not any provision of Section 3.1 is
referred to therein. All such documents and communications and all figures set
forth therein shall, for the sole purpose of computing the extent of the
Obligations and obligations of the Borrower (or other obligor) asserted by
Lender thereunder, be automatically recomputed by Borrower or obligor, and by
any court considering the same, to give effect to the adjustments or credits
required by Section 3.1(C).
(E) If the applicable state or federal law is amended in the
future to allow a greater rate of interest to be charged under this Agreement
or the Other Agreements than is
LOAN AND SECURITY AGREEMENT - Page 19
20
presently allowed by applicable state or federal law, then the limitation of
interest hereunder shall be increased to the maximum rate of interest allowed
by applicable state or federal law as amended, which increase shall be
effective hereunder on the effective date of such amendment, and all interest
charges owing to Lender by reason thereof shall be payable upon demand.
(F) For the purpose of computing interest hereunder, all items
of payment received by Lender shall be deemed applied by Lender on account of
the Obligations (subject to final payment of such items) one (1) Business Day
after receipt by Lender of such items in Lender's account located in Chicago,
Illinois, and Lender shall be deemed to have received such items of payment on
the date specified in Section 3.5 hereof.
3.2. Unused Facility Fee. From the date hereof, Borrower agrees to
pay to Lender a quarterly unused facility fee, equal to one-quarter percent
(0.25%) per annum of the average daily unused portion of the Commitment,
payable quarterly in arrears, the first payment being due on July l, 1997 and
continuing on the first day of each July, October, January and April thereafter
during the term of this Agreement and upon the termination hereof.
3.3. Term of Agreement; Termination.
(A) Subject to Lender's right to cease making Loans to
Borrower at any time upon or after the occurrence of a Default or an Event of
Default, the provisions of this Agreement shall be in effect for a period from
the date hereof, through and including January 2, 1999 (the "Original Term").
Upon written request by Borrower, Lender may, in its sole and absolute
discretion, renew this Agreement for any number of successive one year periods
thereafter (a "Renewal Term"), but Lender shall have no obligation to do so.
(B) Upon at least 90 days prior written notice to Lender,
Borrower may, at its option, terminate this Agreement; provided, however, no
such termination shall be effective until Borrower has paid all of the
Obligations in immediately available funds. It is understood that Borrower may
elect to terminate this Agreement in its entirety only; no section or lending
facility may be terminated singly.
(C) In addition to and not in limitation of any other
provision of this Agreement, the parties hereto agree that this Agreement shall
also be deemed terminated upon the effective date of the termination of the
Sepco Loan Agreement.
(D) At the effective date of any termination of this
Agreement, Borrower shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other charges owing under this Agreement and
any of the Other Agreements), as liquidated damages for the loss of the bargain
and not as a penalty, an amount equal to 0.5% of the highest of the Average
Monthly Loan Balances outstanding pursuant to Section 2.1 during the twelve
month period ending on the date of termination if termination occurs at any
time prior to January 2, 1999 or during any Renewal Term thereafter. If
termination occurs on the last day of the Original Term or the last day of any
Renewal Term, no termination charge shall be payable.
LOAN AND SECURITY AGREEMENT - Page 20
21
(E) All of the Obligations shall be forthwith due and payable
upon any termination of this Agreement. Except as otherwise expressly provided
in this Agreement or any of the Other Agreements, no termination or
cancellation (regardless of cause or procedure) of this Agreement or any of the
Other Agreements shall in any way affect or impair the rights, powers or
privileges of Lender or the obligations or liabilities of Borrower in any way
relating to (i) any transaction or event occurring prior to such termination or
cancellation or (ii) any of the undertakings, agreements, covenants, warranties
or representations of Borrower contained in this Agreement or any of the Other
Agreements. All such undertakings, agreements, covenants, warranties and
representations of Borrower shall survive such termination or cancellation,
and, notwithstanding such termination or cancellation, Lender shall retain its
Liens in the Collateral and all of its rights and remedies under this Agreement
and the Other Agreements until Borrower has paid the Obligations to Lender, in
full, in immediately available funds.
3.4. Payments. Principal and interest on the Term Loan shall be
payable as provided in the Term Note. Except where evidenced by notes or other
instruments issued or made by Borrower to Lender specifically containing
payment provisions which are in conflict with this Section 3.4 (in which event
the conflicting provisions of said notes or other instruments shall govern and
control), the Obligations shall be payable as follows:
(A) Principal payable on account of Revolving Credit Loans
made by Lender to Borrower, shall be payable by Borrower to Lender immediately
upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of
any of the Collateral, to the extent of said proceeds, (ii) the occurrence of
an Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations, or (iii) termination of this
Agreement; provided, however, that if the principal balance of Revolving Credit
Loans outstanding at any time shall exceed the Borrowing Base at such time,
Borrower shall, on demand, repay the Revolving Credit Loans in an amount
sufficient to reduce the aggregate unpaid principal amount of such Revolving
Credit Loans by an amount equal to such excess.
(B) Interest accrued on the Obligations shall be due on the
earliest of (i) the first day of each month (for the immediately preceding
month), computed through the last calendar day of the preceding month, (ii) the
occurrence of an Event of Default in consequence of which Lender elects to
accelerate the maturity and payment of the Obligations, or (iii) termination of
this Agreement; provided, however, that Borrower hereby irrevocably authorizes
Lender, in Lender's sole discretion, to advance to Borrower, and to charge to
the Loan Account hereunder as a Revolving Credit Loan, a sum sufficient each
month to pay all interest accrued on the Obligations during the immediately
preceding month, and to pay all costs, fees and expenses at any time owed by
Borrower to Lender hereunder.
(C) The balance of the Obligations requiring the payment of
money, if any, shall be payable by Borrower to Lender as and when provided in
this Agreement or the Other Agreements, or on demand, whichever is earlier.
3.5. Application of Payments and Collections. All items of payment
received by Lender by 12:00 noon, Dallas, Texas time, on any Business Day,
shall be deemed received on
LOAN AND SECURITY AGREEMENT - Page 21
22
that Business Day. All items of payment received after 12:00 noon, Dallas,
Texas time, on any Business Day, shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct the application
of any and all payments and collections at any time or times hereafter received
by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably
agree that Lender shall have the continuing exclusive right to apply and
reapply any and all such payments and collections received at any time or times
hereafter by Lender or its agent against the Obligations, in such manner as
Lender may deem advisable, notwithstanding any entry by Lender upon any of its
books and records. If as the result of collections of Accounts as authorized
by Section 5.4 hereof a credit balance exists in the Loan Account, such credit
balance shall not accrue interest in favor of Borrower, but shall be available
to Borrower at any time or times for so long as no Default or Event of Default
exists. Such credit balance shall not be applied or be deemed to have been
applied as a prepayment of the Term Loan; provided, however, Lender may offset
such credit balance against the Obligations upon or after the occurrence of any
Event of Default.
3.6. Statements of Account. Lender will account to Borrower monthly
with a statement of Loans, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower unless Lender is notified by Borrower in writing
to the contrary within 30 days of the date each account is mailed to Borrower.
Such notice shall only be deemed an objection to those items specifically
objected to therein.
3.7. Additional Provisions Regarding Eurodollar Loans.
(A) Manner of Borrowing a Eurodollar Loan. Borrower shall
give Lender notice of its intention to borrow a Eurodollar Loan in the form of
Exhibit A attached hereto (a "Eurodollar Borrowing Notice"), in which notice
Borrower shall specify (x) the aggregate amount of such Eurodollar Loan, (y)
the requested date of such Eurodollar Loan, and (z) the Eurodollar Interest
Period applicable thereto. Borrower shall give Lender the Eurodollar Borrowing
Notice at least two (2) Business Days prior to the requested date of the
Eurodollar Loan. With respect to such Eurodollar Loans, (i) each Eurodollar
Loan shall be in an integral multiple of $1,000,000, (ii) no more than four (4)
Eurodollar Interest Periods may be in existence at any one time, and (iii)
Borrower may not request a Eurodollar Loan if there exists a Default or Event
of Default. The Borrower shall select Eurodollar Interest Periods with respect
to Eurodollar Loans so that no Eurodollar Interest Period expires after the end
of the Original Term, or if extended pursuant to Section 3.3(A), any Renewal
Term. An outstanding Revolving Credit Loan may be converted to a Eurodollar
Loan at any time subject to the provisions of this Section 3.7.
(B) Interest on Eurodollar Loans. Each Eurodollar Loan shall
bear interest from and including the first day of the Eurodollar Interest
Period applicable thereto (but not including the last day of such Eurodollar
Interest Period) at the interest rate determined as applicable to such
Eurodollar Loan, but interest on such Eurodollar Loan shall be payable as
provided in Section 3.4. If at the end of a Eurodollar Interest Period for an
outstanding Eurodollar Loan, Borrower has failed to deliver to Lender a new
Eurodollar Borrowing Notice
LOAN AND SECURITY AGREEMENT - Page 22
23
with respect to such Eurodollar Loan or to pay such Eurodollar Loan, then such
Eurodollar Loan shall be converted to a Revolving Credit Loan bearing interest
at a rate, and subject to all other terms and conditions of this Agreement,
applicable to Revolving Credit Loans not constituting Eurodollar Loans on and
after the last day of such Eurodollar Interest Period until paid or until the
effective date of a new Eurodollar Borrowing Notice with respect thereto.
(C) Availability of Eurodollar Loans. If Lender determines
that maintenance of any of its Eurodollar Loans would violate any applicable
law, rule, regulation or directive, whether or not having the force of law,
Lender shall suspend the availability of Eurodollar Loans and require any
Eurodollar Loans outstanding to be repaid (provided, that, without in any way
impairing Borrower's obligations under Section 3.7(D) and Section 3.7(E), to
the extent that Borrower is entitled to request a Revolving Credit Loan bearing
interest at the Base Rate, Borrower may request such a Revolving Credit Loan in
order to repay the Eurodollar Loans); or if Lender determines that (x) deposits
of a type or maturity appropriate to match fund Eurodollar Loans are not
available or (y) the Eurodollar Base Rate does not accurately reflect the cost
of making a Eurodollar Loan, then Lender shall suspend the availability of
Eurodollar Loans after the date of any such determination.
(D) Funding Indemnification. If any payment of a Eurodollar
Loan occurs on a date which is not the last day of the applicable Eurodollar
Interest Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Loan is not made on the date specified by Borrower because Borrower
has not satisfied the conditions precedent to such Eurodollar Loan contained in
this Agreement or has otherwise breached the terms of this Agreement, Borrower
will indemnify Lender for any loss or cost incurred by it resulting therefrom,
including without limitation any loss or cost in liquidating or employing
deposits acquired to fund or maintain the Eurodollar Loan.
(E) Lender Statements: Survival of Indemnity. Within sixty
(60) days of the date upon which Lender suspends the availability of Eurodollar
Loans under Section 3.7(C) hereof or learns of any loss or cost for which
Borrower has indemnified Lender under Section 3.7(D) hereof, Lender shall
deliver a written statement as to the amount due under Section 3.7(C) or (D).
Such written statement shall set forth in reasonable detail the calculations
and basis therefor upon which Lender determined such amount and shall be final,
conclusive and binding on Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though the Lender funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding
to the deposit used as a reference in determining the Eurodollar Base Rate
applicable to such Eurodollar Loan whether in fact that is the case or not.
Unless otherwise provided herein, the amount specified in the written statement
shall be payable on demand after receipt by Borrower of the written statement.
3.8. Yield Protection. If either (i) the adoption of any applicable
law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender with any request or directive (whether or not
LOAN AND SECURITY AGREEMENT - Page 23
24
having the force of law) of any such authority, central bank or comparable
agency shall subject Lender to any tax (including without limitation any United
States interest equalization or similar tax, however named), duty or other
charge with respect to any Eurodollar Loan or Lender's obligation to compute
interest on the principal balance of any Eurodollar Loan at a rate based upon
the Eurodollar Base Rate, or shall change the basis of taxation of payments to
Lender of the principal of or interest on any Eurodollar Loan or any other
amounts due under this Agreement in respect of any Eurodollar Loan or Lender's
obligation to compute the interest on the principal balance of any Eurodollar
Loan at a rate based upon the Eurodollar Base Rate, or (ii) any governmental
authority, central bank or other comparable authority shall at any time impose,
modify or deem applicable any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve System), special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, Lender, or shall impose on Lender (or its
eurodollar lending office) or any relevant interbank eurodollar market any
other condition affecting any Eurodollar Loan or Lender's obligation to compute
the interest on the principal balance of any Eurodollar Loan at a rate based
upon the Eurodollar Base Rate; and the result of any of the foregoing is to
increase the cost to Lender of maintaining any Eurodollar Loans, or to reduce
the amount of any sum received or receivable by Lender under this Agreement by
an amount deemed by Lender to be material, then upon demand by Lender, Borrower
shall pay to Lender such additional amount or amounts as will compensate Lender
for such increased cost or reduction. Lender will promptly notify Borrower of
any event of which it has knowledge, occurring after the date hereof, which
will entitle Lender to compensation pursuant to this Section 3.8. A
certificate of Lender claiming compensation under this Section 3.8 and setting
forth the additional amount or amounts to be paid to Lender hereunder shall be
conclusive in the absence of manifest error.
3.9 Closing Fee. Borrower agrees to pay to Lender on the date of
execution of this Agreement, a closing fee equal to $50,000, which fee shall be
deemed fully earned and non-refundable as of the date of execution of this
Agreement.
SECTION 4. COLLATERAL: GENERAL TERMS
4.1. Security Interest in Collateral. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby grants to Lender
a continuing security interest in and Lien upon all of the Property and
interests in Property of Borrower, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located including, without
limitation, the following:
(A) Accounts;
(B) Inventory;
(C) Equipment;
(D) General Intangibles;
LOAN AND SECURITY AGREEMENT - Page 24
25
(E) All investment property (as defined in Section 9.115 of
the Code);
(F) All real Property;
(G) all monies and other Property of any kind, now or at any
time or times hereafter, in the possession or under the control of Lender or a
bailee of Lender;
(H) all accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (A), (B), (C), (D), (E), (F) and (G)
above, including, without limitation, Proceeds of and unearned premiums with
respect to insurance Policies insuring any of the Collateral; and
(I) all books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (A), (B), (C), (D),
(E), (F), (G) or (H) above.
4.2. Lien on Realty. The due and punctual payment and performance of
the Obligations shall also be secured by the Lien created by the Mortgages upon
all real Property of Borrower described therein. Borrower shall deliver to
Lender, at Borrower's expense, mortgagee title insurance policies issued by a
title insurance company satisfactory to Lender insuring Lender as mortgagee;
such policies shall be in form and substance satisfactory to Lender and shall
insure a valid first Lien in favor of Lender on the Property covered thereby,
subject only to those exceptions acceptable to Lender and its counsel.
Borrower shall deliver to Lender such other documents, including, without
limitation, as-built survey prints of the real Property, as Lender and its
counsel may reasonably request relating to the real Property subject to the
Mortgage.
4.3. Lien Perfection. Borrower agrees to execute the UCC-l financing
statements provided for by the Code or otherwise together with any and all
other instruments, assignments or documents and shall take such other action as
may be reasonably required to perfect or to continue the perfection of Lender's
security interest in the Collateral as a first priority Lien subject to
Permitted Liens only. Unless prohibited by applicable law, Borrower hereby
authorizes Lender to execute and file any such financing statement on
Borrower's behalf. The parties agree that 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.
4.4. Location of Collateral. All tangible items of Collateral, other
than Inventory in transit, motor vehicles and investment property held in an
account with a securities intermediary, will at all times be kept by Borrower
at one or more of the business locations set forth in Exhibit B and shall not,
without the prior written approval of Lender, be moved therefrom except, prior
to an Event of Default, for sales of Inventory in the ordinary course of
business and dispositions of Equipment that are authorized by Section 7.2
hereof.
4.5. Insurance of Collateral. Borrower agrees to maintain and pay for
insurance upon all Collateral wherever located, in storage or in transit in
vehicles, including goods evidenced by
LOAN AND SECURITY AGREEMENT - Page 25
26
documents, covering casualty, hazard, public liability and such other risks and
in such amounts and with such insurance companies as shall be reasonably
satisfactory to Lender to insure Lender's interest in the Collateral. Borrower
shall deliver the originals of such policies to Lender with satisfactory
endorsements naming Lender as loss payee and as mortgagee pursuant to a
standard mortgagee clause. Each policy of insurance or endorsement shall
contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever and a clause that the interest of Lender shall not be
impaired or invalidated by any act or neglect of Borrower or owner of the
Property nor by the occupation of the premises for purposes more hazardous than
are permitted by said policy. If Borrower fails to provide and pay for such
insurance, Lender may, at Borrower's expense, procure the same, but shall not
be required to do so. Borrower agrees to deliver to Lender, promptly as
rendered, true copies of all reports made in any reporting forms to insurance
companies.
4.6. Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all taxes imposed by any governmental
authority on any Collateral or in respect of the sale thereof shall be borne
and paid by Borrower. If Borrower fails to promptly pay any portion thereof
when due, Lender may, at its option, but shall not be required to, pay the same
and charge the Loan Account therefor. Borrower agrees to reimburse Lender
promptly therefor with interest accruing thereon daily at the Default Rate.
All sums so paid or incurred by Lender for any of the foregoing and all
reasonable costs and expenses (including reasonable attorneys' fees, legal
expenses, and court costs) which Lender may incur in enforcing or protecting
its Lien on or rights and interest in the Collateral or any of its rights or
remedies, together with interest at the Default Rate, shall be considered
Obligations hereunder secured by all Collateral. Lender shall not be liable or
responsible in any way for the safekeeping of any Collateral or for any loss or
damage thereto (except for reasonable care in the custody thereof while any
Collateral is in Lender's actual possession) or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier, forwarding
agency, or other person whomsoever, but the same shall be at Borrower's sole
risk.
SECTION 5. PROVISIONS RELATING TO ACCOUNTS
5.1. Representations, Warranties and Covenants. With respect to all
Accounts, Borrower represents and warrants to Lender that Lender may rely, in
determining which Accounts are Eligible Accounts, on all statements and
representations made by Borrower with respect to any Account or Accounts, and,
unless otherwise indicated in writing to Lender, that with respect to each
Account: it is genuine and in all respects what it purports to be, and it is
not evidenced by a judgment; it arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary course
of its business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of the
contract between Borrower and the Account Debtor; it is for a liquidated amount
maturing as stated in the duplicate invoice covering such sale or rendition of
services; such Account, and Lender's security interest therein, is not, and
will not be in the future, subject to any offset, Lien, deduction, defense,
dispute, counterclaim or any other adverse condition
LOAN AND SECURITY AGREEMENT - Page 26
27
except for disputes resulting in returned goods where the amount in controversy
is deemed by Lender to be immaterial, and each such Account is absolutely owing
to Borrower and is not contingent in any respect or for any reason; Borrower
has made no agreement with any Account Debtor thereunder for any deduction
therefrom, except discounts or allowances which are granted by Borrower in the
ordinary course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related thereto;
there are no facts, events or occurrences which in any way impair the validity
or enforceability thereof or tend to reduce the amount payable thereunder from
the face amount of the invoice and statements delivered to Lender with respect
thereto; to the best of Borrower's knowledge, the Account Debtor thereunder is
Solvent and, at the time any contract or other document giving rise to the
Account was executed, such Account Debtor had the capacity to contract; and
Borrower has no knowledge of any fact or circumstance which would impair the
validity or collectibility of such Account.
5.2. Assignments, Records and Schedules of Accounts. If requested to
do so by Lender, Borrower shall execute and deliver to Lender formal written
assignments of all of its Accounts weekly (or, if requested by Lender, daily),
together with copies of invoices or invoice registers related thereto.
Borrower shall keep accurate and complete records of its Accounts and all
payments and collections thereon and shall submit to Lender on a daily basis a
sales and collections report for the preceding day, in form satisfactory to
Lender. On or before the fifteenth day of each month from and after the date
hereof, Borrower shall deliver to Lender, in form satisfactory to Lender, a
detailed aged trial balance of all Accounts existing as of the last day of the
preceding month, specifying the names, addresses, face value, dates of invoices
and due dates for each Account Debtor obligated on an Account so listed
("Schedule of Accounts"), and, upon Lender's request therefor, copies of proof
of delivery and the original copy of all documents, including, without
limitation, repayment histories and present status reports relating to the
Accounts so scheduled and such other matters and information relating to the
status of then existing Accounts as Lender shall reasonably request. If any
amounts due and owing in excess of $50,000 are in dispute between Borrower and
any Account Debtor, Borrower shall provide Lender with written notice thereof
at the time of submission of the next Schedule of Accounts, explaining in
detail the reason for the dispute, all claims related thereto and the amount in
controversy.
5.3. Administration of Accounts. Upon the granting of any discounts,
allowances or credits by Borrower that are not shown on the face of the invoice
for the Account involved, Borrower shall promptly report such discounts,
allowances or credits, as the case may be, to Lender and in no event later than
the time of its submission to Lender of the next Schedule of Accounts as
provided in Section 5.2. If an Account includes a charge for any tax payable
to any governmental taxing authority, Lender is authorized, in its sole
discretion, to pay the amount thereof to the proper taxing authority for the
account of Borrower and to charge the Loan Account therefor. Whether or not a
Default or an Event of Default has occurred, Lender shall have the right, at
any time or times hereafter, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.
LOAN AND SECURITY AGREEMENT - Page 27
28
5.4. Collection of Accounts. To expedite collection, Borrower shall
endeavor in the first instance to make collection of its Accounts for Lender.
All remittances received by Borrower on account of Accounts shall be held as
Lender's property by Borrower as trustee of an express trust for Lender's
benefit and Borrower shall immediately deposit same in the Dominion Account.
After the occurrence of an Event of Default, Lender shall have the right to
notify Account Debtors that Accounts have been assigned to Lender and to
collect Accounts directly in its own name and to charge the collection costs
and expenses, including reasonable attorneys' fees, to Borrower. Lender has no
duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them.
SECTION 6. PROVISIONS RELATING TO INVENTORY
6.1. Representations, Warranties and Covenants. With respect to
Inventory, Borrower represents and warrants to Lender that Lender may rely, in
determining which items of Inventory constitute Eligible Inventory, on all
statements and representations made by Borrower with respect to any Inventory
and that: All Inventory is presently and will continue to be located at
Borrower's places of business listed on Exhibit B and will not be removed
therefrom except as authorized by Section 4.4 of this Agreement; no Inventory
is now, nor shall any Inventory at any time or times hereafter be, stored with
a bailee, warehouseman or similar party without Lender's prior written consent;
no Inventory is or will be consigned to any Person without Lender's prior
written consent; and no Inventory is or will be produced in violation of the
Fair Labor Standards Act.
6.2. Inventory Reports. Borrower agrees to furnish Lender with
Inventory reports at such times as Lender may request, but at least once each
month. Such reports shall be in form and detail satisfactory to Lender.
Borrower shall conduct a physical inventory no less frequently than annually
and shall provide to Lender a report based on each such physical inventory
promptly thereafter, together with such supporting information as Lender shall
in its discretion request.
6.3. Returns of Inventory. If at any time or times hereafter any
Account Debtor returns any Inventory to Borrower the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
$50,000, Borrower shall notify Lender of the same immediately, specifying the
reason for such return and the location and condition of the returned
Inventory.
SECTION 7. PROVISIONS RELATING TO EQUIPMENT
7.1. Representations, Warranties and Covenants. With respect to the
Equipment, Borrower represents, warrants and covenants to and with Lender that
the Equipment is in good operating condition and repair, and all necessary
replacements of and repairs thereto shall be made so that the value and
operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted. Borrower will not permit any of the
Equipment to become affixed to any real Property leased to Borrower so that an
interest arises therein under the
LOAN AND SECURITY AGREEMENT - Page 28
29
real estate laws of the applicable jurisdiction unless the landlord of such
real Property has executed a landlord waiver or leasehold mortgage in favor of
Lender, and Borrower will not permit any of the Equipment to become an
accession to any personal Property other than Equipment subject to first
priority Liens in favor of Lender or subject to Permitted Liens. Immediately
on request therefor by Lender, Borrower shall deliver to Lender any and all
evidence of ownership, if any, of any of the Equipment (including, without
limitation, certificates of title and applications for title). Borrower shall
maintain accurate records itemizing and describing the kind, type, quality,
quantity and value of its Equipment and all dispositions made in accordance
with Section 7.2 hereof, and shall furnish Lender with a current schedule
containing the foregoing information on at least an annual basis and more often
if requested by Lender.
7.2. Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (A) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $100,000 or less, provided that all proceeds thereof are
turned over to Lender, or (B) replacements of Equipment that is substantially
worn, damaged or obsolete with Equipment of like kind, function and value,
provided that the replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to be replaced, the
replacement Equipment shall be free and clear of Liens other than Permitted
Liens, Borrower shall give Lender at least five days prior written notice of
such disposition and Borrower shall turn over to Lender all proceeds realized
from any such disposition.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Lender to
enter into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender as follows:
(A) Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada; has duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all states and jurisdictions where the character of its
Properties or the nature of its activities make such qualification necessary;
and has not been known as or used any corporate, fictitious or trade names in
the past seven years except as disclosed on Exhibit C attached hereto and made
a part hereof.
(B) Borrower has the right and power and is duly authorized to
enter into, deliver and perform this Agreement and each of the Other Agreements
to which it is a party, and this Agreement is, and each of the Other Agreements
when delivered under this Agreement will be, a legal, valid and binding
obligation of Borrower enforceable against it in accordance with their
respective terms.
LOAN AND SECURITY AGREEMENT - Page 29
30
(C) Borrower is not engaged principally, or as one of its
important activities, in the business of purchasing or carrying "margin stock"
(within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Loans to Borrower
will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock, or be used
for any purpose which violates or is inconsistent with the provisions of
Regulations G, T, U or X of said Board of Governors.
(D) Borrower has, and is in good standing with respect to, all
governmental consents, approvals, authorizations, permits, certificates,
inspections, and franchises which materially affect its ability to conduct its
business as heretofore or proposed to be conducted by it and to own or lease
and operate its Properties as now owned or leased by it.
(E) Borrower 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.
(F) Except as set forth on Exhibit D attached hereto and made
a part hereof, there are no actions, suits, proceedings or investigations
pending, or to the knowledge of Borrower, threatened, against or affecting
Borrower or any of its Properties in any court or before any governmental
authority or arbitration board or tribunal, and no action, suit, proceeding or
investigation shown on Exhibit D involves the possibility of materially and
adversely affecting the Properties or condition (financial or otherwise) of
Borrower or the ability of Borrower to perform this Agreement.
(G) Borrower has good, indefeasible and marketable title to
and fee simple ownership of, or valid and subsisting leasehold interests in,
all of its real Property, and good title to all of its other Property, in each
case, free and clear of all Liens except Permitted Liens.
(H) The balance sheet of Borrower and such other Persons
described therein as of March 31, 1997, and the related statements of income,
for the periods ended on such dates, have been prepared, to the best of
Borrower's knowledge, in accordance with GAAP (except for changes in
application in which Borrower's independent certified public accountants
concur), and present fairly the financial positions of Borrower at such dates
and the results of Borrower's operations for such periods. Since March 31,
1997, there has been no material change in the condition, financial or
otherwise, of Borrower and such other Persons as shown on the balance sheet as
of such date and no change in the aggregate value of Equipment and real
Property owned by Borrower or such other Persons, except changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse. The fiscal year of Borrower for accounting purposes
ends on December 31 of each year.
(I) There is no fact which Borrower has failed to disclose to
Lender in writing which materially affects adversely or, so far as Borrower can
now foresee, will materially affect adversely the Properties, business,
prospects, profits, or condition (financial or otherwise) of Borrower or the
ability of Borrower to perform this Agreement.
LOAN AND SECURITY AGREEMENT - Page 30
31
(J) Borrower has not received any notice to the effect that it
is not in full compliance with any of the requirements of ERISA and the
regulations promulgated thereunder. No fact or situation that could result in
a material adverse change in the financial condition of Borrower (including,
but not limited to, any Reportable Event or Prohibited Transaction) exists in
connection with any Plan. Borrower has no withdrawal liability in connection
with a Multi-Employer Plan.
(K) Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all taxes, assessments, fees and other
governmental charges that are due and payable.
(L) Borrower has duly complied with, and its Properties,
business operations and leaseholds are in compliance in all material respects
with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business.
(M) No Default or Event of Default will exist or result from
the execution and delivery of this Agreement or Borrower's performance
hereunder.
(N) There are no claims for brokerage commissions, finder's
fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
8.2. Reaffirmation and Survival of Representations. Each request for
a Loan made by Borrower pursuant to this Agreement or any of the Other
Agreements shall constitute (A) an automatic representation and warranty by
Borrower to Lender that there does not then exist any Default or Event of
Default, and (B) a reaffirmation as of the date of said request of all of the
representations and warranties of Borrower contained in this Agreement and the
Other Agreements are true in all material respects, except for any changes in
the nature of Borrower's business or operations that would render the
information contained in any exhibit hereto either materially inaccurate or
materially incomplete, so long as Lender has consented to such changes or such
changes are expressly permitted by this Agreement. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement or any of the Other Agreements shall be
true at the time of Borrower's execution of this Agreement and the Other
Agreements, and shall survive the execution, delivery and acceptance thereof by
Lender and the parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
LOAN AND SECURITY AGREEMENT - Page 31
32
(A) Pay and discharge all taxes, assessments and governmental
charges upon it, its income and Properties as and when such taxes, assessments
and charges are due and payable, except and to the extent only that such taxes,
assessments and charges are being actively contested in good faith and by
appropriate proceedings, Borrower maintains adequate reserves on its books
there for and the nonpayment of such taxes does not result in a Lien upon any
Properties or Borrower other than a Permitted Lien. Borrower shall also pay
and discharge any lawful claims which, if unpaid, might become a Lien against
any of Borrower's Properties except for Permitted Liens.
(B) File all federal, state and local tax returns and other
reports Borrower is required by law to file and maintain adequate reserves for
the payment of all taxes, assessments, governmental charges, and levies imposed
upon it, its income, or its profits, or upon any Property belonging to it.
(C) Pay to Lender, on demand, any and all fees, costs or
expenses which Lender pays to a bank or other similar institution (including,
without limitation, any reasonable fees paid by Lender to any Participating
Lender) arising out of or in connection with (i) the forwarding to Borrower or
any other Person on behalf of Borrower, by Lender of proceeds of loans made by
Lender to Borrower pursuant to this Agreement and (ii) the depositing for
collection, by Lender, of any check or item of payment received or delivered to
Lender on account of the Obligations.
(D) Preserve and maintain its separate corporate existence and
all rights, privileges, and franchises in connection therewith, and maintain
its qualification and good standing in all states in which such qualification
is necessary.
(E) Maintain its Properties in good condition and make all
necessary renewals, repairs, replacements, additions and improvements thereto.
(F) Comply with all laws, ordinances, governmental rules and
regulations to which it is subject, and obtain and keep in force any and all
licenses, permits, franchises, or other governmental authorizations necessary
to the ownership of its Properties or to the conduct of its business, which
violation or failure to obtain might materially and adversely affect the
Properties or condition (financial or otherwise) of Borrower.
(G) (i) At all times make prompt payment of contributions
required to meet the minimum funding standards set forth in ERISA with respect
to each Plan; (ii) promptly after the filing thereof, furnish to Lender copies
of any annual report required to be filed pursuant to ERISA in connection with
each Plan and any other employee benefit plan of it and its Affiliates subject
to said Section; (iii) notify Lender as soon as practicable of any Reportable
Event and of any additional act or condition arising in connection with any
Plan which Borrower believes might constitute grounds for the termination
thereof by the Pension Benefit Guaranty Corporation or for the appointment by
the appropriate United States district court of a trustee to administer the
Plan; and (iv) furnish to Lender, promptly upon Lender's request therefor, such
LOAN AND SECURITY AGREEMENT - Page 32
33
additional information concerning any Plan or any other such employee benefit
plan as may be reasonably requested.
(H) Keep adequate records and books of account with respect to
its business activities in which proper entries are made in accordance with
GAAP (to the best of Borrower's knowledge) reflecting all its financial
transactions.
(I) Permit representatives of Lender, from time to time, as
often as may be reasonably requested, but only during normal business hours, to
visit and inspect the Properties of Borrower, inspect and make extracts from
its books and records, and discuss with its officers, its employees and its
independent accountants, Borrower's business, assets, liabilities, financial
condition, business prospects and results of operations.
(J) Cause to be prepared and furnished to Lender the following
(all to be kept and prepared in accordance with GAAP applied on a consistent
basis, unless Parent's certified public accountants concur in any change
therein and such change is disclosed to Lender and are consistent with GAAP):
(i) as soon as possible, but not later than 90 days after the close of each
fiscal year of Parent, unqualified audited consolidated financial statements of
Parent and its Subsidiaries (including Borrower) as of the end of such year,
certified as to the statements by a firm of independent certified public
accountants of recognized standing selected by Parent but acceptable to Lender
(except for a qualification for a change in accounting principles with which
such accounting firm concurs) and unaudited consolidated and consolidating
financial statements of Parent and its Subsidiaries (including Borrower),
certified by the principal financial officer of Parent as prepared in
accordance with GAAP to the best of his knowledge and fairly presenting the
financial position and results of operations of Parent and its Subsidiaries
(including Borrower) for such year; and (ii) as soon as possible, but not later
than 30 days after the end of each month hereafter, unaudited interim financial
statements of Parent and its Subsidiaries (including Borrower) as of the end of
such month and of the portion of Parent's fiscal year then elapsed, certified
by the principal financial officer of Parent as prepared in accordance with
GAAP to the best of his knowledge, and fairly presenting the financial position
and results of operations of Parent and its Subsidiaries (including Borrower)
for such month and period subject only to changes from audit and year-end
adjustments and except that such statements need not contain notes.
Concurrently with the delivery of the financial statements described in clause
(i) of this Section 9.1(J), Borrower shall forward to Lender a copy of the
accountants' letter to Parent's or Borrower's (as the case may be) management
that is prepared in connection with such financial statements and also shall
cause to be prepared and furnish to Lender a certificate of the aforesaid
certified public accountants certifying to Lender that, based upon their
examination of the financial statements of Parent and is Subsidiaries
(including Borrower) performed in connection with their examination of said
financial statements, they are not aware of any Default or Event of Default,
or, if they are aware of such Default or Event of Default, specifying the
nature thereof. Concurrently with the delivery of the financial statements
described in clauses (i) and (ii) of this Section 9.1(J), Borrower shall cause
to be prepared and furnished to Lender a certificate from the chief financial
officer of Borrower certifying to Lender that to the best of his knowledge,
Borrower has kept, observed, performed and fulfilled each and every covenant,
obligation and agreement binding upon Borrower in this Agreement and the Other
Agreements
LOAN AND SECURITY AGREEMENT - Page 33
34
and that no Default or Event of Default has occurred, or, if such Default or
Event of Default has occurred, specifying the nature thereof.
(K) At Lender's request, promptly execute or cause to be
executed and deliver to Lender any and all documents, instruments and
agreements reasonably deemed necessary by Lender to perfect or to continue the
perfection of Lender's Liens as first priority Liens subject only to Permitted
Liens, to facilitate collection of the Collateral or otherwise to give effect
to or carry out the terms or intent of this Agreement or any of the Other
Agreements.
(L) Within 30 days after the end of each month, or more
frequently if requested by Lender, cause the chief financial officer of
Borrower to prepare and deliver to Lender a Compliance Certificate in the form
of Exhibit E attached hereto, with appropriate insertions.
(M) As soon as available, and in any event no later than 60
days after the end of each fiscal year of Borrower, deliver to Lender
Projections of Borrower for the forthcoming three fiscal years, year by year,
and the forthcoming fiscal year, month by month.
(N) As soon as possible, and in any event before August 31,
1997, Borrower shall have satisfied in a manner satisfactory to Lender all the
conditions precedent to the making of the Term Loan.
9.2. Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
(A) Merge or consolidate, or permit any Subsidiary to merge or
consolidate, with any Person; nor acquire all or any substantial part of the
Properties or capital stock of any Person; or permit Parent to acquire all or
any substantial part of the Properties or capital stock of any Person.
(B) Make any loans or other advances of money (other than for
salary, travel advances, advances against commissions and other similar
advances in the ordinary course of business) to any Person in excess of an
aggregate $50,000 outstanding at any time for all such loans.
(C) Enter into any transaction with any Affiliate or
stockholder, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which
are fully disclosed to Lender and are no less favorable to Borrower than would
obtain in a comparable arm's length transaction with a Person not an Affiliate
or stockholder of Borrower.
(D) Guarantee, assume, endorse or otherwise, in any way,
become directly or contingently liable with respect to the Indebtedness of any
Person except by endorsement of
LOAN AND SECURITY AGREEMENT - Page 34
35
instruments or items of payment for deposit or collection and except for
Indebtedness of an Affiliate to Lender.
(E) Create or suffer to exist any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet
due or being contested as permitted by Section 9.1(A) hereof, but only if in
Lender's judgment such Lien does not affect adversely Lender's rights or the
priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or
demands of materialmen, mechanics, carriers, warehousemen, landlords and other
like Persons for labor, materials, supplies or rentals incurred in the ordinary
course of Borrower's business, but only if the payment thereof is not at the
time required and only if such Liens are junior to the Liens in favor of
Lender; (iv) Liens resulting from deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; (v) attachment, judgment and other similar
non-tax Liens arising in connection with court proceedings, but only if and for
so long as the execution or other enforcement of such Liens is and continues to
be effectively stayed and bonded on appeal in a manner satisfactory to Lender
for the full amount thereof, the validity and amount of the claims secured
thereby are being actively contested in good faith and by appropriate lawful
proceedings and such Liens do not, in the aggregate, materially detract from
the value of the Property of Borrower or materially impair the use thereof in
the operation of Borrower's business; (vi) reservations, exceptions, easements,
rights of way, and other similar encumbrances affecting real Property, provided
that, in Lender's judgment, they do not in the aggregate materially detract
from the value of said Properties or materially interfere with their use in the
ordinary conduct of Borrower's business and, if said real Property constitutes
Collateral, Lender has consented thereto; and (vii) such other Liens as Lender
may hereafter approve in writing.
(F) Make any payment of any part or all of any Subordinated
Debt in violation of the subordination agreement relating to such Subordinated
Debt or voluntarily prepay any Subordinated Debt; or enter into any agreement
(oral or written) which could in any way be construed to amend, modify, alter
or terminate any one or more instruments or agreements evidencing or relating
to any Subordinated Debt.
(G) Declare or make any Distributions.
(H) Hereafter create any Subsidiary or divest itself of any
material assets by transferring them to any Subsidiary to whose existence
Lender has consented.
(I) Make Capital Expenditures (including, without limitation,
by way of capitalized leases) which, in the aggregate, exceed $300,000 during
any fiscal year of Borrower.
(J) Transfer its principal place of business or chief
executive office, or open new manufacturing plants, or transfer existing
manufacturing plants, or maintain warehouses or records with respect to
Accounts or Inventory, to or at any locations other than those at which the
same are presently kept or maintained, as set forth on Exhibit B hereto, except
upon at least 60
LOAN AND SECURITY AGREEMENT - Page 35
36
days prior written notice to Lender and after the delivery to Lender of
financing statements, if required by Lender, in form satisfactory to Lender to
perfect or continue the perfection of Lender's Lien and security interest
hereunder.
(K) Enter into any new business or make any material change in
any of Borrower's business objectives, purposes and operations.
(L) Sell, lease or otherwise dispose of any of its Properties,
including any disposition of Property as part of a sale and leaseback
transaction, to or in favor of any Person, except (i) sales of Inventory in the
ordinary course of Borrower's business for so long as no Event of Default
exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of
Borrower or (iii) dispositions expressly authorized by this Agreement.
(M) Use any corporate name (other than its own) or any
fictitious name, tradestyle or "d/b/a" except for names disclosed in writing to
Lender on or before the Closing Date.
(N) Permit the total annual compensation (including, without
limitation, salaries, fees, bonuses, commissions and other payments, whether
direct or indirect, in money, or otherwise but specifically excluding
compensation from existing employee incentive agreements) of its officers,
shareholders and directors to exceed during any fiscal year of Borrower 110% of
the amount paid during the preceding fiscal year.
(O) Own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect unless, prior to any such purchase or acquisition or entering into any
such contract, Lender shall have received an opinion of counsel satisfactory to
Lender to the effect that such purchase or acquisition will not cause this
Agreement to violate Regulations G, T, U, or X or any other regulation of the
Federal Reserve Board then in effect.
(P) Make or have any Restricted Investment.
(Q) Change its fiscal year or permit any Subsidiary of
Borrower to have a fiscal year different from that of Borrower.
(R) Create, assume or suffer to exist any indebtedness for
borrowed money or issue or sell any obligation of Borrower (whether absolutely,
concurrently or otherwise), excluding only (i) the Obligations; (ii) accounts
payable and accrued liabilities arising in the ordinary course of Borrower's
business; (iii) indebtedness incurred for the payment of Capital Expenditures
permitted by this Agreement; (iv) existing indebtedness of Borrower which shall
have been approved in writing by Lender, and which shall be set forth on
Exhibit F attached hereto and made a part hereof (and to the extent set forth
on Exhibit F, such indebtedness is approved by Lender); and (v) such other
indebtedness as Lender may hereafter approve in writing.
LOAN AND SECURITY AGREEMENT - Page 36
37
9.3. Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing:
(A) Parent and its Subsidiaries shall maintain positive Parent
Cash Flow, measured on a rolling three-month basis at the end of each calendar
month, for the three-month period that ends as of the end of each calendar
month, from and including the calendar month ending June 30, 1997. Parent Cash
Flow during any such period will be determined on a consolidated basis
according to GAAP.
(B) Parent and its Subsidiaries shall maintain positive Parent
Cash Flow, measured on an annual basis at the end of each fiscal year of
Parent, for the twelve-month period that ends as of the end of such fiscal year
of Parent, from and including the fiscal year of Parent ending December 31,
1997. Parent Cash Flow during any such fiscal year will be determined on a
consolidated basis in accordance with GAAP.
(C) Parent and its Subsidiaries shall maintain at all times a
ratio of (i) the aggregate consolidated Indebtedness of Parent and its
Subsidiaries to (ii) the consolidated Adjusted Tangible Net Worth of Parent and
its Subsidiaries of not more than 5.0 to 1.0. Indebtedness and Adjusted
Tangible Net Worth will be determined on a consolidated basis in accordance
with GAAP.
(D) Parent and its Subsidiaries shall maintain at all times a
ratio of consolidated Current Assets of Parent and its Subsidiaries to
consolidated Current Liabilities of Parent and its Subsidiaries of not less
than 2.0 to 1.0. Current Assets and Current Liabilities will be determined on
a consolidated basis in accordance with GAAP.
(E) Borrower shall maintain Cash Flow (as determined according
to GAAP) of not less than the amount indicated below, for the time period
indicated below:
Time Period Minimum Amount
----------- --------------
(i) Date of Closing through August 31, 1997 (i) [$300,000]
(measured on August 31, 1997)
(ii) Three-month period ending on September (ii) [$250,000]
30, 1997 (measured on September 30, 1997)
(iii) Three-month period ending on October 31, (iii) [$200,000]
1997 (measured on October 31, 1997)
LOAN AND SECURITY AGREEMENT - Page 37
38
(iv) Three-month period ending on November 30, (iv) [$150,000]
1997 (measured on November 30, 1997)
(v) Three-month period ending on December 31, (v) [$100,000]
1997 (measured on December 31, 1997)
(vi) Three-month period ending on January 31, (vi) [$50,000]
1998 (measured on January 31, 1998)
(vii) Three-month period ending on the last day (vii) $0.01
of each thereafter occurring calendar
month (measured on the last day of such
thereafter occurring calendar month)
SECTION 10. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
Other Agreements, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, it is understood and agreed that
Lender will not make any Loan under Section 2 of this Agreement unless and
until each of the following conditions has been and continues to be satisfied,
all in form and substance satisfactory to Lender and its counsel:
10.1. Documentation. Lender shall have received the following
documents, each in form and substance satisfactory to Lender and its counsel:
(A) certified copies of Borrower's casualty insurance
policies, together with endorsements naming Lender as loss payee and as
mortgagee pursuant to a standard mortgagee clause, and certified copies of
Borrower's liability insurance policies, together with endorsements naming
Lender as a co-insured;
(B) copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence that such Liens
constitute valid and perfected security interests and Liens, having the Lien
priority specified in Section 4.3 hereof;
LOAN AND SECURITY AGREEMENT - Page 38
39
(C) landlord or warehouseman agreements with respect to all
premises leased by Borrower;
(D) a copy of the Articles or Certificate of Incorporation of
Borrower, and all amendments thereto, certified within 15 days before the
closing by the Secretary of State or other appropriate official of its
jurisdiction of incorporation;
(E) a copy of the bylaws of Borrower, and all amendments
thereto, certified as of the closing date by the Secretary of the Borrower;
(F) good standing certificates for Borrower, issued within 15
days before the closing by the Secretary of State or other appropriate official
of Borrower's jurisdiction of incorporation and each jurisdiction where the
conduct of Borrower's business activities or the ownership of its Properties
necessitates qualification;
(G) a closing certificate signed by the chief executive
officer and chief financial officer of Borrower dated as of the date hereof,
stating that (i) the representations and warranties set forth in Section 8
hereof are true and correct on and as of such date, (ii) Borrower is on such
date in compliance with all the terms and provisions set forth in this
Agreement and (iii) on such date no Default or Event of Default has occurred or
is continuing;
(H) Shareholder Pledge Agreement from Parent, for the benefit
of Lender, together with original stock certificates evidencing 100% of the
issued and outstanding capital stock of Borrower, together with original stock
powers duly executed in blank by Parent;
(I) the Other Agreements duly executed and delivered by
Borrower and/or the Guarantors, as appropriate;
(J) the written opinion of Xxxxx & Xxxxx, L.L.P., counsel to
Borrower and Guarantors, regarding Borrower, Guarantors, the Loan Documents and
the transactions contemplated by this Agreement and the Other Agreements;
(K) Guaranty agreements in form and substance satisfactory to
Lender, whereby Borrower unconditionally guarantees payment of all Indebtedness
of Sepco and/or Bayou Pumps and/or American MRO and/or Pelican to Lender;
(L) a collateral assignment of the Asset Purchase Agreement,
in form and substance satisfactory to Lender, whereby Borrower and Parent
collaterally assign to Lender only the right, title and interest of Parent and
Borrower in the Asset Purchase Agreement, duly executed by Parent and Borrower,
and consented to by Strategic Supply Inc.
(M) Lender shall have received evidence satisfactory to it
that each of the conditions precedent set forth in the Asset Purchase Agreement
has been satisfied and that the Acquisition has been concluded in accordance
with the provisions of the Purchase Documents;
LOAN AND SECURITY AGREEMENT - Page 39
40
(N) The Strategic Supply Subordinated Debt shall have been
subordinated to payment in full of the Obligations upon terms and conditions,
and pursuant to executed documentation, satisfactory to Lender; and
(O) such other documents, instruments and agreements as Lender
shall reasonably request in connection with the transaction contemplated
hereby.
10.2. Other Conditions. The following conditions have been and shall
continue to be satisfied:
(A) no Default or Event of Default shall exist;
(B) each of the conditions precedent set forth in the Other
Agreements shall have been satisfied;
(C) since March 31, 1997, there shall not have occurred any
material adverse change in the business, financial condition or results of
operations of Borrower, or the existence or value of any Collateral, or any
event, condition or state of facts which would reasonably be expected
materially and adversely to affect the business, financial condition or results
of operations of Borrower;
(D) no action, proceeding, investigation, regulation 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
this Agreement or the consummation of the transactions contemplated hereby or
which, in Lender's judgment, would make it inadvisable to consummate the
transactions contemplated by this Agreement or any of the Other Agreements;
(E) Lender shall have received such certificates and documents
reflecting the Solvency of Borrower, after giving effect to the transactions
contemplated by this Agreement, as Lender shall find acceptable;
(F) Lender shall have determined that immediately after Lender
has made the initial Loans contemplated hereof, and paid (or made provisions
for payment of ) all closing costs incurred in connection with the transactions
contemplated hereby, Availability shall not be less than $800,000;
(G) Borrower shall have paid to Lender in immediately
available funds, the closing fee set forth in Section 3.9 herein, which closing
fee is non-refundable and shall be deemed fully earned as of the date of
execution of this Agreement;
(H) Borrower shall have supplied Lender with evidence
satisfactory to Lender that an additional $1,000,000 of equity has been
injected into Borrower by Sepco; and
LOAN AND SECURITY AGREEMENT - Page 40
41
(I) Borrower shall have supplied Lender with a pro forma
balance sheet of Borrower, dated as of the date of the funding of the initial
Loans hereunder, which pro forma balance sheet shall be satisfactory in form
and substance to Lender.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) Borrower shall fail to pay any installment of principal,
interest or premium, if any, on the Term Note on the due date of such
installment;
(B) Borrower shall fail to pay any of the Obligations that are
not evidenced by the Term Note on the due date thereof (whether due at stated
maturity, on demand, upon acceleration or otherwise);
(C) any warranty, representation, or other statement made or
furnished to Lender by or on behalf of Borrower or Guarantor or in any
instrument, certificate or financial statement furnished in compliance with or
in reference to this Agreement or any of the Other Agreements proves to have
been false or misleading in any material respect when made or furnished;
(D) Borrower shall fail or neglect to perform, keep or observe
(i) any covenant contained in this Agreement (other than a covenant a default
in the performance or observance of which is dealt with specifically in clause
(ii) hereof or elsewhere in this Section 11.1) and the breach of such covenant
is not cured to Lender's satisfaction within 15 days after the sooner to occur
of Borrower's receipt of notice of such breach from Lender or the date on which
such failure or neglect becomes known to any officer of Borrower or (ii) shall
fail or neglect to perform, keep or observe any covenant contained in Sections
4.3, 4.4, 4.5, 5.2, 5.4, 7.2, 9.1(A), 9.1(E), 9.1(F), 9.1(I), 9.1(J), 9.1(K),
9.2 or 9.3;
(E) any event of default shall occur under, or Borrower shall
default in the performance or observance of any term, covenant, condition or
agreement contained in, any of the Other Agreements and such default shall
continue beyond any applicable period of grace;
(F) there shall occur any default or event of default on the
part of Borrower under any agreement, document or instrument to which Borrower
is a party or by which Borrower or any of its Property is bound, creating or
relating to any Indebtedness (other than the Obligations) if the payment or
maturity of such Indebtedness is accelerated in consequence of such event of
default or demand for payment of such Indebtedness is made;
(G) any material loss, theft, damage or destruction not
materially covered by insurance (as required by this Agreement and subject to
such deductibles as Lender shall have agreed to in writing), or sale, lease or
encumbrance of any of the Collateral or the making of any
LOAN AND SECURITY AGREEMENT - Page 41
42
levy, seizure, or attachment thereof or thereon except in all cases as may be
specifically permitted by other provisions of this Agreement;
(H) there shall occur any material adverse change in the
financial condition or business prospects of Borrower or any Guarantor;
(I) Borrower or any Guarantor shall cease to be Solvent or
shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower or any
Guarantor under the Bankruptcy Code (if against Borrower or any Guarantor, the
continuation of such proceeding for more than 30 days), or Borrower or any
Guarantor shall make any offer of settlement, extension or composition to their
respective unsecured creditors generally;
(J) a Reportable Event shall occur which Lender shall
determine in good faith constitutes grounds for the termination by the Pension
Benefit Guaranty Corporation of any Plan or for the appointment by the
appropriate United States district court of a trustee for any Plan, or if any
Plan shall be terminated or any such trustee shall be requested or appointed;
(K) 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;
(L) any money judgment, writ or attachment or similar process
is entered or filed against Borrower or any of its Property and results in the
creation or imposition of any Lien that is not a Permitted Lien;
(M) Borrower shall incur, assume or suffer to exist any
Indebtedness, whether direct or contingent, other than Indebtedness listed on
Exhibit F hereto and other Indebtedness (exclusive of trade payables) up to an
aggregate of $250,000 at any time outstanding;
(N) Lender shall in good xxxxx xxxx itself insecure;
(O) The occurrence of an "Event of Default", as such term is
defined in the Sepco Loan;
(P) Borrower and/or Sepco ceases to be a Subsidiary of Parent;
(Q) The occurrence of an "Event of Default", as such term is
defined in that certain Loan and Security Agreement, executed or to be executed
by Lender and Pelican State Supply Company Inc., as renewed, extended, modified
and restated from time to time; and
(R) There shall occur any default or event of default under
any agreement, document or instrument evidencing or executed in connection with
any Subordinated Debt.
LOAN AND SECURITY AGREEMENT - Page 42
43
11.2. Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.4 hereof, upon and at any time after the
occurrence of an Event of Default, all or any portion of the Obligations due or
to become due from Borrower to Lender (whether under this Agreement, any Other
Agreement or otherwise) shall, at Lender's option, become at once due and
payable without presentment, demand, protest, notice of dishonor, notice of
default, notice of intent to accelerate, notice of acceleration, or any other
notice whatsoever, and Borrower shall forthwith pay to Lender, in addition to
any and all sums and charges due, the entire principal of and interest accrued
on the Obligations; provided, however, that upon the occurrence of an Event of
Default specified in Section 11.1(D) hereof, all of the Obligations shall
become due and payable without declaration, notice or demand by Lender.
11.3. Remedies. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
(A) All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative, and none of which shall be exclusive, and shall be in addition
to any other rights or remedies contained in this Agreement or any of the Other
Agreements.
(B) The right to take immediate possession of the Collateral,
and (i) to require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) to enter any of the premises of
Borrower or wherever any of the Collateral shall be located, and to keep and
store the same on said premises until sold (and if said premises be the
Property of Borrower, Borrower agrees not to charge Lender for storage
thereof).
(C) The right to sell or otherwise dispose of all or any
Inventory or Equipment in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its discretion, may deem advisable. Borrower agrees
that fifteen days written notice to Borrower of any public or private sale or
other disposition of such Collateral shall be reasonable notice thereof, and
such sale shall be at such locations as Lender may designate in said notice.
Lender shall have the right to conduct such sales on Borrower's premises,
without charge therefor, and such sales may be adjourned from time to time in
accordance with applicable law. Lender shall have the right to sell, lease or
otherwise dispose of such Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of such
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may set-off the amount of such price
against the Obligations.
(D) Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the
LOAN AND SECURITY AGREEMENT - Page 43
44
Collateral, in advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit.
(E) The proceeds realized from the sale of any Collateral may
be applied, after allowing two Business Days for collection, first to the
costs, expenses and reasonable attorneys' fees incurred by Lender in collecting
the Obligations, in enforcing Lender's rights under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising
for sale, selling and delivering any of the Collateral; secondly, to interest
due upon any of the Obligations; and thirdly, to the principal of the
Obligations. If any deficiency shall arise, Borrower shall remain liable to
Lender therefor.
11.4. Remedies Cumulative; No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the Other Agreements, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
failure or delay of Lender to exercise or enforce any rights, Liens, powers or
remedies hereunder or under any of the aforesaid agreements or other documents
or security or Collateral shall not operate as a waiver of such Liens, rights,
powers and remedies, but all such Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrower to Lender shall have been fully
satisfied, and all Liens, rights, powers, and remedies herein provided for are
cumulative and none are exclusive.
SECTION 12. MISCELLANEOUS
12.1. Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the reasonable cost and expense of Borrower:
(A) At such time or times hereafter as Lender or said agent
may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control;
and
(B) At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent may determine: (i) demand and enforce
payment of the Accounts by legal proceedings or otherwise and exercise
generally all of Borrower's rights and remedies with respect to the collection
of the Accounts; (ii) settle, adjust, compromise, discharge or release any of
the Accounts or other Collateral or any legal proceedings brought to collect
any of the Accounts or other Collateral; (iii) prepare, file and sign
Borrower's name to a proof of claim in bankruptcy or similar document against
any Account Debtor or to any notice of lien, assignment or satisfaction of lien
or similar document in connection with any of the Collateral; (iv) receive
LOAN AND SECURITY AGREEMENT - Page 44
45
and open all mail addressed to Borrower and to notify postal authorities to
change the address for delivery thereof to such address as Lender may
designate; (v) endorse the name of Borrower upon any of the items of payment or
proceeds relating to any Collateral and deposit the same to the account of
Lender on account of the Obligations; (vi) endorse the name of Borrower upon
any chattel paper, document, instrument, invoice, freight xxxx, xxxx of lading
or similar document or agreement relating to the Accounts, Inventory and any
other Collateral; (vii) use Borrower's stationery and sign the name of Borrower
to verifications of the Accounts and notices thereof to Account Debtors; (viii)
make and adjust claims under policies of insurance; and (ix) do all other acts
and things necessary, in Lender's reasonable determination, to fulfill
Borrower's obligations under this Agreement.
12.2. Indemnity. Borrower hereby agrees to indemnify Lender and hold
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding ever suffered or incurred by Lender as the result of Borrower's
failure to observe, perform or discharge Borrower's duties hereunder. Without
limiting the generality of the foregoing, this indemnity shall extend to any
claims asserted against Lender by any Person under any Environmental Laws or
similar laws by reason of Borrower's or any other Person's failure to comply
with laws applicable to solid or hazardous waste materials or other toxic
substances, but this indemnity shall specifically exclude liability for breach
of any Environmental Laws caused solely and directly by Lender.
Notwithstanding any contrary provision in this Agreement, the obligation of
Borrower under this Section 12.2 shall survive the payment in full of the
Obligations and the termination of Lender's obligation to make Revolving Credit
Loans.
12.3. Modification of Agreement. This Agreement and the Other
Agreements may not be modified, altered or amended, except by an agreement in
writing signed by Borrower and Lender.
12.4 Reimbursement of Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not an Event of Default
then exists or any of the transactions contemplated hereunder are concluded,
Lender employs counsel for advice or other representation, or incurs legal
expenses or other costs or out-of-pocket expenses in connection with: (A) the
negotiation and preparation of this Agreement or any of the Other Agreements,
any amendment of or modification of this Agreement or any of the Other
Agreements; (B) the reasonable administration of this Agreement or any of the
Other Agreements and the transactions contemplated hereby and thereby; (C) any
litigation, contest, dispute, suit, proceeding or action (whether instituted by
Lender, Borrower or any other Person) in any way relating to the Collateral,
this Agreement or any of the Other Agreements or Borrower's affairs (other than
litigation in which Borrower is the prevailing party and in which Lender is
adverse to Borrower); (D) any attempt to enforce any rights of Lender against
Borrower or any other Person which may be obligated to Lender by virtue of this
Agreement or any of the Other Agreements, including, without limitation, the
Account Debtors (other than litigation in which Borrower is the prevailing
party and in which Lender is adverse to Borrower); or (E) any attempt to
inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral; then, in any such event,
the reasonable attorneys' fees arising from such services and all expenses,
costs, charges and other fees of such counsel or of Lender or relating to any
of the
LOAN AND SECURITY AGREEMENT - Page 45
46
events or actions described in this Section shall be payable, on demand, by
Borrower to Lender and shall be additional Obligations hereunder secured by the
Collateral. Additionally, if any taxes (excluding taxes imposed upon or
measured by the net income of Lender) shall be payable on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance
or recording of any of the Other Agreements, or the creation of any of the
Obligations hereunder, by reason of any existing or hereafter enacted federal
or state statute, Borrower will pay all such taxes, including, but not limited
to, any interest and penalties thereon, and will indemnify and hold Lender
harmless from and against liability in connection therewith. Borrower shall
have no obligation to pay the legal expenses or other costs incurred by a
Participating Lender or by Lender in connection with any sale or attempted sale
of any interest herein to a Participating Lender.
12.5. Indulgences Not Waivers. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver
by Lender of an Event of Default by Borrower under this Agreement or any of the
Other Agreements shall not suspend, waive or affect any other Event of Default
by Borrower under this Agreement or any of the Other Agreements, whether the
same is prior or subsequent thereto and whether of the same or of a different
type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default by Borrower under this Agreement or any of
the Other Agreements shall be deemed to have been suspended or waived by
Lender, unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly authorized
representative of Lender and directed to Borrower.
12.6. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
12.7. Successors and Assigns; Participations by Lender. This Agreement
and the Other Agreements shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender; provided, however, that Borrower
may not sell, assign or transfer any interest in this Agreement or any of the
Other Agreements, or any portion thereof, including, without limitation,
Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Any purported assignment by Borrower in violation of this Section
12.7 shall be void, without Lender's prior written consent. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or of the
disposition, at any time or times hereafter, of this Agreement, any of the
Other Agreements, or any other Obligations, or of any portion hereof or
thereof, including, without limitation, Lender's rights, title, interests,
remedies, powers, and duties hereunder or thereunder. In the case of an
assignment, the assignee shall have, to the extent of such assignment, the same
rights, benefits and obligations as it would have if it were the original
"Lender" hereunder and Lender shall be relieved of all obligations hereunder
upon any such
LOAN AND SECURITY AGREEMENT - Page 46
47
assignment. In the case of a participation, each Participating Lender shall be
entitled to receive all information received by Lender regarding the credit-
worthiness of Borrower, including, without limitation, information required to
be disclosed to a participant pursuant to Banking Circular 181 (Rev., August 2,
1984), issued by the Comptroller of the Currency (whether such Participating
Lender is subject to the circular or not).
12.8. Cumulative Effect; Conflict of Terms. The provisions of the
Other Agreements are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in Section 3.4 of this Agreement and
except as otherwise provided in any of the Other Agreements by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the Other Agreements, the provision contained in this
Agreement shall govern and control.
12.9. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
12.10. Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail, return receipt requested, personal
delivery against receipt, or by telegraph or telex and, unless otherwise
expressly provided herein, shall be deemed to have been validly served, given
or delivered when delivered against receipt or three Business Days after
deposit in the mail, postage prepaid, or, in the case of telegraphic notice,
when delivered to the telegraph company, or, in the case of telex notice, when
sent, answer-back received, addressed as follows:
(A) If to Lender: Fleet Capital Corporation
0000 Xxxxx Xxxxxxx
Xxxxx 0000, XX 00
Xxxxxx, Xxxxx 00000
Attention: Loan Administration Manager
w/ a copy to: Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx
(B) If to Borrower: DXP Acquisition, Inc. d/b/a
Strategic Acquisition, Inc.
000 Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxx
LOAN AND SECURITY AGREEMENT - Page 47
48
w/ a copy to: Xxxxx & Xxxxx, L.L.P.
0000 Xxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxx X. Xxxxxxxxxxx
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.10; provided, however, that any
notice, request or demand to or upon Lender pursuant to Section 3.3 shall not
be effective until received by Lender. Any written notice that is not sent in
conformity with the provisions hereof shall nevertheless be effective on the
date such notice is actually received by the noticed party.
12.11. Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement or any of the Other Agreements as a condition to
any action, inaction, condition or event, Lender shall be authorized to give or
withhold such consent in its sole and absolute discretion (unless otherwise
expressly provided herein) and to condition its consent upon the giving of
additional collateral security for the Obligations, the payment of money or any
other matter.
12.12. Demand Obligations. Nothing in this Agreement shall affect or
abrogate the demand nature of any portion of the Obligations expressly made
payable on demand by this Agreement or by any instrument evidencing or securing
same, and the occurrence of an Event of Default shall not be a prerequisite for
Lender's requiring payment of such Obligations.
12.13. Time of Essence. Time is of the essence of this Agreement and
the Other Agreements.
12.14. Entire Agreement. This Agreement and the Other Agreements,
together with all other instruments, agreements and certificates executed by
the parties in connection therewith or with reference thereto, embody the
entire understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral or
written.
12.15. Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
drafted or dictated such provision.
12.16. Nonapplicability of Article 5069-15.01 et seq. Borrower and
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions
of Tex. Rev. Civ. Stat. Xxx. art. 5069-15.01 et seq. (Xxxxxx 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not
apply to this Agreement or any of the Other Agreements.
12.17. No Preservation or Marshaling. Borrower agrees that Lender has
no obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person.
LOAN AND SECURITY AGREEMENT - Page 48
49
12.18. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
DALLAS, TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER,
BORROWER HEREBY CONSENTS AND AGREES THAT THE DISTRICT COURT OF DALLAS COUNTY,
TEXAS, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER
HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE, AT THE ELECTION OF LENDER, BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID; PROVIDED THAT LENDER SHALL ALSO SEND, BY
TELECOPY, TO BORROWER A COPY OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS (AN
AFFIDAVIT OF AN OFFICER, EMPLOYEE OR AGENT OF LENDER STATING THAT SUCH TELECOPY
WAS SENT TO BORROWER SHALL BE PRESUMPTIVELY CORRECT IN ALL RESPECTS). NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE
ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE
TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER
APPROPRIATE FORUM OR JURISDICTION.
LOAN AND SECURITY AGREEMENT - Page 49
50
12.19. WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (B) PRESENTMENT, DEMAND AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON-PAYMENT, INTENT TO
ACCELERATE, ACCELERATION, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION
OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER LENDER MAY DO IN THIS REGARD; (C) NOTICE PRIOR TO TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY
ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (D)
THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (E) ANY RIGHT
BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO
TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF
BORROWER UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND
THE EXECUTION BY BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER IS USED IN
WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING
LENDER FROM ANY LOSS OR DAMAGE LENDER MAY INCUR AS THE RESULT OF DISHONORED
CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY LENDER FROM BORROWER OR ANY
ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; AND (F) NOTICE OF ACCEPTANCE
HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12.20 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
12.21 WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ITS RIGHTS
UNDER THE TEXAS DECEPTIVE TRADE PRACTICES--CONSUMER PROTECTION ACT SECTION
17.41 ET. SEQ. TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS
SPECIAL RIGHTS AND PROTECTIONS. AFTER
LOAN AND SECURITY AGREEMENT - Page 50
51
CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION, BORROWER VOLUNTARILY
CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY WARRANTS AND REPRESENTS THAT
BORROWER (i) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE
TO LENDER, AND (ii) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
LOAN AND SECURITY AGREEMENT - Page 51
52
IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas,
Texas, on the day and year specified at the beginning hereof.
"BORROWER"
DXP ACQUISITION, INC. D/B/A
STRATEGIC ACQUISITION, INC.
By: /s/ XXXXX X. XXXXXX
------------------------------
Name: Xxxxx X. Xxxxxx
----------------------------
Title: Chairman and CEO
---------------------------
"LENDER"
FLEET CAPITAL CORPORATION
By: /s/ H. XXXXXXX XXXXX
------------------------------
Name: H. Xxxxxxx Xxxxx
----------------------------
Title: VP
---------------------------
LOAN AND SECURITY AGREEMENT - Page 52
53
EXHIBIT A
FORM OF EURODOLLAR BORROWING NOTICE
____________, 199__
Fleet Capital Corporation
0000 X. Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Loan Administration Manager -- DXP Acquisition, Inc. d/b/a
Strategic Acquisition Inc.
Ladies and Gentlemen:
Reference is made to that certain Loan and Security Agreement, dated as
of May 29, 1997, by and between DXP Acquisition, Inc. d/b/a Strategic
Acquisition Inc. and Fleet Capital Corporation ("Lender") (as amended from time
to time, the "Loan Agreement"). Unless otherwise defined herein, all
capitalized terms shall have the meaning ascribed to them in the Loan
Agreement.
The undersigned is an authorized officer of DXP Acquisition, Inc. d/b/a
Strategic Acquisition Inc. and is authorized to make and deliver this request
pursuant to the Loan Agreement on behalf of DXP Acquisition, Inc. d/b/a
Strategic Acquisition Inc.(hereinafter referred to as the "Borrower").
In connection with the foregoing and pursuant to the terms and
provisions of the Loan Agreement, the undersigned hereby certifies that:
(i) No Default or Event of Default currently exists under the Loan
Agreement.
(ii) Attached hereto as Schedule 1 is a true, correct and complete
request for advance under the Loan Agreement or other transaction related
thereto and Borrower hereby requests that Lender initiate the transactions
described therein.
DXP Acquisition, Inc. d/b/a
Strategic Acquisition Inc.
By:
_________________________
Name:
_______________________
Title:
______________________
LOAN AND SECURITY AGREEMENT
Exhibit A - Page 1
54
Schedule 1
Request for Interest Rate Option
Please use this correspondence as an official request on behalf of
Borrower to initiate the following transaction(s):
ADVANCES
Advance $________ at the Eurodollar Base Rate of ____% plus 2.00% for a period
of [1][2][3][6] months until maturity at __________________.
________ credit this advance to account number _______ at ________.
________ use this advance to designate $________ of the [Term Loan]
[Revolving Credit Loans] as Loans that bear interest based
upon the Eurodollar Base Rate.
READVANCES
Readvance to pay the principal amount currently outstanding under the
Eurodollar Loan which matures on ________ in the amount of $________ by
initiating a readvance of $________ at the Eurodollar Base Rate of ____% plus
2.00% for a period of [1][2][3][6] months until maturity on ________________.
PAYDOWNS
________ Payoff the Eurodollar Loan in the amount of $________ which
matures on _____________.
Proceeds to initiate this paydown may be obtained by debiting Borrower's
account number ________ at ____________.
LOAN AND SECURITY AGREEMENT
Exhibit A - Page 2
55
EXHIBIT B
BUSINESS LOCATIONS
1. Borrower currently has the following business locations, and no others:
Chief Executive Office:
Other Locations:
2. Borrower maintains its books and records relating to Accounts and
General Intangibles at:
3. Borrower has had no office, place of business or agent for process
located in any county other than as set forth above, except:
4. Each Subsidiary currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
5. Each Subsidiary maintains its books and records relating to Accounts and
General Intangibles at:
6. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
LOAN AND SECURITY AGREEMENT
Exhibit B - Page 1
56
7. The following bailees, warehouseman, similar parties and consignees hold
inventory of Borrower or one of its Subsidiaries:
Name and Address Nature of
of Party Relationship Amount of Inventory Owner of Inventory
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
LOAN AND SECURITY AGREEMENT
Exhibit B - Page 2
57
EXHIBIT C
CORPORATE NAMES
1. Borrower's correct corporate name, as registered with the Secretary of
State of the State of Nevada, is:
DXP Acquisition, Inc. d/b/a Strategic Acquisition, Inc.
2. In the conduct of its business, Borrower has used the following names:
3. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
4. In the conduct of its business, each Subsidiary has used the following
names:
LOAN AND SECURITY AGREEMENT
Exhibit C - Page 1
58
EXHIBIT D
LITIGATION
1. Actions, suits, proceedings and investigations pending against Borrower
or any Subsidiary:
Jurisdiction or
Title of Action Nature of Action Complaining Parties Tribunal
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
------------------ ------------------ ------------------ ------------------
2. The only threatened actions, suits, proceedings or investigations of
which Borrower or any Subsidiary is aware are as follows:
LOAN AND SECURITY AGREEMENT
Exhibit D- Page 1
59
EXHIBIT E
COMPLIANCE CERTIFICATE
[Letterhead of Borrower]
__________________, 19__
Fleet Capital Corporation
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxx 0000, XX 21
Xxxxxx, Xxxxx 00000
The undersigned, the chief financial officer of DXP Acquisition, Inc.
d/b/a Strategic Acquisition, Inc., a Nevada corporation ("Borrower"), gives
this certificate to Fleet Capital Corporation ("Lender") in accordance with the
requirements of Section 9.1.(J) of that certain Loan and Security Agreement
dated as of June __, 1997, by and between Borrower and Lender ("Loan
Agreement"). Capitalized terms used in this Certificate, unless otherwise
defined herein, shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the Consolidated and consolidating
balance sheets and statements of income of DXP Enterprises, Inc. and its
Subsidiaries for the [fiscal year] [quarterly period] [month] ending
__________________, 19__, ("Calculation Date")copies of which are attached
hereto, I hereby certify that:
(a) Consolidated Cash Flow for the three-month period ending
on the Calculation Date is $_________;
[(b) Consolidated Cash Flow for the twelve-month period ending
on the Calculation Date is $____________;]
(c) The Consolidated Current Assets to Consolidated Current
Liabilities Ratio as of the Calculation Date is ____ to 1;
(d) The Consolidated Indebtedness to Consolidated Adjusted
Tangible Net Worth Ratio is ____ to 1; and
LOAN AND SECURITY AGREEMENT
Exhibit E- Page 1
60
(e) Capital Expenditures during the period and for the fiscal
year to date total $__________ and $__________,
respectively.
2. No Default exists on the date hereof, other than: _______________
[if none, so state]; and
3. No Event of Default exists on the date hereof, other than _______
[if none, so state].
Very truly yours,
______________________________
Chief Financial Officer
LOAN AND SECURITY AGREEMENT
Exhibit E - Page 2
61
EXHIBIT F
PERMITTED INDEBTEDNESS
Holder of Indebtedness Description of Indebtedness Maturity Date
-------------------------- ---------------------------- ------------------
-------------------------- ---------------------------- ------------------
-------------------------- ---------------------------- ------------------
-------------------------- ---------------------------- ------------------
LOAN AND SECURITY AGREEMENT
Exhibit F - Page 1
62
Exhibit G
11.290 ACRE TRACT
X.X. XXXXXX SURVEY, ABSTRACT NO. 5
ANGELINA COUNTY, TEXAS
BEING all that certain tract or parcel of land lying and situated in
Angelina County, Texas, out of the X.X. XXXXXX SURVEY, ABSTRACT NO. 5 and
being a part or portion of that certain 14.2961 acre tract described in a deed
from Xxxxxxxxxx Brothers, Inc. to Lufkin Industries, Inc. dated September 11,
1980 and recorded in Volume 508 on Page 514 of the Deed Records of Angelina
County, Texas, to which reference is hereby made for any and all purposes and
the said tract or parcel being described by metes and bounds as follows,
to-wit:
BEGINNING S 19 degrees 50' 42" E 143.62 feet from a 1/2" pipe set at
the Northeast corner of the aforesaid referred to 14.2961 acre tract and the
Northwest corner of that certain 7.25 acre tract described in a deed from
Xxxxxxxxx Xxxxxx, et al to X. Xxxxxx dated May 10, 1935 and recorded in Volume
82 on Page 590 of the Deed Records of Angelina County, Texas, a 1/2" pipe set
for corner in the East boundary line of the said 14.2961 acre tract and the
West boundary line of the said 7.25 acre tract;
THENCE S 19 degrees 50' 42" E with the East boundary line of the said
14.2961 acre tract, the West boundary line of the said 7.25 acre tract and the
West boundary line of that certain 1.61 acre tract described in a deed from
Xxx. X. X. Xxxxxxx, et al to Xxxxxxx Xxxxxx dated February 2, 1938 and
recorded in Volume 88 on Page 208 of the Deed Records of Angelina County,
Texas, at 1261.91 feet the Southeast corner of the said 14.2961 acre tract and
the Northeast corner of that certain 0.58 acre tract described in a deed from
X. X. Xxxxxxx, et ux to X. X. Xxxxxxxx, et ux dated January 5, 1961 and
recorded in Volume 251 on Page 278 of the Deed Records of Angelina County,
Texas a 1/2" pipe found for corner;
THENCE S 71 degrees 41' 00" W with the South boundary line of the said
14.2961 acre tract, the North boundary line of the said 0.58 acre tract, and
the North boundary line of that certain 0.5 acre tract described in a deed from
the estate of Rolf Xxxxx Xxxxx to X. X. Xxxxxxxx dated December 19, 1957 and
recorded in Volume 215 on Page 92 of the Deed Records of Angelina County,
Texas, at 305.88 feet the Southwest corner of the said 14.2961 acre tract and
the Northwest corner of the said 0.5 acre tract, a 1/2" pipe set for corner
(near a chainlink fence corner) in the curving East right-of-way line of State
Highway Loop No. 287;
THENCE two calls with the West boundary line of the said 14.2961 acre
tract and the East right-of-way line of the said Xxxxx Xxxxxxx Xxxx Xx. 000 as
follows:
(1) Northwesterly with a 02 degrees 51' 03" curve to the
left (Central Angle
G-1
63
= 09 degrees 08' 31" Radius = 2009.86 feet with
Long Chord Bearing and Distance = N 27 degrees 32'
38" W 320.35 feet), at 320.69 feet the end of said
curve, a Texas Highway Department metal disk found
for corner;
(2) N 32 degrees 06' 54" W 833.05 feet, a 1/2" pipe set
for corner;
THENCE N 57 degrees 03' 48" E, at 539.76 feet the point and place of
beginning and containing 11.290 acres of land, more or less.
Basis of Bearings: The North boundary line of the said 14.2961 acre tract
(Deed Call -N 83degrees 07' E).
XXXXXXX XXXXXXXX, XX. AND
ASSOCIATES, INC.
Engineering and Surveying
/s/ XXXXXXX X. XXXXXX
----------------------------------------------
Xxxxxxx X. Xxxxxx (Signature in blue ink)
Registered Professional Land Surveyor No. 4527
Lufkin, Texas
May 17, 1994
G-2
64
EXHIBIT H
SECURED PROMISSORY NOTE
$500,000.00 ____________,1997
FOR VALUE RECEIVED, the undersigned (hereinafter "Borrower"), hereby
promises to pay to the order of FLEET CAPITAL CORPORATION, a Rhode Island
corporation (hereinafter "Lender") at its office located at 2711 North Xxxxxxx,
Suite 2100, LB 21, Xxxxxx, Xxxxx 00000, or at such other location as Lender may
request, in such coin or currency of the United States which shall be legal
tender in payment of all debts and dues, public and private, at the time of
payment, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00), together with interest on the unpaid principal balance from
day-to-day remaining computed from the date of advance until maturity at a
variable rate per annum equal to the lesser of (i) 0.50% above the Base Rate
(as hereinafter defined) (the "Annual Term Rate"), or (ii) the Maximum Legal
Rate (as hereinafter defined).
This Secured Promissory Note (this "Note") is the Term Note referred
to in, and is issued pursuant to, that certain Loan and Security Agreement,
dated on or about June __, 1997 (as amended, restated or renewed from time to
time, the "Loan Agreement") and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and all other instruments evidencing or securing the indebtedness
hereunder (including, without limitation, the "Security Documents" as defined
in the Loan Agreement) (hereinafter collectively referred to as the "Loan
Documents") are hereby made a part of this Note and are deemed incorporated
herein in full. All capitalized terms used herein, unless otherwise
specifically defined in this Note, shall have the meanings ascribed to them in
the Loan Agreement.
For the purposes of this Note, the term "Base Rate" shall mean the
rate of interest established by Fleet National Bank from time to time as its
"base rate" for commercial loans, whether or not such rate is the lowest rate
charged by said bank to its most preferred borrowers; and, if the base rate for
commercial loans is discontinued by said bank as a standard, a comparable
reference rate designated by said bank as a substitute therefor shall be the
"Base Rate". After the date hereof, the rate of interest in effect hereunder
shall be increased or decreased, as the case may be, by an amount equal to any
increase or decrease in the Base Rate, with such adjustments to be effective as
of the opening of business on the date that any such change in the Base Rate
becomes effective. The Base Rate in effect on the date hereof shall be the Base
Rate effective as of the opening of business on the date hereof, but if this
Note is executed on a day that is not a Business Day, the Base Rate in effect
on the date hereof shall be the Base Rate effective as of the opening of
business on the last business day immediately preceding the date hereof.
Interest due at the Maximum Legal Rate shall be calculated on the basis of
actual days elapsed over a year of 365 or 366 days, as the case may be.
1
65
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, the principal amount of this Note shall bear interest at
a fluctuating rate per annum equal to the lesser of (i) 3.0% above the Base
Rate (the "Default Rate"), calculated daily (computed on the actual days
elapsed over a year of 360 days), or (ii) the Maximum Legal Rate.
If at any time the amount of such interest computed on the basis of
the Annual Term Rate or the Default Rate, whichever is applicable (the
"Applicable Rate"), would exceed the amount of such interest computed upon the
basis of the maximum rate of interest permitted by applicable state or federal
law in effect from time to time hereafter (the "Maximum Legal Rate"), the
interest payable under this Note shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall
not reduce such interest thereafter payable hereunder below the amount computed
on the basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Note equals the total amount of
interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Rate. Unless preempted by
federal law, the Applicable Rate from time to time in effect hereunder may not
exceed the "indicated ceiling rate" from time to time in effect under Tex. Rev.
Civ. Stat. Xxx. art. 5069-1.04(c) (Xxxxxx 1987). If the applicable state or
federal law is amended in the future to allow a greater rate of interest to be
charged under this Note than is presently allowed by applicable state or
federal law, then the limitation of interest hereunder shall be increased to
the maximum rate of interest allowed by applicable state or federal law as
amended, which increase shall be effective hereunder on the effective date of
such amendment, and all interest charges owing to Lender by reason thereof
shall be payable at the same date and in the same manner as accrued interest on
this Note is generally payable pursuant to the provisions of this Note.
The principal amount of and all accrued interest on this Note shall be
due and payable on the dates and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in
arrears, on the first day of each month, commencing on the first day
of the month immediately succeeding the date of this Note, and
continuing on the first day of each month thereafter until such time
as the full principal balance, together with all other amounts owing
hereunder, shall have been paid in full;
(b) Principal shall be due and payable in equal monthly
installments of $8,300.00 each, commencing on August l, 1998, and
continuing on the first day of each month thereafter; and
(c) The entire remaining principal amount then
outstanding, together with any unpaid interest and any and all other
amounts due hereunder, shall be due and payable on the last day of the
Original Term or on any earlier termination of the Loan Agreement
pursuant to Section 3.3 thereof.
2
66
This Note shall be subject to mandatory prepayment in accordance with
the provisions of Section 2.2 of the Loan Agreement.
Borrower (i) shall also prepay this Note in full in connection with
any termination of the Loan Agreement pursuant to Section 3.3 of the Loan
Agreement, and (ii) may prepay this Note in part or in full upon ten (10) days'
prior written notice to Lender, provided that such partial prepayment is made
solely from the internal cash flow from Borrower's ordinary business
operations; provided, however, that each such prepayment described above in
this paragraph shall be made together with accrued interest on the principal
amount so prepaid at the payment date, plus a premium equal to 0.5% of the
principal amount prepaid.
All partial prepayments, whether mandatory or voluntary, shall be
applied to installments of principal in the inverse order of their maturities.
Upon or after the occurrence of an Event of Default, Lender shall have
all of the rights and remedies set forth in Section 11 of the Loan Agreement,
including the right to declare the then outstanding principal balance and
accrued interest hereof to be and the same shall thereupon become, immediately
due and payable without notice to or demand upon Borrower, all of which
Borrower hereby expressly waives.
No agreements, conditions, provisions or stipulation contained in this
Note, the Loan Agreement or any other instrument, document or agreement between
Borrower and Lender or default of Borrower, or the exercise by Lender of the
right to accelerate the payment of the maturity of principal and interest, or
to exercise any option whatsoever contained in this Note or any other Loan
Document, or the arising of any contingency whatsoever, shall entitle Lender to
contract for, charge, or receive, in any event, interest exceeding the Maximum
Legal Rate. In no event shall Borrower be obligated to pay interest exceeding
such Maximum Legal Rate and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel Borrower to pay a rate of interest exceeding the Maximum Legal Rate,
shall be without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such Maximum Legal Rate. In the event any
interest is contracted for, charged or received in excess of the Maximum Legal
Rate ("Excess Interest"), Borrower acknowledges and stipulate that any such
contract, charge, or receipt shall be the result of an accident and bona fide
error, and that any Excess Interest received by Lender shall be applied, first,
to reduce the principal then unpaid hereunder; second, to reduce the other
Obligations; and third, returned to Borrower, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Applicable
Annual Rate and the Maximum Legal Rate, such a result could inadvertently
occur. By the execution of this Note, Borrower covenants that (i) the credit or
return of any Excess Interest shall constitute the acceptance by Borrower of
such Excess Interest, and (ii) Borrower shall not seek or pursue any other
remedy, legal or equitable, against Lender, based in whole or in part upon
contracting for, charging or receiving of any interest in excess of the maximum
rate authorized by applicable law. For the purpose of determining whether or
not any Excess Interest has been contracted for, charged or received by Lender,
all interest at any time contracted for, charged or received by Lender in
connection with this Note shall be amortized, prorated, allocated and spread in
3
67
equal parts during the entire term of this Note.
Time is of the essence of this Note. Unless otherwise provided in the
Loan Agreement, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives, to the fullest extent permitted by Applicable
Law, presentment, demand, protest, notice of dishonor, notice of non-payment,
notice of intent to accelerate, notice of acceleration, notice of maturity,
notice of protest, presentment for the purpose of accelerating maturity,
diligence in collection, and the benefit of any exemption or insolvency laws.
If this Note is collected by or through an attorney at law, Borrower
shall be obligated to pay, in addition to the principal balance and accrued
interest hereof, reasonable attorney's fees and court costs, and any other
charges for which Borrower is responsible under the Loan Agreement and other
Loan Documents.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited or invalid under Applicable Law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial exercise
by Lender of any right or remedy preclude any other right or remedy. Lender, at
its option, may enforce its rights against any collateral securing this Note
without enforcing its rights against Borrower, any guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to Borrower. Borrower agrees that, without releasing or impairing
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness
evidenced by this Note.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered in Dallas, Texas, on the date first above written.
BORROWER:
DXP ACQUISITION, INC., d/b/a
Strategic Acquisition, Inc.
By: /s/ XXXXX X. XXXXXX
Name: Xxxxx X. Xxxxxx
Title: Chairman & CEO
4
68
EXHIBIT I
WHEN RECORDED. RETURN TO:
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx, Esq.
DEED OF TRUST, SECURITY AGREEMENT.
FINANCING STATEMENT AND ASSIGNMENT OF RENTS
[ANGELINA COUNTY, TEXAS]
THE STATE OF TEXAS )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ANGELINA )
THIS DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND
ASSIGNMENT OF RENTS (this "Deed of Trust") is executed on ______________ 1997,
by DXP ACQUISITION, INC. (d/b/a Strategic Acquisition, Inc., a Nevada
corporation ("Grantor"), whose address is 000 Xxxxxxxx Xxxx Xxxxxxxxx, Xxxxx
0000, Xxxxxxx, Xxxxx 00000, to COLLATERAL SERVICES, INC., a Texas corporation,
whose address is 0000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, as Trustee
("Trustee"), for the benefit of FLEET CAPITAL CORPORATION, a Rhode Island
corporation, whose address is 0000 Xxxxx Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000 (such party, together with any holder or holders of all or any part of
the "Secured Indebtedness" [as hereinafter defined] shall be referred to herein
as "Beneficiary").
ARTICLE I
DEFINITIONS
Section 1.1. As used in this Deed of Trust, the following terms
shall have the meanings indicated, unless the context otherwise requires:
"Beneficiary" is defined in the preamble to this Deed of Trust.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as
amended from time to time, including, without limitation, the Superfund
Amendments and Reauthorization Act ("XXXX").
1
69
"Code" means Chapter 9 of the Texas Uniform Commercial Code, TEX.
BUS. & COM. CODE XXX. Section 9.101, et seq. (Xxxxxx 1968, Xxxxxx Supp. 1987),
as amended from time to time.
"Deed of Trust" is defined in the preamble hereto.
"Environmental Law" means any federal, state or local law, statute,
ordinance, or regulation pertaining to health, industrial hygiene, or the
environmental conditions on, under or about the Mortgaged Property, including
but not limited to, CERCLA, XXXX and RCRA.
"Event of Default" means an "Event of Default" as defined in the Loan
Agreement.
"Grantor" is defined in the preamble to this Deed of Trust.
"Grantor's Successors" means each and all of the successors and
assigns of Grantor, both immediate and remote.
"Hazardous Substance" means one or more of the following substances:
(A) those substances included within the
definitions of (i) "hazardous substances," "hazardous materials" or
"toxic substances," in CERCLA, XXXX, RCRA, Toxic Substances Control
Act, Federal Insecticide, Fungicide and Rodenticide Act and the
Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et
seq.), or (ii) "solid waste," as defined under the Texas Solid Waste
Disposal Act, but only to the extent that Grantor's failure to comply
with a representation, warranty, covenant, agreement or other
obligation hereunder involving Hazardous Substances would reasonably
be expected to result in enforcement or administrative action by the
State of Texas by virtue of Subchapter I of Chapter 361 of the Texas
Health and Safety Code (or any successor statutory provision), and in
the regulations promulgated pursuant to said laws;
(B) such other substances, materials and wastes
which are or become regulated as hazardous or toxic under applicable
local, state or federal law, or the United States government, or
which are classified as hazardous or toxic under federal, state, or
local laws or regulations; and
(C) any material, waste or substance which is (i)
asbestos, (ii) polychlorinated biphenyls, (iii) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act,
33 U.S.C. Sections 1251 et seq. (33 U.S.C. Section 1321) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section
1317), (iv) explosives, (v) radioactive materials, or (vi) petroleum,
petroleum products or any fraction thereof.
"Improvements" means all buildings and improvements now or hereafter
situated on the Land.
2
70
"Indemnitee" is defined in Subsection 5.l(E).
"Land" means, all and singular, the tracts of real property described
upon Exhibit A attached hereto.
"Leases" means all present and future leases and agreements, written
or oral, for the use or occupancy of any portion of the Mortgaged Property, and
any renewals, extensions or substitutions of said leases and agreements and any
and all subleases thereunder.
"Lessee" means any lessee, sublessee. tenant or other person having
the right to occupy, use or manage the Mortgaged Property, or any part thereof,
under a Lease.
"Lien" means any encumbrance, lien, judgment lien, deed of trust
lien, mechanic's lien, materialman's lien, security interest, tax lien, pledge,
conditional sale or title retention agreement, financing lease, or any other
interest in property designed to secure the repayment of indebtedness, whether
arising by agreement or under law or otherwise.
"Loan Agreement" means that certain Loan and Security Agreement,
dated on or June __, 1997, executed by Grantor and Beneficiary and all
renewals, extensions, amendments, modifications and restatements thereof.
"Loan Documents" means the Loan Documents, as defined in the Loan
Agreement.
"Losses" is defined in Subsection 5.l(E).
"Mortgaged Property" is defined in Section 2.1.
"Obligated Party" means and includes each of Grantor and any other
party or entity liable for payment of any portion of or all of the Secured
Indebtedness.
"Permitted Exceptions" means the exceptions to title described upon
Exhibit B attached hereto, but only to the extent that such exceptions are
valid, existing and, in fact, affect the Mortgaged Property.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"Personal Property" means all of the following described properties
and interests, now owned or hereafter acquired by Grantor, and all accessories,
attachments and additions thereto and all replacements or substitutes therefor
and all products and proceeds thereof, and accessions thereto:
(A) all of the property, personal or otherwise, now
or hereafter attached to or incorporated into or used in or about the
Real Estate, including,
3
71
without limitation, all fixtures, building materials, furniture,
appliances, furnishings, equipment, and machinery and all other
tangible personal property now or hereafter affixed, attached or
related to such property or used in connection therewith but
specifically excluding inventory that is held for resale in the
ordinary course of business; and
(B) all Rents and Leases.
"RCRA" means the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Sections 6901, et seq.), as amended from time to time.
"Real Estate" means the Land and the Improvements.
"Remedial Work" is defined in Subsection 5.1(F).
"Rents" means the rents, income, receipts, revenues, issues and
profits now due or which may become due or to which Grantor may now or
hereafter become entitled or may demand or claim, arising or issuing from or
out of the Leases or from or out of the Mortgaged Property, or any part
thereof, including, without limitation, minimum rents, additional rents,
percentage rents, common area maintenance charges, parking charges (including
monthly rental or parking spaces), tax and insurance premium contributions, and
liquidated damages following default, premiums payable by any Lessee upon the
exercise of any cancellation privilege provided for in any of the Leases, and
all proceeds payable under any policy of insurance covering the loss of rent
resulting from untenantability caused by destruction or damage of the Mortgaged
Property, together with any and all rights and claims of any kind which Grantor
may have against any Lessee or against any other occupants of all or any part
of the Mortgaged Property.
"Rights" means rights, remedies, powers, benefits and privileges.
"Secured Indebtedness" is defined in Section 3.1.
"Term Note" means that certain Secured Promissory Note, dated on or
about the date hereof, in the original principal amount of $500,000, executed
by Grantor and payable to the order of Beneficiary any and all renewals,
modifications and extensions of such note, and any and all notes executed in
substitution for such note.
"Triggering Event" is defined in Section 5.3.
"Trustee" is defined in the preamble hereto, and shall include each
and every substitute trustee appointed pursuant to the terms hereof.
4
72
ARTICLE II
GRANT
Section 2.1. Grant. For good and valuable consideration, including
the debt and trust hereinafter described, the receipt and legal sufficiency of
which are hereby expressly acknowledged by all parties, Grantor does hereby
GRANT, BARGAIN, SELL, TRANSFER, ASSIGN, AND CONVEY unto Trustee, and its
successors and substitutes in trust hereunder, the following described
property, subject to the Permitted Exceptions:
(A) The Land, together with (i) the Improvements;
(ii) all estates, easements, interests, licenses, rights, titles, powers, and
privileges of Grantor in and to the Land and all easements and rights-of-way
used in connection with the Land or the Improvements or as a means of ingress
to or egress from the Land or the Improvements; (iii) all estates, easements,
interests, licenses, rights, titles, powers, and privileges, if any, of Grantor
in and to the real estate lying in the streets, roads, alleys, ways, sidewalks,
or avenues, open or proposed, in front of, or adjoining, the Land, and in and
to any strips or gores of real estate adjoining the Land; and (iv) all estates,
easements, licenses, interests, rights, titles, powers, and privileges
appurtenant or incident to the foregoing;
(B) The Personal Property; and
(C) All other estates, easements, licenses,
interests, rights, titles, powers, and privileges of every kind and character
which Grantor now has, or at any time hereafter acquires, in and to the Land,
the Improvements, the Personal Property, and all property of Grantor which is
used or useful in connection with the Land, the Improvements, and the Personal
Property, and the proceeds of any and all insurance covering the Land, the
Improvements, and the Personal Property.
All property and interests described or referred to in Subsections (A), (B),
and (C) of this Section 2.1, together with any additional interest therein now
owned, or hereafter acquired, by Grantor, are sometimes hereinafter
collectively called the "Mortgaged Property".
TO HAVE AND TO HOLD the Mortgaged Property, together with all and singular the
rights, hereditaments, and appurtenances in anywise appertaining or belonging
thereto, unto Trustee and Trustee's successors or substitutes in this trust,
and Trustee's and its or his successors and assigns, in trust and for the uses
and purposes hereinafter set forth, forever.
Section 2.2. Warranty of Title. Grantor, for Grantor and Grantor's
Successors, hereby agrees to warrant and forever defend, all and singular,
title to the Mortgaged Property unto Trustee, and Trustee's successors or
substitutes in this trust, forever, against every person whomsoever lawfully
claiming, or to claim, the same or any part
5
73
thereof, subject, however, to the Permitted Exceptions.
ARTICLE III
SECURED INDEBTEDNESS
Section 3.1. Secured Indebtedness. This Deed of Trust, and all
Rights, and all titles, interests and Liens created hereby, or arising by
virtue hereof, are given to secure payment and performance of the following
indebtednesses, liabilities, and obligations (herein collectively called the
"Secured Indebtedness"):
(A) any and all indebtedness, liabilities and
obligations of each and every Obligated Party to Beneficiary of every kind and
character, whether now existing or hereafter incurred, including but not
limited to all indebtedness, liabilities and obligations incurred by any
Obligated Party arising under the Loan Agreement or under the Term Note; and
(B) all indebtedness, liabilities and obligations
of Grantor to Beneficiary of every kind and character whether now existing or
hereafter incurred; together with any and all renewals, increases, extensions,
modifications, rearrangements, or restatements of all or any part of the loans,
advances, indebtedness, liabilities, and obligations described or referred to
in this section, together with all costs, expenses, and reasonable attorneys'
fees incurred in connection with the enforcement or collection thereof.
ARTICLE IV
REPRESENTATIONS. WARRANTIES
AND COVENANTS OF GRANTOR
Section 4.1. Representations and Warranties. Grantor expressly
represents and warrants to Beneficiary and Trustee as follows:
(A) Title. Grantor is the lawful record owner of
good and marketable title to the Mortgaged Property, subject only to the
Permitted Exceptions.
(B) Flood Hazards. To Grantor's knowledge, except
as shown on surveys of the Land approved by Beneficiary, neither the Land nor
any portion thereof is located within an area that has been designated or
identified as an area having special flood hazards by the Secretary of Housing
and Urban Development or by such other official as shall from time to time be
authorized by federal or state law to make such designation pursuant to the
National Flood Insurance Act of 1968, as such act may from time to time be
amended, or pursuant to any other national, state, county or city program of
flood control.
6
74
(C) Performance of Covenants Under Leases. Grantor
has duly and punctually performed all and singular the material terms,
covenants, conditions and warranties of the existing Leases on Grantor's part
to be kept, observed and performed up to the date hereof.
(D) Collection of Advance Rents. Any Rents due for
occupancy for any period subsequent to the date hereof have not been collected
for more than one month in advance of accrual and payment of any Rents has not
otherwise been anticipated, waived, released, discounted, set-off or otherwise
discharged or compromised.
(E) No Defaults. No Lessee under any existing Lease
is in default of any of the material terms thereof.
Section 4.2. Covenants. Grantor covenants and agrees with
Beneficiary as follows:
(A) Taxes. To pay, or cause to be paid (not later
than ten days before the date upon which such items would become delinquent),
all lawful taxes and assessments of every character in respect of any of the
Mortgaged Property, and to furnish to Beneficiary (not later than five days
prior to the date upon which such taxes or assessments would become delinquent)
evidence satisfactory to Beneficiary of the timely payment of such taxes and
assessments; provided, however, Grantor shall not be required to pay any such
tax or assessment if and so long as the amount, applicability or validity
thereof is being contested in good faith by appropriate legal proceedings and
appropriate cash reserves therefor have been established.
(B) Liability Insurance. To carry insurance with
financially sound and reputable companies insuring Grantor and Beneficiary
against liability for personal injury and property damage, such policies to be
in such amounts and against such risks as are usually insured against by
Persons engaged in the same or similar business as Grantor, but in any event,
in an amount no less than $1,000,000.
(C) Casualty Insurance. To carry insurance with
respect to the Mortgaged Property with such insurers, in such amounts and
covering such risks as shall be reasonably satisfactory to Beneficiary,
including, without limitation, insurance against loss or damage by fire,
lightning, hail, windstorm, flood (if the Improvements are located in an
identified "flood hazard area" with respect to which flood insurance has been
made available pursuant to the National Flood Insurance Act of 1968),
explosion, riot, hazards, casualties, and other contingencies.
(D) Delivery of Policies. To deliver to Beneficiary
copies of each policy of insurance covering the Mortgaged Property.
(E) Payment of Insurance Proceeds. To cause all
insurance carried by Grantor covering the Mortgaged Property (i) to name
Beneficiary as a loss-payee and
7
75
otherwise to be payable to Beneficiary as its interest may appear, (ii) to
contain a standard mortgage clause on a non- contribution form, and (iii) in
the case of all policies of insurance carried by each Lessee for the benefit of
Grantor, to cause all such policies to name Beneficiary as a loss-payee and
otherwise to be payable to Beneficiary as its interest may appear.
(F) Payment of Premiums; Proof. To pay, or cause to be
paid, all premiums for such insurance before such premiums become due, and to
furnish to Beneficiary satisfactory proof of the timely making of such
payments; to deliver all renewal policies to Beneficiary at least 15 days
before the expiration date of each expiring policy and to cause such policies
to require the insurer to give written notice to Beneficiary of any amendment
or termination of any such policy at least 30 days before such termination or
amendment is to be effective.
(G) Notice of Casualty. Within ten days of the
occurrence thereof, to deliver written notice to Beneficiary of any casualty
loss affecting the Mortgaged Property.
(H) Compliance with Laws. To comply with all
easements, restrictions, agreements, covenants, and conditions with respect to
or affecting the Mortgaged Property, or any part thereof; provided, however
Grantor shall not be required to comply with such items if and so long as the
applicability or validity thereof is being contested in good faith by
appropriate legal proceedings.
(I) Prohibition Against Sales. Not to (i) sell,
trade, transfer, assign, exchange, or otherwise dispose of the Personal
Property, or any part thereof or any interest therein (whether legal or
equitable in nature), except items of Personal Property which have become
obsolete or worn beyond practical use and which have been replaced by adequate
substitutes having a value equal to or greater than the replaced items when
new, or (ii) permit the sale, trade, transfer, assignment, exchange or other
disposition of any interest in Grantor or the Mortgaged Property or the right
to receive distributions or profits from Grantor or the Mortgaged Property.
(J) Tax on Liens. At any time any law shall be enacted
imposing or authorizing the imposition of any tax upon this Deed of Trust, or
upon any rights, titles, liens, or security interests created hereby, or upon
the Secured Indebtedness, or any part thereof, Grantor shall cause the
Obligated Party to pay immediately all such taxes to the extent permitted by
law; provided that, if it is unlawful for Obligated Party to pay such taxes,
then Grantor shall cause such Obligated Party, if Beneficiary so requires, to
prepay the Secured Indebtedness in full within 60 days after demand therefor by
Beneficiary.
(K) Removal of Personal Property. Not to cause or
permit any of the Personal Property to be removed from the county and state
where the Land is located.
8
76
(L) Warrant and Defend Title. To protect, warrant
and forever defend title to the Mortgaged Property, subject to the Permitted
Exceptions, unto Beneficiary, its successors and assigns, against all Persons
whomsoever lawfully having or otherwise claiming an interest herein or a Lien
thereon, but Beneficiary shall have the right, at any time, to intervene in any
suit affecting such title and to employ independent counsel in connection with
any such suit to which it may be a party by intervention or otherwise; and upon
demand Grantor agrees to pay Beneficiary all reasonable expenses paid or
incurred by Beneficiary in respect of any such suit affecting title to any such
property or affecting Beneficiary's Lien or rights hereunder, including
reasonable fees to Beneficiary's attorneys, and Grantor will indemnify and hold
harmless Beneficiary from and against any and all costs and expenses,
including, but not limited to, any and all cost, loss, damage or liability
which Beneficiary may suffer or incur by reason of the failure of the title to
all or any part of the property hereby mortgaged or assigned or by reason of
the failure or inability of Grantor, for any reason, to convey the rights,
titles and interests which this Deed of Trust purports to mortgage and assign,
and all amounts at any time so payable by Grantor hereunder shall be secured by
the Lien hereof and by the said assignment.
(M) Obligations Under Personal Property. Grantor
shall perform fully all obligations imposed upon it by the agreements and
instruments constituting part of the Personal Property (including, without
limitation, the Leases) and maintain in full force and effect all such
agreements and instruments.
(N) Notice of Claims. Grantor shall promptly notify
Beneficiary of any claim, action or proceeding affecting any Lease or title to
the Mortgaged Property, or any part thereof, or the Liens herein granted.
(O) Defense of Actions Respecting Leases. Grantor
shall appear in and defend any action or proceeding arising under, occurring
oat of, or in any manner connected with, the Leases or the obligations, duties
or liabilities of Grantor and any Lessee thereunder, and, upon request by
Beneficiary, shall do so in the name and on behalf of Beneficiary but at the
expense of Grantor, and Grantor shall pay all costs and expenses of
Beneficiary, including reasonable attorneys' fees, in any action or proceeding
in which Beneficiary may appear.
(P) Receipt of Future Rents. Grantor shall not
receive or collect any Rents from any of the Leases for a period of more than
one month in advance.
(Q) Waivers, Releases of Lessees. Grantor shall not
waive, discount, set-off, compromise, or in any manner release or discharge any
Lessee, of and from any obligations, covenants, conditions and agreements by
said Lessee to be kept, observed and performed, including the obligation to pay
rent in the manner and at the place and time specified in any Lease, or in any
manner impair the value of the Mortgaged Property or the security of this Deed
of Trust.
9
77
(R) Termination of Leases. Grantor shall not
terminate or consent to any surrender of any Lease, or modify or in any way
alter the terms thereof, without the prior written consent of Beneficiary, and
shall use reasonable efforts to maintain each of the Leases in full force and
effect during the term of this Deed of Trust.
(S) No Subordination. Grantor shall not
subordinate any Lease to any mortgage or other encumbrance (other than the Lien
of this Deed of Trust), or permit, consent or agree to such subordination.
(T) Form of Leases, Side Agreements. Unless
otherwise consented to in writing by Beneficiary, Grantor shall (i) obtain
Beneficiary's approval as to the form and substance of each Lease or amendment
thereto, (ii) deliver to Beneficiary true and complete copies of the Leases and
any amendments thereto, (iii) not enter into any side agreements with respect
to a Lease with any Lessee, except upon notice to and approval in writing by
Beneficiary, (iv) not execute any Lease except for actual occupancy by the
Lessee thereunder, and (v) from time to time upon request of Beneficiary,
furnish to Beneficiary a written certification signed by Grantor describing all
then existing Leases and the names of the tenants and Rents payable thereunder.
Oral leases disclosed in the Loan Documents shall be deemed approved by
Beneficiary.
ARTICLE V
PROVISIONS REGARDING ENVIRONMENTAL LAWS
Section 5.1. Covenants Regarding Environmental Compliance. Grantor
covenants and agrees with Beneficiary as follows:
(A) Hazardous Substance Use, Manufacture. Grantor
shall not use, generate, manufacture, produce, store, release, discharge, or
dispose of on, under, or about the Mortgaged Property or transport to or from
the Mortgaged Property any Hazardous Substance, or allow any other person or
entity to do so on the Mortgaged Property, except in compliance with applicable
laws (including all applicable Environmental Laws).
(B) Compliance with Environmental Laws. Grantor
shall keep and maintain the Mortgaged Property in compliance with, and shall
not cause or permit the Mortgaged Property to be in violation of, any
applicable Environmental Law.
(C) Notices. Grantor shall give prompt written notice to Beneficiary of:
(i) any proceeding or written inquiry by
any governmental authority with respect to the presence of any
Hazardous Substance on the Mortgaged Property or the migration
thereof from or to other property;
10
78
(ii) all written claims made or
threatened by any third party against Grantor or the Mortgaged
Property relating to any loss or injury resulting from any Hazardous
Substance;
(iii) Grantor's discovery of any occurrence or
condition on any real property adjoining or in the vicinity of the
Mortgaged Property that would reasonably be expected to cause the
Mortgaged Property or any part thereof to be subject to any material
restrictions on the ownership, occupancy, transferability or use of
the Mortgaged Property under any applicable Environmental Law, or to
be otherwise subject to any material restrictions on the ownership,
occupancy, transferability or use of the Mortgaged Property under any
applicable Environmental Law;
(iv) any written notice of violation or
complaint from a governmental authority and relating to an applicable
Environmental Law;
(v) any written notices or reports
Grantor provides to a governmental authority relating to instances of
non-compliance with an applicable Environmental Law; and
(vi) any written application Grantor
provides to a governmental authority to obtain or amend a permit or
approval relating to the generation, storage, treatment, or disposal
of a Hazardous Substance or air contaminant.
(D) Legal Proceeding. Beneficiary shall have the
right to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated with respect to the Mortgaged Property in
connection with any Environmental Law and have Beneficiary's reasonable
attorneys' fees in connection therewith paid by Grantor.
(E) Indemnity. Grantor shall protect, indemnify
and hold harmless Beneficiary, its directors, officers, employees, agents,
successors and assigns (each such person an "Indemnitee") from and against any
and all losses, damages, costs, expenses or liabilities (including reasonable
attorneys' fees and costs but excluding losses, damages, costs, expenses or
liabilities arising from Beneficiary's gross negligence or willful misconduct)
(collectively, "Losses") directly or indirectly arising out of or attributable
to the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal, or presence of a Hazardous Substance on, under or
about the Mortgaged Property including, but not limited to (i) all foreseeable
consequential damages, and (ii) the costs of any repair, cleanup or remediation
of the Mortgaged Property, and the preparation and implementation of any
closure, remedial or other plans, required to be undertaken pursuant to
applicable Environmental Laws. This indemnity shall survive the release of the
lien of this Deed of Trust, or the extinguishment of the lien by foreclosure or
action in lieu thereof, and this covenant shall survive such release or
extinguishment.
11
79
(F) Remedial Work. In the event that any
investigation, site monitoring, containment, cleanup, removal, restoration or
other remedial work of any kind or nature (the "Remedial Work") is required to
be undertaken under any applicable local, state or federal law or regulation,
any judicial order, or by any governmental entity because of, or in connection
with, the current or reasonably threatened future presence or release of a
Hazardous Substance in violation of applicable Environmental Laws or in
connection with remediation liability arising under applicable Environmental
Laws in or into the air, soil, groundwater, surface water or soil vapor at, on,
about, under or within the Mortgaged Property (or any portion thereof), Grantor
shall promptly after written demand for performance thereof by appropriate
governmental authorities (or such shorter period of time as may be required
under any applicable law, regulation, order or agreement or, if any applicable
law, regulation, order or agreement expressly specifies a longer period of
time, such longer period), commence and thereafter diligently prosecute to
completion, all such Remedial Work.
Section 5.2. Representations and Warranties Relating to Environmental
Matters.
Grantor represents and warrants to Beneficiary that, except as previously
disclosed to Beneficiary in writing:
(A) No Existing Violation. Neither the Mortgaged
Property nor the Grantor is in violation of or subject to any existing, pending
or, to the knowledge of Grantor, overtly threatened investigation by any
governmental authority under any Environmental Law.
(B) No Permits Required. Grantor has not acquired
and is not required by any applicable Environmental Law to obtain any permits
or license to construct or use any improvements, fixtures or equipment forming
a part of the Mortgaged Property except such permits or licenses as have been
obtained.
(C) Previous Uses. Grantor or its environmental
advisors has made diligent inquiry into previous uses and ownership of the
Mortgaged Property, and based upon such inquiry has no knowledge of any
Hazardous Substance disposed of or released on or to the Mortgaged Property.
(D) Use by Grantor. Grantor's or any Lessee's
prior, present and intended use of the Mortgaged Property will not result in
the disposal or release of any Hazardous Substance on or to the Mortgaged
Property except in compliance with applicable law.
(E) Underground Storage. No underground storage
tanks, whether or not containing any Hazardous Substances, are located on or
under the Mortgaged Property.
Section 5.3. Environmental Risk Assessment. At any time (A)
that Beneficiary reasonably believes that Hazardous Substances have been
disposed of on, or have been released to or from any of the Mortgaged Property
and such release or disposal
12
80
may reasonably be expected to result in liability to Grantor under applicable
Environmental Laws (a "Triggering Event"), or (B) after an Event of Default
arising under Article V, within 30 days after a written request therefor by
Beneficiary, Grantor shall deliver to Beneficiary a report prepared at
Grantor's cost and expense by an environmental consultant acceptable to
Beneficiary, detailing the results of an environmental investigation with
respect to the Triggering Event or the matter resulting in the Event of
Default, including results of any soil and ground water samples that may have
been taken in connection with such investigation.
ARTICLE VI
RESPECTING REMEDIES OF BENEFICIARY
Section 6.1. Remedies. Upon the occurrence of an Event of Default,
Beneficiary may, at Beneficiary's option, do any one or more of the following
(upon such notice, if any, as may be expressly provided for in the Loan
Documents):
(A) Acceleration. Beneficiary may, without notice,
demand, presentment, notice of intention to accelerate or acceleration, protest
or notice of protest, all of which are hereby waived by Grantor, declare the
entire unpaid balance of the Secured Indebtedness immediately due and payable,
and upon such declaration the entire unpaid balance of the Secured Indebtedness
shall be immediately due and payable.
(B) Foreclosure. Beneficiary may request Trustee to
foreclose the Lien of this Deed of Trust and to sell the Mortgaged Property, or
any part thereof, at the location, at such time or from time to time, and in
such manner as may be permitted by applicable law, including, without
limitation, Chapter 51 of the Texas Property Code, as amended from time to
time.
After such sale, Trustee shall make to the purchaser or
purchasers thereunder good and sufficient assignments, deeds, bills of sale,
and other instruments, in the name of Grantor, conveying the Mortgaged
Property, or part thereof, so sold to the purchaser or purchasers with general
warranty of title by Grantor. The sale of a part of the Mortgaged Property
shall not exhaust the power of sale, but sales may be made from time to time
until the Secured Indebtedness is paid and performed in full.
(C) Foreclosure Without Acceleration. If default is
made in the payment of any installment of the Secured Indebtedness, Beneficiary
may, at its option, at once or at any time thereafter while any matured
installment remains unpaid, without declaring the entire Secured Indebtedness
to be due and payable, orally or in writing direct the Trustee to enforce this
trust and to sell the Mortgaged Property subject to such unmatured indebtedness
and the assignments, liens, and security interests securing its payment, in the
same manner, on the same terms, at the same place and time and after having
given notice in the same manner, all as provided in the preceding provisions of
Subsection 6.1(B). After such sale, the Trustee shall make due
13
81
conveyance to the purchaser or purchasers. Sales made without maturing the
Secured Indebtedness may be made hereunder whenever there is a default in the
payment of any installment of the Secured Indebtedness without affecting in any
way the power of sale granted under this Subsection 6.1(C), the unmatured
balance of the Secured Indebtedness (except as to any proceeds of any sale
which Beneficiary may apply as a prepayment of the Secured Indebtedness) or the
assignments, liens and security interests securing payment of the Secured
Indebtedness.
(D) Legal Proceedings. Beneficiary may or Trustee
may upon written request of Beneficiary, proceed by suit or suits, at law or in
equity, to enforce the payment and performance of the Secured Indebtedness in
accordance with the terms hereof or of the other Loan Documents, to foreclose
or otherwise enforce the assignments, liens, and security interests created or
evidenced by the other Loan Documents, or this Deed of Trust as against all, or
any part of, the Mortgaged Property, and to have all or any part of the
Mortgaged Property sold under the judgment or decree of a court of competent
jurisdiction.
(E) Appointment of Receiver. To the extent
permitted by law, Beneficiary shall be entitled to the appointment of a
receiver or receivers of the Mortgaged Property, or any part thereof, and of
the Rents and Grantor hereby expressly consents to any such appointment.
(F) Possession. To the extent permitted by law,
Beneficiary may enter upon the Land, take possession of the Mortgaged Property
and remove the Personal Property or any part thereof, with or without judicial
process, and, in connection therewith, without any responsibility or liability,
including, without limitation, liability for consequential damages of any kind
on the part of Beneficiary, and Beneficiary may take possession of any property
located on or in the Real Estate which is not a part of the Mortgaged Property
and hold or store such property at Grantor's expense.
(G) Performance of Covenants. If Grantor or the
Obligated Parties have failed to keep or perform any covenant whatsoever
contained in the Loan Documents or in the Leases, Beneficiary may, but shall
not be obligated to, perform or attempt to perform said covenant, and any
payment made or expense incurred in the performance or attempted performance of
any such covenant shall be a part of the Secured Indebtedness, and Grantor
promises, upon demand, to pay to Beneficiary all sums so advanced by
Beneficiary, with interest at the highest default rate specified in the Term
Note from the date when paid by Beneficiary. No such payment by Beneficiary
shall constitute a waiver of any Event of Default. In addition to the liens
and security interests hereof, Beneficiary shall be subrogated to all Liens
securing the payment of any debt, claim, tax, or assessment which Beneficiary
may pay.
(H) Right to Make Repairs, Improvements. Should any
part of the Mortgaged Property come into the possession of Beneficiary after
the occurrence of an Event of Default, Beneficiary may use, operate, and/or
make repairs, alterations,
14
82
additions and improvements to the Mortgaged Property for the purpose of
preserving it or its value. Grantor covenants to promptly reimburse and pay to
Beneficiary, at the address set forth at the beginning of this Deed of Trust or
at such other place as may be designated by Beneficiary in writing, the amount
of all reasonable expenses (including the cost of any insurance, taxes, or
other charges) incurred by Beneficiary in connection with its custody,
preservation, use or operation of the Mortgaged Property, together with
interest thereon from the date incurred by Beneficiary at the highest default
rate specified in the Term Note, and all such expenses, cost, taxes, interest,
and other charges shall be a part of the Secured Indebtedness. It is agreed,
however, that the risk of accidental loss or damage to the Mortgaged Property
is undertaken by Grantor, and, except for Beneficiary's willful misconduct or
gross negligence, Beneficiary shall have no liability whatsoever for decline in
value of the Mortgaged Property, or for failure to determine whether any
insurance ever in force is adequate as to amount or as to the risks insured.
(I) Surrender of Insurance. Beneficiary may
surrender the insurance policies maintained pursuant to the terms hereof, or
any part thereof, and receive and apply the unearned premiums as a credit on
the Secured Indebtedness, and, in connection therewith, Grantor hereby appoints
Beneficiary (or any officer of Beneficiary), as the true and lawful agent and
attorney-in-fact for Grantor (with full powers of substitution), which power of
attorney shall be deemed to be a power coupled with an interest and therefore
irrevocable, to collect such premiums.
(J) Collection of Personal Property. Beneficiary
may, in its own name or the name of Grantor, notify any or all parties
obligated on any of the Personal Property to make all payments due or to become
due thereon directly to Beneficiary, whereupon the power and authority of
Grantor to collect the same in the ordinary course of its business shall be
deemed to be immediately revoked and terminated. With or without such general
notification, Beneficiary may take or bring in Grantor's name or that of
Beneficiary all steps, actions, suits or proceedings deemed by Beneficiary
necessary or desirable to effect possession or collection of the Personal
Property, including sums due or paid thereon, may complete any contract or
agreement of Grantor in any way related to any of the Personal Property, may
make allowances or adjustments related to the Personal Property, may compromise
any claims related to the Personal Property, may issue credit in its own name
or the name of Grantor, may remove from Grantor's premises all documents,
instruments, records, files or other items relating to the Personal Property,
and Beneficiary may, without cost or expense to Beneficiary, use Grantor's
personnel, supplies and space to take possession of, administer, collect and
disclose of the Personal Property. Regardless of any provision hereof, however,
Beneficiary shall never be liable for its failure to collect or for its failure
to exercise diligence in the collection, possession, or any transaction
concerning, all or part of the Personal Property or sums due or paid thereon,
nor shall it be under any obligation whatsoever to anyone by virtue of this
Deed of Trust, except to account for the funds that it shall actually receive
hereunder.
15
83
(K) Issuance of Receipts; Endorsements; Power of
Attorney. Issuance by Beneficiary of a receipt to any person, firm,
corporation or other entity obligated to pay any amounts to Grantor shall be a
full and complete release, discharge and acquittance to such person, firm,
corporation or other entity to the extent of any amount so paid to Beneficiary.
Beneficiary is hereby authorized and empowered on behalf of Grantor to endorse
the name of Grantor upon any check, draft, instrument, receipt, instruction or
other document or items, including, but not limited to, all items evidencing
payment upon any indebtedness of any person, firm, corporation or other entity
to Grantor coming into Beneficiary's possession, and to receive and apply the
proceeds therefrom in accordance with the terms hereof. Beneficiary is hereby
granted an irrevocable power of attorney, which is coupled with an interest, to
execute all checks, drafts, receipts, instruments, instructions or other
documents, agreements or items on behalf of Grantor, either before or after an
Event of Default as shall be deemed by Beneficiary to be necessary or
advisable, in the sole discretion of Beneficiary, to protect its security
interest in the Personal Property or the repayment of the Secured Indebtedness,
and Beneficiary shall not incur any liability in connection with or arising
from its exercise of such power of attorney.
(L) Foreclosure of Personal Property with Real
Property. Beneficiary may proceed under the Code as to all personal property
covered hereby, or, at Beneficiary's election, Beneficiary may proceed as to
both the real and personal property covered hereby in accordance with
Beneficiary's Rights in respect of real property, in which case the provisions
of the Code shall not apply.
(M) Other Rights. Beneficiary shall have and may
exercise (i) the Rights of a secured party under the Code, (ii) any and all
other Rights which Beneficiary may have at law or in equity and (iii) all
Rights with respect to the Personal Property as provided in the Loan Documents.
(N) Collect Rents. Beneficiary may terminate the
license granted to Grantor in Section 7.l hereof to collect the Rents, and,
without taking possession, in Beneficiary's own name, Beneficiary may demand,
collect, receive, xxx for, attach and levy the Rents, and give proper receipts,
releases and acquittances therefor.
(O) Manage Leases. Beneficiary may make, modify,
enforce, cancel or accept the surrender of any Lease, remove or evict any
Lessee, increase or reduce rents, decorate, clean and make repairs, and
otherwise do any act or incur any costs or expenses that Beneficiary shall deem
proper to protect the security hereof, as fully and to the same extent as
Grantor could do if in possession of the Mortgaged Property.
Section 6.2. Acts of Trustee; Prima Facie Evidence. Grantor and
Beneficiary agree that, in any assignments, deeds, bills of sale, notices of
sale, or postings, given by Trustee or Beneficiary, any and all statements of
fact or other recitals therein made as to the identity of Beneficiary, or as to
the occurrence or existence of any Event of Default, or as to the acceleration
of the maturity of the Secured Indebtedness, or as to the request to sell,
posting of notice of sale, notice of sale, time, place, terms and
16
84
manner of sale and receipt, distribution and application of the money realized
therefrom, or as to the due and proper appointment of a substitute trustee and
without being limited by the foregoing, as to any other act or thing having
been duly done by Beneficiary or by Trustee, shall be taken by all courts of
law and equity as prima facie evidence that the said statements or recitals
state facts and are without further questions to be so accepted, and Grantor
does hereby ratify and confirm any and all acts that Trustee may lawfully do in
the premises by virtue hereof.
Section 6.3. Possession: Tenant at Sufferance. If the assignments,
liens, or security interests hereof shall be foreclosed or otherwise enforced
by a Trustee's sale, or by any other judicial or non-judicial action, then the
purchaser at any such sale shall receive, as an incident to his ownership,
immediate possession of that portion of the Mortgaged Property purchased, and
if Grantor or Grantor's Successors or Lessees shall hold possession of any of
said portion of the Mortgaged Property subsequent to such foreclosure, Grantor
and Grantor's Successors or Lessees in possession shall be considered as
tenants at sufferance of the purchaser at such foreclosure sale, and anyone
occupying the Mortgaged Property (or any part thereof) after demand made for
possession thereof shall be guilty of forcible detainer and shall be subject to
eviction and removal, forcible or otherwise, with or without process of law,
and all damages by reason thereof are hereby expressly waived.
Section 6.4. Application of Proceeds. All amounts received by
Beneficiary hereunder shall be applied as follows: FIRST, to the payment of all
reasonable expenses arising out of or in connection with the Mortgaged
Property, the foreclosure thereof, and the collection of the Secured
Indebtedness including, without limitation, the commissions, reasonable fees
and expenses of Beneficiary's attorneys, accountants, real estate brokers,
property managers, receivers, and of the Trustees; SECOND, to the Secured
Indebtedness; and THIRD, the balance, if any, remaining after the full and
final payment and performance of the Secured Indebtedness, to Grantor.
Section 6.5. Mortgage. This instrument shall be effective as a
mortgage as well as a deed of trust, and upon the occurrence of an Event of
Default may be foreclosed as to the Mortgaged Property in any manner permitted
by the laws of Texas. Any foreclosure suit may be brought by Trustee or
Beneficiary. If a foreclosure hereunder is commenced by Trustee, Beneficiary
may, at any time before the sale, direct the Trustee to abandon the sale, and
may then institute suit for the collection of the Secured Indebtedness, and for
the foreclosure of enforcement of the assignments, liens, and security
interests hereof. If Beneficiary should institute a suit for the collection of
the Secured Indebtedness, and for a foreclosure or enforcement of the
assignments, liens, and security interests hereof, it may, at any time before
the entry of a final judgment in said suit, dismiss the same, and require
Trustee to sell the Mortgaged Property, or any part thereof, in accordance with
the provisions of this Deed of Trust.
17
85
ARTICLE VII
ASSIGNMENT OF LEASES AND RENTS
Section 7.1. Grantor does hereby grant, transfer and assign unto
Beneficiary (A) the Leases, (B) any and all guaranties of payment or
performance of the obligations of any Lessee, and (C) the Rents; provided,
however, that Beneficiary hereby grants to Grantor a license to collect and
receive all Rents. Such license shall be revocable by notice from Beneficiary
to Grantor at any time after the occurrence and during the continuation of an
Event of Default.
Section 7.2. No Liability on Beneficiary. Beneficiary shall not be
liable for any loss sustained by Grantor resulting from Beneficiary's failure
to let the Mortgaged Property, or any part thereof, after an Event of Default
or from any other act or omission of Beneficiary in managing the Mortgaged
Property, or any part thereof. Beneficiary shall not be obligated to perform or
discharge, any obligation, duty or liability under the Leases or under or by
reason of this Deed of Trust, and Grantor shall indemnify Beneficiary for, and
hold Beneficiary harmless from, any and all liability, loss or damage which may
or might be incurred under the Leases or under or by reason of this Deed of
Trust, and from any and all claims and demands whatsoever which may be asserted
against Beneficiary by reason of any alleged obligations or undertakings on its
part to perform or discharge any of the terms, covenants or agreements
contained in the Leases. Should Beneficiary incur any such liability under the
Leases or under or by reason of this Deed of Trust or in defense of any such
claims or demands, the amount thereof, including costs, expenses and reasonable
attorneys' fees shall be secured hereby and Grantor shall reimburse Beneficiary
therefor immediately upon demand, and upon the failure of Grantor to do so
Beneficiary may, at its option, declare the Secured Indebtedness immediately
due and payable. It is further understood that this Deed of Trust shall not
operate to place responsibility for the control, care, management or repair of
the Mortgaged Property upon Beneficiary, or for the carrying out of any of the
terms and conditions of the Leases; nor shall it operate to make Beneficiary
responsible or liable for any waste committed on the Mortgaged Property by the
Lessees or any other parties, or for any dangerous or defective condition of
the Mortgaged Property, or for any negligence in the management, upkeep, repair
or control of the Mortgaged Property, resulting in loss, injury or death to any
Lessee, licensee, employee or stranger.
ARTICLE VIII
SECURITY AGREEMENT
Section 8.1. Grant of Security Interest. Grantor hereby transfers,
assigns, delivers and grants a security interest in and right of set-off
against the Personal Property to Beneficiary as security for payment of the
Secured Indebtedness.
Section 8.2. Assignment of Non-Code Personal Property. To the extent that any
18
86
of the Personal Property is not subject to the Code, Grantor hereby assigns to
Beneficiary all of Grantor's right, title, and interest in and to the Personal
Property to secure the Secured Indebtedness, together with the right of set-
off with regard to such Personal Property (or any part hereof). Release of the
lien of this Deed of Trust shall automatically terminate this assignment.
ARTICLE IX
MISCELLANEOUS
Section 9. l. Release of this Deed of Trust. If the Secured
Indebtedness is paid and performed in full in accordance with the terms of the
instruments evidencing the Secured Indebtedness, and if Grantor shall well and
truly perform all of Grantor's covenants contained herein, then this conveyance
shall become null and void and be released at Grantor's request and expense;
otherwise, it shall remain in full force and effect, provided that no release
hereof shall impair Grantor's warranties and indemnities contained herein.
Section 9.2. Successors. If Grantor, or any of Grantor's Successors,
conveys its interest in any of the Mortgaged Property to any other party, then
Beneficiary may, without notice to Grantor, or its successors and assigns, deal
with any owner of any part of the Mortgaged Property with reference to this
Deed of Trust and the Secured Indebtedness, either by way of forbearance on the
part of Beneficiary, or extension of time of payment of the Secured
Indebtedness, or release of all or any part of the Mortgaged Property, or any
other property securing payment of the Secured Indebtedness, without in any way
modifying or affecting Beneficiary's Rights and Liens hereunder or the
liability of Grantor, or any other party liable for payment of the Secured
Indebtedness, in whole or in part.
Section 9.3. Marshaling. Grantor hereby waives all Rights of
marshaling in the event of any foreclosure of the Liens hereby created.
Section 9.4. Reserve for Taxes and Insurance. At the request of
Beneficiary after the occurrence and during the continuance of a default or an
Event of Default, Grantor shall create a fund or reserve for the payment of all
ground rentals, insurance premiums, taxes, and assessments against the
Mortgaged Property by paying to Beneficiary a sum equal to the rentals payable
by Grantor to any lessor of the Mortgaged Property, or any part thereof, plus
the premiums that will next become due and payable on the hazard insurance
policies covering the Mortgaged Property, or any part thereof, plus taxes and
assessments next due on the Mortgaged Property, or any part thereof, as
estimated by Beneficiary, less all sums paid previously to Beneficiary
therefor, divided by the number of installments of principal and/or interest to
elapse before one month prior to the date when such ground rentals, premiums,
taxes, and assessments will become delinquent, such sums to be held by
Beneficiary, without interest, for the purposes of paying such ground rentals,
premiums, taxes, and
19
87
assessments. Beneficiary shall have the right (but not the obligation) to apply
such sums to the payment of such ground rentals, premiums, taxes and
assessments. Any excess reserve shall, at the discretion of Beneficiary, be
credited by Beneficiary on subsequent payments to be made on the Secured
Indebtedness by Grantor, and any deficiency shall be paid by Grantor to
Beneficiary on or before the date when such ground rentals, premiums, taxes,
and assessment;, shall have become delinquent.
Section 9.5. Condemnation. Beneficiary shall be entitled to receive
any and all sums which may be awarded or become payable to Grantor for the
condemnation of any of the Mortgaged Property for public or quasi-public use,
or by virtue of private sale in lieu thereof, and any sums which may be awarded
or become payable to Grantor for damages caused by public works or construction
on or near the Mortgaged Property. Grantor shall give immediate written notice
to Beneficiary of any such condemnation proceeding affecting the Mortgaged
Property, and shall afford Beneficiary an opportunity to participate in any
proceeding or settlement of awards with respect thereto. All such sums are
hereby assigned to Beneficiary, and Grantor shall, upon request of Beneficiary,
make, execute, acknowledge, and deliver any and all additional assignments and
documents as may be necessary from time to time to enable Beneficiary to
collect and receipt for any such sums. Beneficiary shall not be, under any
circumstances, liable or responsible for failure to collect, or exercise
diligence in the collection of, any of such sums. Any sums so collected shall
be applied by Beneficiary, first, to the expenses, if any, of collection, and
then in accordance with Section 6.4 hereof. Notwithstanding the foregoing, if,
after such condemnation or private sale in lieu thereof, Beneficiary determines
in its reasonable judgment that the remainder of the Mortgaged Property can be
restored in such a manner as to preserve substantially the economic value
thereof and no Event of Default has occurred and is continuing, upon request of
Grantor such sums so held by Beneficiary shall be made available for such
restoration and disbursed by Beneficiary during the course of such restoration
under safeguards reasonably satisfactory to Beneficiary. Any sums remaining
after completion of restoration shall be applied in accordance with Section
6.4.
Section 9.6. Insurance Proceeds. Beneficiary shall receive the
proceeds of any and all insurance that may become payable with respect to any
of the Mortgaged Property, and so long as no Event of Default has occurred and
is continuing and such proceeds (together with any other amounts deposited by
Grantor with Beneficiary) are sufficient to rebuild and restore the
Improvements, shall make such proceeds available to rebuild or restore the
Improvements or, if an Event of Default has occurred and is continuing or if
such proceeds (together with any other amounts deposited by Grantor with
Beneficiary) are not sufficient to rebuild and restore the Improvements,
Beneficiary may apply the same to the Secured Indebtedness in the order and
manner set forth in Section 6.4 hereof, whether then matured or to mature in
the future, and prior to such application, may deduct therefrom any expenses
incurred in connection with the collection or handling of such proceeds, it
being understood that Beneficiary shall not be, under any circumstances,
liable, or responsible for failure to collect, or exercise diligence in the
collection of, any of such proceeds.
20
88
Section 9.7. Subrogation. It is understood and agreed that the funds
loaned to any of the Obligated Parties pursuant to the Loan Agreement, to the
extent that the same are utilized to pay or renew or extend any indebtedness of
the Obligated Parties, or any other indebtedness, or take up or release any
outstanding Liens against the Mortgaged Property, or any portion thereof, have
been advanced by Beneficiary at Grantor's request and at the request of the
Obligated Parties and upon their representation that such amounts are due and
payable. Beneficiary shall be subrogated to any and all Rights and Liens owned
or claimed by any owner or beneficiary of said outstanding Rights and Liens,
however remote, regardless of whether said Rights and Liens are acquired by
assignment or are released by the beneficiary thereof upon payment.
Section 9.8. Illegality. If any provision of this Deed of Trust is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Deed of Trust, the legality, validity, and
enforceability of the remaining provisions of this Deed of Trust shall not be
affected thereby, and in lieu of each such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Deed of Trust a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable. If the
Rights and Liens created by this Deed of Trust shall be invalid or
unenforceable as to any part of the Secured Indebtedness, then the unsecured
portion of the Secured Indebtedness shall be completely paid prior to the
payment of the remaining and secured portion of the Secured Indebtedness, and
all payments made on the Secured Indebtedness shall be considered to have been
paid on and applied first to the complete payment of the unsecured portion of
the Secured Indebtedness.
Section 9.9. Maximum Interest Rate. Notwithstanding anything
contained in this Deed of Trust or in any of the Loan Documents to the
contrary, Beneficiary shall never be deemed to have contracted for or be
entitled to receive, collect or apply as interest on the Secured Indebtedness,
any amount in excess of the amount permitted and calculated at the highest
lawful rate, and, in the event Beneficiary ever receives, collects or applies
as interest any amount in excess of the amount permitted and calculated at the
highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the unpaid principal balance of the Secured
Indebtedness, and, if the principal balance of the Secured Indebtedness is paid
in full, any remaining excess shall forthwith be paid to Grantor. In
determining whether or not the interest paid or payable under any specific
contingency exceeds the amount of interest permitted and calculated at the
highest lawful rate, Grantor and Beneficiary shall, to the maximum extent
permitted under applicable law, (A) characterize any non-principal payment
(other than payments which are expressly designated as interest payments
hereunder) as an expense, fee, or premium, rather than as interest, (B) exclude
voluntary prepayments and the effect thereof, and (C) spread the total amount
of interest throughout the entire contemplated term of the Secured
Indebtedness.
Section 9.10. Obligations Binding Upon Grantor's Successors. This
Deed of Trust is binding upon Grantor and Grantor's Successors, and shall inure
to the benefit
21
89
of Beneficiary, and its successors and assigns, and the provisions hereof shall
likewise be covenants running with the land. The duties, covenants, conditions,
obligations and warranties of Grantor in this Deed of Trust shall be joint and
several obligations of Grantor and Grantor's Successors.
Section 9.11. Counterparts. This Deed of Trust has simultaneously
been executed in a number of identical counterparts, each of which, for all
purposes, shall be deemed an original.
Section 9.12. Exhibits. All exhibits attached hereto are by this
reference made a part hereof. The term "Deed of Trust" shall include all such
exhibits.
Section 9.13. Indemnity. Grantor hereby assumes all liability for
the Mortgaged Property, for the Liens created therein by this Deed of Trust,
and for any development, use, possession, maintenance, and management of, and
construction upon, the Mortgaged Property, or any part thereof, and agrees to
assume liability for, and to indemnify and hold Beneficiary harmless from and
against, any and all losses, damages, claims, costs, penalties, causes of
action, liabilities and expenses, including court costs and attorneys' fees,
howsoever arising (including, without limitation, for injuries to or deaths of
persons and damage to property), from or incident to such ownership of the
Mortgaged Property and development, use, possession, maintenance, management,
and construction.
Section 9.14. Vendor's Lien. If all or any portion of the Secured
Indebtedness has been advanced for the purpose of paying the purchase price for
all or a part of the Mortgaged Property, then: (A) Beneficiary shall have, and
is hereby granted, a vendor's lien on the Mortgaged Property to further secure
the Secured Indebtedness; and (B) Beneficiary shall be subrogated to all
rights, titles, interests, liens, and security interests owned or claimed by
the holder of any indebtedness which has been directly or indirectly discharged
or paid from the proceeds of the Secured Indebtedness.
Section 9.15. Section References. All references to "Article,"
"Articles," "Section," "Sections," "Subsection," or "Subsections" contained
herein are, unless specifically indicated otherwise, references to articles,
sections, and subsections of this Deed of Trust.
Section 9.16. Singular: Plural. Whenever herein the singular number
is used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate.
Section 9.17. Headings. The captions, headings, and arrangements used
in this Deed of Trust are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.
Section 9.18. Notices. Except for notices of a foreclosure which
shall be given in the manner set forth in Section 6.1(B) hereof, all notices,
requests and demands to or upon a party hereto shall be in writing and shall be
sent by certified or registered mail, return receipt requested, personal
delivery against receipt, or by telegraph or telex and, unless
22
90
otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered when delivered against receipt or three business
days after deposit in the mail, postage prepaid, or, in the case of telegraphic
notice, when delivered to the telegraph company, or, in the case of telex
notice, when sent, answerback received, addressed as follows:
(A)If to Beneficiary: Fleet Capital Corporation
0000 Xxxxx Xxxxxxx
Xxxxx 00()0
Xxxxxx, Xxxxx 00000
Attention: Loan Administration Manager
w/ a copy to: Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxx, Esq.
(B)If to Grantor: DXP Acquisition, Inc.
d/b/a Strategic Acquisition, Inc.
000 Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxx, CEO
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 9.18.
Section 9.19. Resignation: Removal of Trusts. Trustee may resign at
any time without notice. In the event of the resignation or death of Trustee,
or Trustee's failure, refusal or inability, for any reason, to make any such
sale or to perform any of the trusts herein declared, or, at the option of
Beneficiary, without cause, Beneficiary may appoint, orally or in writing, a
substitute trustee, who shall thereupon succeed to all the estates, titles,
rights, powers and trusts herein granted to and vested in Trustee. If
Beneficiary is a corporation, such appointment may be made on behalf of such
Beneficiary by any person who is then the president, or a vice-president,
assistant vice-president, treasurer, cashier, secretary, or any other
authorized officer or agent of Beneficiary. In the event of the resignation or
death of any substitute trustee, or such substitute trustee's failure, refusal
or inability to make any such sale or perform such trusts, or, at the option of
Beneficiary, without cause, successive substitute trustees may thereafter, from
time to time, be appointed in the same manner. Wherever herein the word
"Trustee" is used, the same shall mean the person who is the duly appointed
trustee in the first paragraph of this Deed of Trust or substitute trustee
hereunder at the time in question.
Section 9.20. Governing Laws. The substantive laws of the State of
Texas shall govern the validity, construction, enforcement, and interpretation
of this Deed
23
91
of Trust, and the other Loan Documents, unless otherwise specified therein.
Section 9.21. Time of Essence. Time is of the essence of this Deed of Trust.
Section 9.22. Fixture Filing. This Deed of Trust shall also
constitute a security agreement with respect to the Personal Property and a
"fixture filing" for purposes of the Code. Portions of the Personal Property
are or may become fixtures. Information concerning the security interests
herein granted may be obtained at the addresses stated in the first paragraph
of this Deed of Trust.
Section 9.23. Financing Statement. Beneficiary shall have the right
at any time to file this Deed of Trust as a financing statement, but the
failure to do so shall not impair the validity and enforceability of this Deed
of Trust in any respect whatsoever. A carbon, photographic, or other
reproduction of this Deed of Trust, or any financing Statement relating to this
Deed of Trust, shall be sufficient as a financing statement.
Section 9.24. Conflicting Provisions. In the event of any conflict
between the terms of the Loan Agreement and the terms of this Deed of Trust,
the terms of the Loan Agreement shall prevail.
GRANTOR:
DXP ACQUISITION, INC. d/b/a
STRATEGIC ACQUISITION, INC.,
a Nevada corporation
By: /s/ XXXXX X. XXXXXX
Name: Xxxxx X. Xxxxxx
Its: Chairman & CEO
24
92
EXHIBITS:
A - Description of Land
B - Permitted Exceptions
THE STATE OF TEXAS )
)
COUNTY OF XXXXXX )
This instrument was acknowledged before me on June 16th, 1997, by
Xxxxx X. Xxxxxx, Chairman & CEO of DXP Acquisition, Inc. d/b/a Strategic
Acquisition, Inc., a Nevada corporation, on behalf of said corporation.
/s/ XXXXX X. XXXXXXXX
Notary Public in and for
the State of Texas
----------------------------------------
Xxxxx X. Xxxxxxxx
Notary's Printed Name
My Commission Expires:
6/24/2000
25
93
Exhibit "A"
to
Deed of Trust
Description of Real Property
[See attached.]
94
Exhibit A
11.290 ACRE TRACT
X.X. XXXXXX SURVEY, ABSTRACT NO. 5
ANGELINA COUNTY, TEXAS
BEING all that certain tract or parcel of land lying and situated in
Angelina County, Texas, out of the X.X. XXXXXX SURVEY, ABSTRACT NO. 5 and
being a part or portion of that certain 14.2961 acre tract described in a deed
from Xxxxxxxxxx Brothers, Inc. to Lufkin Industries, Inc. dated September 11,
1980 and recorded in Volume 508 on Page 514 of the Deed Records of Angelina
County, Texas, to which reference is hereby made for any and all purposes and
the said tract or parcel being described by metes and bounds as follows,
to-wit:
BEGINNING S 19 degrees 50' 42" E 143.62 feet from a 1/2" pipe set at the
Northeast corner of the aforesaid referred to 14.2961 acre tract and the
Northwest corner of that certain 7.25 acre tract described in a deed from
Xxxxxxxxx Xxxxxx, et al to X. Xxxxxx dated May 10, 1935 and recorded in Volume
82 on Page 590 of the Deed Records of Angelina County, Texas, a 1/2" pipe set
for corner in the East boundary line of the said 14.2961 acre tract and the
West boundary line of the said 7.25 acre tract;
THENCE S 19 degrees 50' 42" E with the East boundary line of the said
14.2961 acre tract, the West boundary line of the said 7.25 acre tract and the
West boundary line of that certain 1.61 acre tract described in a deed from
Xxx. X. X. Xxxxxxx, et al to Xxxxxxx Xxxxxx dated February 2, 1938 and
recorded in Volume 88 on Page 208 of the Deed Records of Angelina County,
Texas, at 1261.91 feet the Southeast corner of the said 14.2961 acre tract and
the Northeast corner of that certain 0.58 acre tract described in a deed from
X. X. Xxxxxxx, et ux to X. X. Xxxxxxxx, et ux dated January 5, 1961 and
recorded in Volume 251 on Page 278 of the Deed Records of Angelina County,
Texas a 1/2" pipe found for corner;
THENCE S 71 degrees 41' 00" W with the South boundary line of the said
14.2961 acre tract, the North boundary line of the said 0.58 acre tract, and
the North boundary line of that certain 0.5 acre tract described in a deed from
the estate of Rolf Xxxxx Xxxxx to X. X. Xxxxxxxx dated December 19, 1957 and
recorded in Volume 215 on Page 92 of the Deed Records of Angelina County,
Texas, at 305.88 feet the Southwest corner of the said 14.2961 acre tract and
the Northwest corner of the said 0.5 acre tract, a 1/2" pipe set for corner
(near a chainlink fence corner) in the curving East right-of-way line of State
Highway Loop No. 287;
THENCE two calls with the West boundary line of the said 14.2961 acre
tract and the East right-of-way line of the said Xxxxx Xxxxxxx Xxxx Xx. 000 as
follows:
95
(1)
Northwesterly with a 02 degrees 51' 03" curve to the left (Central Angle
= 09 degrees 08' 31" Radius = 2009.86 feet with Long Chord Bearing and
Distance = N 27 degrees 32' 38" W 320.35 feet), at 320.69 feet the end
of said curve, a Texas Highway Department metal disk found for corner;
(2)
N 32 degrees 06' 54" W 833.05 feet, a 1/2" pipe set for corner;
THENCE N 57 degrees 03' 48" E, at 539.76 feet the point and place of
beginning and containing 11.290 acres of land, more or less.
Basis of Bearings: The North boundary line of the
said 14.2961 acre tract (Deed
Call -N 83 degrees 07' E).
XXXXXXX XXXXXXXX, XX. AND
ASSOCIATES, INC.
Engineering and Surveying
/s/ XXXXXXX X. XXXXXX
----------------------------------------
Xxxxxxx X. Xxxxxx (Signature in blue
ink)
Registered Professional Land Surveyor
No. 4527
Lufkin, Texas
May 17, 1994
96
Exhibit "B"
to
Deed of Trust
Permitted Exceptions
[See attached.]
Exhibit B
