EXHIBIT 2.2
LOAN AGREEMENT
Dated as of December 22, 2005
between
DGSE COMPANIES, INC.
and
TEXAS CAPITAL BANK, NATIONAL ASSOCIATION
Table of Contents
-----------------
Page
----
ARTICLE I Definitions..........................................................1
Section 1.1 Definitions..................................................1
Section 1.2 Accounting Matters..........................................10
Section 1.3 Other Definitional Provisions...............................10
ARTICLE II Advances and Letters of Credit.....................................11
Section 2.1 Advances....................................................11
Section 2.2 General Provisions Regarding Interest; Etc..................12
Section 2.3 Unused Facility Fee.........................................12
Section 2.4 Use of Proceeds.............................................13
Section 2.5 Letters of Credit...........................................13
ARTICLE III Payments..........................................................13
Section 3.1 Method of Payment...........................................13
Section 3.2 Prepayments.................................................13
Section 3.3 Additional Costs in Respect of Letters of Credit............13
ARTICLE IV Security...........................................................14
Section 4.1 Collateral..................................................14
Section 4.2 Setoff......................................................14
ARTICLE V Conditions Precedent................................................14
Section 5.1 Initial Extension of Credit.................................14
Section 5.2 All Extensions of Credit....................................15
ARTICLE VI Representations and Warranties.....................................16
Section 6.1 Corporate Existence.........................................16
Section 6.2 Financial Statements; Etc...................................16
Section 6.3 Action; No Breach...........................................16
Section 6.4 Operation of Business.......................................17
Section 6.5 Litigation and Judgments....................................17
Section 6.6 Rights in Properties; Liens.................................17
Section 6.7 Enforceability..............................................17
Section 6.8 Approvals...................................................17
Section 6.9 Debt........................................................17
Section 6.10 Taxes.......................................................17
Section 6.11 Use of Proceeds; Margin Securities..........................17
Section 6.12 ERISA.......................................................17
Section 6.13 Disclosure..................................................18
Section 6.14 Subsidiaries, Ventures, Etc.................................18
Section 6.15 Agreements..................................................18
Section 6.16 Compliance with Laws........................................18
Section 6.17 Inventory...................................................18
Section 6.18 Investment Company Act......................................18
Section 6.19 Public Utility Holding Company Act..........................18
Section 6.20 Environmental Matters.......................................18
Section 6.21 Intellectual Property.......................................19
i
ARTICLE VII Affirmative Covenants.............................................20
Section 7.1 Reporting Requirements......................................20
Section 7.2 Maintenance of Existence; Conduct of Business...............22
Section 7.3 Maintenance of Properties...................................22
Section 7.4 Taxes and Claims............................................22
Section 7.5 Insurance...................................................22
Section 7.6 Inspection Rights...........................................23
Section 7.7 Keeping Books and Records...................................23
Section 7.8 Compliance with Laws........................................23
Section 7.9 Compliance with Agreements..................................23
Section 7.10 Further Assurances..........................................23
Section 7.11 ERISA.......................................................23
ARTICLE VIII Negative Covenants...............................................23
Section 8.1 Debt........................................................23
Section 8.2 Limitation on Liens.........................................24
Section 8.3 Mergers, Etc................................................24
Section 8.4 Restricted Payments.........................................24
Section 8.5 Loans and Investments.......................................24
Section 8.6 Limitation on Issuance of Equity............................25
Section 8.7 Transactions With Affiliates................................25
Section 8.8 Disposition of Assets.......................................25
Section 8.9 Sale and Leaseback..........................................25
Section 8.10 Prepayment of Debt..........................................25
Section 8.11 Nature of Business..........................................25
Section 8.12 Environmental Protection....................................25
Section 8.13 Accounting..................................................25
Section 8.14 No Negative Pledge..........................................25
ARTICLE IX Financial Covenants................................................26
Section 9.1 Consolidated Tangible Net Worth.............................26
Section 9.2 Leverage Ratio..............................................26
Section 9.3 Fixed Charge Coverage Ratio.................................26
ARTICLE X Default.............................................................26
Section 10.1 Events of Default...........................................26
Section 10.2 Remedies Upon Default.......................................28
Section 10.3 Performance by Lender.......................................28
Section 10.4 Cash Collateral.............................................28
ARTICLE XI Miscellaneous......................................................28
Section 11.1 Expenses....................................................28
Section 11.2 INDEMNIFICATION.............................................29
Section 11.3 Limitation of Liability.....................................29
Section 11.4 No Duty.....................................................30
Section 11.5 Lender Not Fiduciary........................................30
Section 11.6 Equitable Relief............................................30
Section 11.7 No Waiver; Cumulative Remedies..............................30
Section 11.8 Successors and Assigns......................................30
Section 11.9 Survival....................................................30
ii
Section 11.10 ENTIRE AGREEMENT; AMENDMENT.................................30
Section 11.11 Notices.....................................................30
Section 11.12 Governing Law; Venue; Service of Process....................31
Section 11.13 Counterparts................................................31
Section 11.14 Severability................................................31
Section 11.15 Headings....................................................31
Section 11.16 Participations; Etc.........................................31
Section 11.17 Construction................................................31
Section 11.18 Independence of Covenants...................................31
Section 11.19 WAIVER OF JURY TRIAL........................................32
Section 11.20 Arbitration.................................................32
Section 11.21 Additional Interest Provision...............................33
Section 11.22 Ceiling Election............................................34
iii
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (the "Agreement"), dated as of December 22, 2005, is between
DGSE COMPANIES, INC., a Nevada corporation ("Borrower"), and TEXAS CAPITAL BANK,
NATIONAL ASSOCIATION, a national banking association ("Lender").
R E C I T A L S:
Borrower has requested that Lender extend credit to Borrower in as
described in this Agreement. Lender is willing to make such credit available to
Borrower upon and subject to the provisions, terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement, all exhibits,
appendices and schedules hereto and in any note, certificate, report or other
Loan Documents made or delivered pursuant to this Agreement, the following terms
will have the meanings given such terms in this Section 1 or in the provision,
section or recital referred to below:
"AAA" has the meaning for such term set forth in Section 11.20 of the
Agreement.
"Advance" means an advance by Lender to Borrower pursuant to Article II
or any advance made by Lender to cover any drawing under any Letters of Credit.
"Advance Request Form" means a certificate, in a form approved by
Lender, properly completed and signed by Borrower requesting a Revolving Credit
Advance.
"Affiliate" means, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means the possession, directly or indirectly, of
the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise; provided, however, in no event shall Lender be deemed an Affiliate of
Borrower or any of its Subsidiaries or Affiliates.
"Agreement" has the meaning set forth in the Introductory Paragraph
hereto, as the same may, from time to time, be amended, modified, restated,
renewed, waived, supplemented, or otherwise changed, and includes all schedules,
exhibits and appendices attached or otherwise identified therewith.
"Borrower" means the Person identified as such in the Introductory
Paragraph hereof, and its successors and assigns.
1
"Borrowing Base" means, at any time, an amount equal to the sum of (a)
seventy five percent (75%) of the value of Eligible Accounts, plus (b) fifty
percent (50%) of the value of Eligible Inventory, plus (c) fifty percent (50%)
of Eligible Pawn Loans.
"Borrowing Base Report" means, as of any date of preparation, a
certificate setting forth the Borrowing Base (in a form acceptable to Lender in
substantially the form of Exhibit A attached hereto) prepared by and certified
by the chief financial officer of Borrower.
"Business Day" has the meaning assigned to it in the Notes.
"Capital Expenditure" shall mean any expenditure by a Person for (a) an
asset which will be used in a year or years subsequent to the year in which the
expenditure is made and which asset is properly classified in relevant financial
statements of such Person as equipment, real property, a fixed asset or a
similar type of capitalized asset in accordance with GAAP or (b) an asset
relating to or acquired in connection with an acquired business, and any and all
acquisition costs related to (a) or (b) above.
"Capitalized Lease Obligation" shall mean the amount of Debt under a
lease of Property by a Person that would be shown as a liability on a balance
sheet of such Person prepared for financial reporting purposes in accordance
with GAAP.
"Cash Taxes" means, for any Person for any period, any federal, state,
local, and foreign income taxes payable in cash during such period by such
Person.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" has the meaning for such term set forth in Section 4.1 of
this Agreement.
"Commitment" means the obligation of Lender to make Revolving Credit
Advances pursuant to Section 2.1 in an aggregate principal amount at any time
outstanding up to but not exceeding two million five hundred thousand Dollars
($2,500,000), subject, however, to termination pursuant to Section 10.2.
"Commitment Fee" means $35,000.
"Compliance Certificate" means a certificate, substantially in the form
of Exhibit B attached hereto, prepared by and executed by the chief financial
officer of Borrower.
"Constituent Documents" means (i) in the case of a corporation, its
articles or certificate of incorporation and bylaws; (ii) in the case of a
general partnership, its partnership agreement; (iii) in the case of a limited
partnership, its certificate of limited partnership and partnership agreement;
(iv) in the case of a trust, its trust agreement; (v) in the case of a joint
venture, its joint venture agreement; (vi) in the case of a limited liability
company, its articles of organization and operating agreement or regulations;
and (vii) in the case of any other entity, its organizational and governance
documents and agreements.
"Debt" means as to any Person at any time (without duplication): (a)
all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable of such Person arising in the ordinary
course of business that are not past due by more than ninety (90) days, (d) all
Capital Lease Obligations of such Person, (e) all Debt or other obligations of
others guaranteed by such Person, (f) all obligations secured by a Lien existing
on property owned by such Person, whether or not the obligations secured thereby
2
have been assumed by such Person or are non-recourse to the credit of such
Person, (g) any other obligation for borrowed money or other financial
accommodations which in accordance with GAAP would be shown as a liability on
the balance sheet of such Person, (h) any repurchase obligation or liability of
a Person with respect to accounts, chattel paper or notes receivable sold by
such Person, (i) any liability under a sale and leaseback transaction that is
not a Capital Lease Obligation, (j) any obligation under any so called
"synthetic leases", (k) any obligation arising with respect to any other
transaction that is the functional equivalent of borrowing but which does not
constitute a liability on the balance sheets of a Person, (l) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments, and (m) all liabilities of such Person in respect of unfunded
vested benefits under any Plan.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Interest Rate" has the meaning assigned to it in the Notes.
"Dispute" means any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, this Agreement and each other document, contract and instrument
required hereby or now or hereafter delivered to Lender in connection herewith,
or any past, present or future extensions of credit and other activities,
transactions or obligations of any kind related directly or indirectly to any of
the foregoing documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or other
remedies pursuant to any of the foregoing documents.
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" means an amount equal to net income plus (b) interest expense
deduction from net income, plus (c) income taxes deducted from net income, plus
(d) depreciation, plus (e) amortization.
"Eligible Accounts" means, at any time, all accounts receivable of
Borrower created in the ordinary course of business that are acceptable to
Lender, are subject to a perfected, first priority security interest in favor of
Lender, and satisfy the following conditions:
(a) The account complies with all applicable laws, rules, and
regulations, including, without limitation, usury laws, the Federal
Truth in Lending Act, and Regulation Z of the Board of Governors of the
Federal Reserve System;
(b) The account has not been outstanding for more than ninety
(90) days past the original date of invoice;
(c) The account is not due and payable within thirty (30) days
of the date of invoice;
(d) The account does not represent a commission and the
account was created in connection with (i) the sale of goods by
Borrower in the ordinary course of business and such sale has been
consummated and such goods have been shipped and delivered and received
by the account debtor, or (ii) the performance of services by Borrower
in the ordinary course of business and such services have been
completed and accepted by the account debtor;
(e) The account arises from an enforceable contract, the
performance of which has been completed by Borrower;
3
(f) The account does not arise from the sale of any good that
is on a ▇▇▇▇-and-hold, guaranteed sale, sale-or-return, sale on
approval, consignment, or any other repurchase or return basis;
(g) Borrower has good and indefeasible title to the account
and the account is not subject to any Lien except Liens in favor of
Lender;
(h) The account does not arise out of a contract with or order
from, an account debtor that, by its terms, prohibits or makes void or
unenforceable the grant of a security interest by Borrower to Lender in
and to such account;
(i) The account is not subject to any setoff, counterclaim,
defense, dispute, recoupment, or adjustment other than normal discounts
for prompt payment;
(j) The account debtor is not insolvent or the subject of any
bankruptcy or insolvency proceeding and has not made an assignment for
the benefit of creditors, suspended normal business operations,
dissolved, liquidated, terminated its existence, ceased to pay its
debts as they become due, or suffered a receiver or trustee to be
appointed for any of its assets or affairs;
(k) The account is not evidenced by chattel paper or an
instrument;
(l) No default exists under the account by any party thereto;
(m) The account debtor has not returned or refused to retain,
or otherwise notified Borrower of any dispute concerning, or claimed
nonconformity of, any of the goods from the sale of which the account
arose;
(n) The account is not owed by an Affiliate, employee,
officer, director or shareholder of Borrower;
(o) The account is payable in Dollars by the account debtor;
(p) The account is not owed by an account debtor whose
accounts Lender in its sole discretion has chosen to exclude from
Eligible Accounts;
The account shall be ineligible:
(i) The account shall be ineligible if the account
debtor is domiciled in any country other than the United
States of America and Canada;
(ii) The account shall be ineligible if more than
five percent (5%) of the aggregate balances then outstanding
on accounts owed by such account debtor and its Affiliates to
Borrower are more than ninety (90) days past the dates of
their original invoices;
(iii) The account debtor is the United States of
America or any department, agency, or instrumentality thereof,
and the Federal Assignment of Claims Act of 1940, as amended,
shall not have been complied with;
(iv) The account shall be ineligible to the extent
the aggregate of all accounts owed by the account debtor and
its Affiliates to which the account relates exceeds ten
percent (10%) of all accounts owed by all of Borrower's
account debtors; and
4
(q) The account is otherwise acceptable in the sole discretion
of Lender; provided that Lender shall have the right to create and
adjust eligibility standards and related reserves from time to time in
its good faith credit judgment.
The amount of the Eligible Accounts owed by an account debtor to Borrower shall
be reduced by the amount of all "contra accounts" and other obligations owed by
Borrower to such account debtor.
"Eligible Inventory" means, at any time, all Gross Merchandise
Inventory of raw materials and finished goods then owned by (and in the
possession or under the control of) Borrower and held for sale or disposition in
the ordinary course of Borrower's business, in which Lender has a perfected,
first priority security interest, valued at the lower of actual cost or fair
market value and determined by Lender. Eligible Inventory shall not include (a)
inventory that is work-in-process, (b) inventory that has been shipped or
delivered to a customer on consignment, a sale-or-return basis, or on the basis
of any similar understanding, (c) inventory with respect to which a claim exists
disputing Borrower's title to or right to possession of such inventory, (d)
inventory that is not in good condition or does not comply with any applicable
law, rule, or regulation or any standard imposed by any Governmental Authority
with respect to its manufacture, use, or sale, (e) inventory that is damaged,
obsolete or otherwise not readily saleable, (f) inventory covered by negotiable
warehouse or other document of title (unless the same is in the possession of
Lender); (g) inventory held for rental or lease, (h) inventory that Lender, in
its sole discretion, has determined to be unmarketable, (i) inventory subject to
third-party intellectual property agreements, and (j) inventory that requires
consent of a third-party for manufacture or sale. In addition, no more than ten
percent (10%) of the total value of all inventory shall consist of Long Term
Inventory. For purposes of this definition, Eligible Inventory consisting of
inventory obtained from a Pawn Loan shall be valued at the lower of the
defaulted loan value of the underlying Pawn Loan or market value.
"Eligible Pawn Loans" means the outstanding principal loan balance of
Pawn Loans or ledger amount owing on all gross Pawn Loans receivables of
Borrower for Pawn Loans made by Borrower in the ordinary course of business, in
which Lender has a perfected, first priority lien, after deducting (without
duplication): (a) the amount of all discounts, allowances, rebates, credits and
adjustments to such accounts; (b) the amount of all contra accounts, setoffs,
defenses or counterclaims asserted by or available to the account debtors; (c)
all accounts owing by account debtors for which there has been instituted a
proceeding in bankruptcy or reorganization under the United States Bankruptcy
Code or other law, whether state or federal, now or hereafter existing for
relief of debtors; (d) the amount of all accounts which do not comply in all
material respects with all applicable laws, rules, and regulations, including
without limitation, usury laws, the Federal Truth in Lending Act, Regulation Z
of the Board of Governors of the Federal Reserve System, as applicable, the
provisions of the Texas Pawn Shop Act (Chapter 371 of the Texas Finance Code),
and similar laws governing the operation of pawnshops in local jurisdictions
where Borrower and any Subsidiaries conduct business, and the provisions of the
Texas Finance Code; (e) the amount of all accounts which have been outstanding
beyond the date applicable state law permits the pawned item relative to the
subject account to be sold by Borrower; (f) all accounts with respect to which
the account does not arise from an enforceable contract with a pawnshop
customer, or with respect to which the performance has not been completed by
Borrower; (g) all accounts to which Borrower does not have good and indefeasible
title; (h) all accounts subject to any lien, claim, security interest, or
encumbrance, except the security interest in favor of Lender; (i) all accounts
evidenced by chattel paper, unless such chattel paper has been delivered to
Lender or stamped or marked as collateral of Lender; and (j) any other accounts
deemed unacceptable by Lender in its sole and absolute discretion.
"Environmental Laws" means any and all federal, state, and local laws,
regulations, judicial decisions, orders, decrees, plans, rules, permits,
licenses, and other governmental restrictions and requirements pertaining to
health, safety, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
5
U.S.C. ss. 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss. 6901 et seq., the Occupational Safety and Health Act, 29 U.S.C. ss.
651 et seq., the Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Clean Water Act,
33 U.S.C. ss. 1251 et seq., and the Toxic Substances Control Act, 15 U.S.C. ss.
2601 et seq., as the same may be amended or supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses, (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order or agreement with any Governmental Authority or
other Person, arising from environmental, health or safety conditions or the
Release or threatened Release of a Hazardous Material into the environment,
resulting from the past, present, or future operations of such Person or its
Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Borrower or is under common control (within the
meaning of Section 414(c) of the Code) with Borrower.
"Event of Default" has the meaning specified in Section 10.1.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Gross Merchandise Inventory" means (a) all used personal property
consisting of forfeited collateral items resulting from Pawn Loans made in the
ordinary course of Borrower's pawn shop business and held in inventory of
Borrower, and (b) all other inventory purchased from the public, or purchased
from third-party vendors, and held in inventory of Borrower in the ordinary
course of business.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person as well as any obligation or liability, direct or
indirect, contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation or liability (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
operate Property, to take-or-pay, or to maintain net worth or working capital or
other financial statement conditions or otherwise) or (b) entered into for the
purpose of indemnifying or assuring in any other manner the obligee of such Debt
or other obligation or liability of the payment thereof or to protect the
obligee against loss in respect thereof (in whole or in part), provided that the
term Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
6
"Guarantor" means any Person who from time to time guarantees all or
any part of the Obligation, including, without limitation, the Subsidiary
Guarantors and the Limited Guarantor.
"Guaranty" means a written guaranty of each Guarantor (other than
Limited Guarantor) in favor of Lender, in form and substance satisfactory to
Lender, as the same may be amended, modified, restated, renewed, replaced,
extended, supplemented or otherwise changed from time to time.
"Hazardous Material" means any substance, product, waste, pollutant,
material, chemical, contaminant, constituent, or other material which is or
becomes listed, regulated, or addressed under any Environmental Law, including,
without limitation, asbestos, petroleum, and polychlorinated biphenyls.
"Letter of Credit" means any letter of credit issued by Lender for the
account of or at the direction of Borrower pursuant to Article II of this
Agreement.
"Letter of Credit Liabilities" means, at any time, the aggregate face
amounts of all outstanding Letters of Credit, plus any amounts drawn under any
Letters of Credit for which Lender has not been fully reimbursed by Borrower
(unless Lender, in its sole discretion, has cleared the drawn amount by means of
an Advance under the Revolving Credit Note, in which case the drawn amount would
not constitute a Letter of Credit Liability).
"Letter of Credit Request Form or Application" means a certificate or
agreement, in a form acceptable to Lender, properly completed and signed by
Borrower requesting issuance of a Letter of Credit and containing provisions for
fees for the issuance of Letters of Credit, repayment of drawn letters of
credit, the interest rate applicable to drawn and unpaid Letters of Credit, and
such other matters as Lender may require.
"Leverage Ratio" means, at any particular time, the ratio of
Liabilities to Tangible Net Worth in each case for Borrower and its Subsidiaries
determined on a consolidated basis.
"Liabilities" means, at any particular time, all amounts which, in
conformity with GAAP, would be included as liabilities on a balance sheet of a
Person.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
charge, hypothecation, assignment, preference, priority, or other encumbrance of
any kind or nature whatsoever (including, without limitation, any conditional
sale or title retention agreement), whether arising by contract, operation of
law, or otherwise.
"Limited Guarantor" means ▇.▇. ▇▇▇▇▇, as an individual.
"Limited Guaranty" means the Limited Guaranty to be executed by the
Limited Guarantor in form and substance satisfactory to Lender, as the same may
be amended, modified, restated, renewed, replaced, extended, supplemented or
otherwise changed from time to time.
"Loan Documents" means this Agreement and all promissory notes,
security agreements, subordination agreements, deeds of trust, assignments,
letters of credit, guaranties, and other instruments, documents, and agreements
executed and delivered pursuant to or in connection with this Agreement, as such
instruments, documents, and agreements may be amended, modified, renewed,
restated, extended, supplemented, replaced, consolidated, substituted, or
otherwise changed from time to time.
"Long Term Inventory" means inventory owned by the Borrower for more
than three (3) years.
7
"Maximum Lawful Rate" means, at any time, the maximum rate of interest
which may be charged, contracted for, taken, received or reserved by Lender in
accordance with applicable Texas law (or applicable United States federal law to
the extent that such law permits Lender to charge, contract for, receive or
reserve a greater amount of interest than under Texas law). The Maximum Lawful
Rate shall be calculated in a manner that takes into account any and all fees,
payments, and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Lawful Rate resulting from a change in the Maximum
Lawful Rate shall take effect without notice to Borrower at the time of such
change in the Maximum Lawful Rate.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by Borrower or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Notes" means, collectively, all promissory notes (and "Note" means any
of such Notes) executed at any time by Borrower and payable to the order of
Lender, as amended, renewed, replaced, extended, supplemented, consolidated,
restated, modified, otherwise changed and/or increased from time to time.
"Obligated Party" means each Guarantor or any other Person who is or
becomes party to any agreement that guarantees or secures payment and
performance of the Obligations or any part thereof.
"Obligations" means all obligations, indebtedness, and liabilities of
Borrower, each Guarantor and any other Obligated Party to Lender or Affiliates
of Lender, or both, now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several,
or joint and several, including, without limitation, the obligations,
indebtedness, and liabilities under this Agreement, any Swap Contract, the other
Loan Documents (including, without limitation, all Letter of Credit
Liabilities), any cash management or treasury services agreements and all
interest accruing thereon (whether a claim for post-filing or post-petition
interest is allowed in any insolvency, reorganization or similar proceeding) and
all attorneys' fees and other expenses incurred in the enforcement or collection
thereof.
"Pawn Loans" means all transactions in which a customer of Borrower
pledges with Borrower an item of goods as security for a loan of money,
including without limitation all collateralized pawn loans made by Borrower in
the ordinary course of its business as a pawnbroker, and all purchases by
Borrower of goods on the condition that the goods may be redeemed or repurchased
by the seller for a fixed price within a fixed period.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Person" means any individual, corporation, limited liability company,
business trust, association, company, partnership, joint venture, Governmental
Authority, or other entity, and shall include such Person's heirs,
administrators, personal representatives, executors, successors and assigns.
"Plan" means any employee benefit or other plan established or
maintained by Borrower or any ERISA Affiliate and which is covered by Title IV
of ERISA.
"Prime Rate" has the meaning assigned to it in the Notes.
8
"Principal Office" means the principal office of Lender, presently
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible or mixed, of such Person, or any other assets
owned, operated or leased by such Person.
"Related Indebtedness" has the meaning set forth in Section 11.21 of
this Agreement.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, disbursement, leaching, or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water,
ground water, or property.
"Remedial Action" means all actions required to (a) clean up, remove,
treat, or otherwise address Hazardous Materials in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release of Hazardous Materials so that they do not migrate or endanger
or threaten to endanger public health or welfare or the indoor or outdoor
environment, or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Revolving Credit Advance" means any Advance made by Lender to Borrower
pursuant to Section 2.1(a) of this Agreement.
"Revolving Credit Note" means the promissory note of Borrower payable
to the order of Lender, in substantially the form of Exhibit C hereto, and all
amendments, extensions, renewals, replacements, and modifications thereof.
"Security Agreement" means the Security Agreement of Borrower in favor
of Lender, in form and substance satisfactory to Lender, as the same may be
amended, restated, supplemented, modified, or changed from time to time.
"Security Documents" means each and every Security Agreement, Guaranty,
pledge, mortgage, deed of trust or other collateral security agreement required
by or delivered to Lender from time to time to secure the Obligations or any
portion thereof.
"Subordinated Debt" means any Debt of Borrower (other than the
Obligations) that has been subordinated to the Obligations by written agreement,
in form and content satisfactory to Lender.
"Subsidiary" means (a) any corporation of which at least a majority of
the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by Borrower or one or more of the Subsidiaries or by Borrower and one
or more of the Subsidiaries; and (b) any other entity (i) of which at least a
majority of the ownership, equity or voting interest is at the time directly or
indirectly owned or controlled by one or more of Borrower and the Subsidiaries
and (ii) which is treated as a subsidiary in accordance with GAAP.
9
"Swap Contract" means any agreement (including related confirmations
and schedules) between Borrower and Lender or any Affiliate of Lender now
existing or hereafter entered into which is, or relates to, a rate swap, basis
swap, forward rate transaction, cap transaction, floor transaction, collar
transaction or any other similar transactions (including any option with respect
to any of these transactions) or any combination thereof.
"Tangible Net Worth" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as stockholders' equity on a balance
sheet of a Person plus all Subordinated Debt of such Person; provided, however,
there shall be excluded therefrom: (a) any amount at which the equity of such
Person appears as an asset on such Person's balance sheet, (b) goodwill,
including any amounts, however designated, that represent the excess of the
purchase price paid for assets or stock over the value assigned thereto, (c)
patents, trademarks, trade names, and copyrights, (d) deferred expenses, (e)
loans and advances to any stockholder, director, officer, or employee of the
Person or any Affiliate of Person, Borrower, and (f) all other assets which are
properly classified as intangible assets.
"Term Loan" means at any time the aggregate, unpaid Term Note Advances.
"Term Note" means the promissory note of Borrower payable to the order
of Lender in substantially the form of Exhibit D hereto, and all amendments,
extensions, renewals, replacements, and modifications thereof.
"Term Note Advance" means any Advance made by Lender to Borrower
pursuant to Section 2.1(b) of this Agreement.
"Termination Date" means 11:00 A.M. Dallas, Texas time on November ,
2007, or such earlier date on which the Commitment terminates as provided in
this Agreement.
"UCC" means the Chapters 1 through 11 of the Texas Business and
Commerce Code, as amended from time to time.
Section 1.2 Accounting Matters. Any accounting term used in this
Agreement or the other Loan Documents shall have, unless otherwise specifically
provided therein, the meaning customarily given such term in accordance with
GAAP, and all financial computations thereunder shall be computed, unless
otherwise specifically provided therein, in accordance with GAAP consistently
applied; provided, that all financial covenants and calculations in the Loan
Documents shall be made in accordance with GAAP as in effect on the date of this
Agreement unless Borrower and Lender shall otherwise specifically agree in
writing. That certain items or computations are explicitly modified by the
phrase "in accordance with GAAP" shall in no way be construed to limit the
foregoing.
Section 1.3 Other Definitional Provisions. All definitions contained in
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. Terms
used herein that are defined in the UCC, unless otherwise defined herein, shall
have the meanings specified in the UCC.
10
ARTICLE II
Advances and Letters of Credit
------------------------------
Section 2.1 Advances.
(a) Revolving Credit Advances. Subject to the terms and conditions of
this Agreement, Lender agrees to make one or more Revolving Credit Advances to
Borrower from time to time from the date hereof to and including the Termination
Date in an aggregate principal amount at any time outstanding up to but not
exceeding the amount of the Commitment, provided that the aggregate amount of
all Revolving Credit Advances at any time outstanding shall not exceed the
lesser of (i) the amount of the Commitment minus all outstanding Letter of
Credit Liabilities or (ii) the Borrowing Base minus (i) all outstanding Letter
of Credit Liabilities and (ii) the Term Loan. Subject to the foregoing
limitations, and the other terms and provisions of this Agreement, Borrower may
borrow, repay, and reborrow hereunder.
1. The Revolving Credit Note. The obligation of Borrower to
repay the Revolving Credit Advances and interest thereon shall be
evidenced by the Revolving Credit Note executed by Borrower, payable to
the order of Lender, in the principal amount of the Commitment as
originally in effect, and dated the date hereof.
2. Repayment of Revolving Credit Advances. Borrower shall
repay the unpaid principal amount of all Advances on the Termination
Date, unless sooner due by reason of acceleration by Lender as provided
in this Agreement.
3. Interest. The unpaid principal amount of the Revolving
Credit Note shall, subject to the following sentence, bear interest as
provided in the Revolving Credit Note. If at any time the rate of
interest specified in the Revolving Credit Note would exceed the
Maximum Lawful Rate but for the provisions thereof limiting interest to
the Maximum Lawful Rate, then any subsequent reduction shall not reduce
the rate of interest on the Revolving Credit Advances below the Maximum
Lawful Rate until the aggregate amount of interest accrued on the
Revolving Credit Advances equals the aggregate amount of interest which
would have accrued on the Revolving Credit Advances if the interest
rate had not been limited by the Maximum Lawful Rate. Accrued and
unpaid interest on the Revolving Credit Advances shall be payable as
provided in the Revolving Credit Note and on the Termination Date.
4. Borrowing Procedure. Borrower shall give Lender notice of
each Revolving Credit Advance by means of an Advance Request Form
containing the information required therein and delivered (by hand or
by mechanically confirmed facsimile) to Lender no later than 1:00 p.m.
(Texas time) on the day on which the Revolving Credit Advance is
desired to be funded. Advances shall be in a minimum amount of
$250,000. Lender at its option may accept telephonic requests for such
Advances, provided that such acceptance shall not constitute a waiver
of Lender's right to require delivery of an Advance Request Form in
connection with subsequent Advances. Any telephonic request for a
Revolving Credit Advance by Borrower shall be promptly confirmed by
submission of a properly completed Advance Request Form to Lender, but
failure to deliver an Advance Request Form shall not be a defense to
payment of the Advance. Lender shall have no liability to Borrower for
any loss or damage suffered by Borrower as a result of Lender's
honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it
telephonically, by facsimile or electronically and purporting to have
been sent to Lender by Borrower and Lender shall have no duty to verify
11
the origin of any such communication or the identity or authority of
the Person sending it. Subject to the terms and conditions of this
Agreement, each Revolving Credit Advance shall be made available to
Borrower by depositing the same, in immediately available funds, in an
account of Borrower designated by Borrower maintained with Lender at
the Principal Office.
(b) Term Loan. Subject to the terms and conditions of this Agreement,
Lender agrees to make, on or about the date of this Agreement a single Advance
Term Loan to Borrower in the principal amount of One Million Dollars
($1,000,000).
1. The Term Note. The obligation of Borrower to repay the Term
Loan and interest thereon shall be evidenced by the Term Note executed
by Borrower, payable to the order of Lender, in the principal amount of
One Million Dollars ($1,000,000).
2. Repayment of Principal and Interest. Subject to prior
acceleration as provided in this Agreement, the unpaid principal
balance of the Term Note shall be repaid as provided therein.
3. Interest. The unpaid principal amount of the Term Note
shall, subject to the following sentence, bear interest as provided in
the Term Note. If at any time the rate of interest specified in the
Term Note shall exceed the Maximum Lawful Rate but for the provisions
thereof limiting interest to the Maximum Lawful Rate, then any
subsequent reduction shall not reduce the rate of interest on the Term
Note Advances below the Maximum Lawful Rate until the aggregate amount
of interest accrued on the Term Note Advances equals the aggregate
amount of interest which would have accrued on the Term Note Advances
if the interest rate had not been limited by the Maximum Lawful Rate.
Accrued and unpaid interest on the Term Note Advances shall be payable
as provided in the Revolving Credit Note and on the Termination Date.
Section 2.2 General Provisions Regarding Interest; Etc.
(a) Default Interest Rate. Any outstanding principal of any Advance and
(to the fullest extent permitted by law) any other amount payable by Borrower
under this Agreement or any other Loan Document that is not paid in full when
due (whether at stated maturity, by acceleration, or otherwise) shall bear
interest at the Default Interest Rate for the period from and including the due
date thereof to but excluding the date the same is paid in full. Additionally,
upon the occurrence of an Event of Default (and from the date of such
occurrence) all outstanding and unpaid principal amounts of all of the
Obligations shall, to the extent permitted by law, bear interest at the Default
Interest Rate until such time as Lender shall waive in writing the application
of the Default Interest Rate to such Event of Default situation. Interest
payable at the Default Interest Rate shall be payable from time to time on
demand.
(b) Computation of Interest. Interest on the Advances and all other
amounts payable by Borrower hereunder shall be computed on the basis of a year
of 360 days and the actual number of days elapsed (including the first day but
excluding the last day) unless such calculation would result in a usurious rate,
in which case interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be.
Section 2.3 Unused Facility Fee. Borrower agrees to pay to Lender an
unused facility fee on the daily average unused amount of the Commitment for the
period from and including the date of this Agreement to and including the
Termination Date, at the rate of one half of one percent (1/2 of 1%) per annum
based on a 360 day year and the actual number of days elapsed. For the purpose
of calculating the unused facility fee hereunder, the Commitment shall be deemed
utilized by the amount of all outstanding Advances and Letter of Credit
Liabilities. Accrued unused fee shall be payable in arrears on each March 31,
June 30, September 30, December 31, and on the Termination Date.
12
Section 2.4 Use of Proceeds. The proceeds of the Revolving Credit
Advances shall be used by Borrower for working capital in the ordinary course of
business. The proceeds of the Term Loan will be used for repay existing Debt of
Borrower.
Section 2.5 Letters of Credit. Subject to the terms and conditions of
this Agreement, Lender agrees to issue one or more Letters of Credit for the
account of Borrower from time to time from the date hereof to and including the
Termination Date; provided, however, that the outstanding Letter of Credit
Liabilities shall not at any time exceed the lesser of (a) Two Hundred Fifty
Thousand Dollars ($250,000), (b) an amount equal to the amount of the Commitment
minus the outstanding Advances, or (c) the Borrowing Base minus (i) the
outstanding Revolving Credit Advances and (ii) the Term Loan. Each Letter of
Credit shall have an expiration date not to exceed twelve (12) months, shall not
have an expiration date beyond the Termination Date, shall be payable in
Dollars, shall have a minimum face amount of Fifty Thousand Dollars ($50,000),
must support a transaction that is entered into in the ordinary course of
Borrower's business, must be satisfactory in form and substance to Lender, will
be subject to the payment of such Letter of Credit fees as Lender may require,
and shall be issued pursuant to such documents and instruments executed by
Borrower (including, without limitation, a Letter of Credit Application as then
in effect) as Lender may require.
Each payment by Lender pursuant to a drawing under a Letter of Credit
is due and payable ON DEMAND, and at the sole option of Lender, can be charged
by Lender as (and will be deemed to be) a Revolving Credit Advance by Lender to
Borrower under the Revolving Credit Note and this Agreement as of the day and
time such payment is made by Lender and in the amount of such payment.
ARTICLE III
Payments
--------
Section 3.1 Method of Payment. All payments of principal, interest, and
other amounts to be made by Borrower under this Agreement and the other Loan
Documents shall be made to Lender at the Principal Office in Dollars and
immediately available funds, without setoff, deduction, or counterclaim, and
free and clear of all taxes at the time and in the manner provided in the Notes.
Section 3.2 Prepayments.
(a) Voluntary Prepayments. Borrower may prepay all or any portion of
the Notes to the extent and in the manner provided for therein. Prepayments
shall be in a minimum of $10,000.
(b) Mandatory Prepayment. Borrower must pay on DEMAND the amount by
which at any time the unpaid principal balance of the Revolving Credit Note,
plus the aggregate Letter of Credit Liabilities, exceed the amount of the
Borrowing Base minus the Term Loan.
Section 3.3 Additional Costs in Respect of Letters of Credit. If as a
result of any Regulatory Change there shall be imposed, modified, or deemed
applicable any tax, reserve, special deposit, or similar requirement against or
with respect to or measured by reference to Letters of Credit issued or to be
issued hereunder or Lender's commitment to issue Letters of Credit hereunder,
and the result shall be to increase the cost to Lender of issuing or maintaining
any Letter of Credit or its commitment to issue Letters of Credit hereunder or
reduce any amount receivable by Lender hereunder in respect of any Letter of
Credit (which increase in cost, or reduction in amount receivable, shall be the
result of Lender's reasonable allocation of the aggregate of such increases or
reductions resulting from such event), then, upon demand by Lender, Borrower
agrees to pay Lender, from time to time as specified by Lender, such additional
13
amounts as shall be sufficient to compensate Lender for such increased costs or
reductions in amount. A statement as to such increased costs or reductions in
amount incurred by Lender, submitted by Lender to Borrower, shall be conclusive
as to the amount thereof, provided that the determination thereof is made on a
reasonable basis.
ARTICLE IV
Security
--------
Section 4.1 Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered all of the Security Documents required by Lender
covering the Property and collateral described in such Security Documents
(which, together with any other Property and collateral described in the
Security Agreement, and any other property which may now or hereafter secure the
Obligations or any part thereof, is sometimes herein called the "Collateral").
Borrower shall execute and cause to be executed such further documents and
instruments, including without limitation, Uniform Commercial Code financing
statements, as Lender, in its sole discretion, deems necessary or desirable to
create, evidence, preserve, and perfect its liens and security interests in the
Collateral.
Section 4.2 Setoff. If an Event of Default shall have occurred and be
continuing, Lender shall have the right to set off and apply against the
Obligations in such manner as Lender may determine, at any time and without
notice to Borrower, any and all deposits (general or special, time or demand,
provisional or final) or other sums at any time credited by or owing from Lender
to Borrower whether or not the Obligations are then due. As further security for
the Obligations, Borrower hereby grants to Lender a security interest in all
money, instruments, and other property of Borrower now or hereafter held by
Lender, including, without limitation, property held in safekeeping. In addition
to Lender's right of setoff and as further security for the Obligations,
Borrower hereby grants to Lender a security interest in all deposits (general or
special, time or demand, provisional or final) and other accounts of Borrower
now or hereafter on deposit with or held by Lender and all other sums at any
time credited by or owing from Lender to Borrower. The rights and remedies of
Lender hereunder are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Lender may have.
ARTICLE V
Conditions Precedent
--------------------
Section 5.1 Initial Extension of Credit. The obligation of Lender to
make the initial Advance under any Note or issue the initial Letter of Credit is
subject to the condition precedent that Lender shall have received on or before
the day of such Advance or Letter of Credit all of the following, each dated
(unless otherwise indicated) the date hereof, in form and substance satisfactory
to Lender:
(a) Resolutions. Resolutions of the Board of Directors (or other
governing body) of Borrower certified by the Secretary or an Assistant Secretary
(or other custodian of records) of Borrower which authorize the execution,
delivery, and performance by Borrower of this Agreement and the other Loan
Documents to which Borrower is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by an
authorized officer or representative certifying the names of the individuals or
other Persons authorized to sign this Agreement and each of the other Loan
Documents to which Borrower is or is to be a party (including the certificates
contemplated herein) on behalf of Borrower together with specimen signatures of
such Persons;
14
(c) Constituent Documents. The Constituent Documents for Borrower and
Guarantors as of a date acceptable to Lender;
(d) Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation or organization of Borrower
as to the existence and good standing of Borrower, each dated within ten (10)
days prior to the date of the initial Advance or Letter of Credit;
(e) Notes. The Notes executed by Borrower;
(f) Security Documents. The Security Documents executed by Borrower and
other Obligated Parties;
(g) Financing Statements. Uniform Commercial Code financing statements
executed by Borrower and covering such Collateral as Lender may request;
(h) Guaranty. The Guaranty executed by the Subsidiary Guarantor;
(i) Limited Guaranty. The Limited Guaranty executed by ▇.▇. ▇▇▇▇▇;
(k) Landlord/Mortgagee Waivers. Landlord/Mortgagee waivers executed by
(i) Belle-Hall Development Phase III Limited Partnership and (ii) ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇;
(l) Insurance Matters. Copies of insurance certificates describing all
insurance policies required by Section 7.5, together with loss payable and
lender endorsements in favor of Lender with respect to all insurance policies
covering Collateral;
(m) UCC Search. The results of a Uniform Commercial Code search showing
all financing statements and other documents or instruments on file against
Borrower and Guarantors the offices of the Secretary of State of Texas and the
Secretary of State of South Carolina, such search to be as of a date no more
than ten (10) days prior to the date of the initial Advance or the Letter of
Credit;
(n) Attorneys' Fees and Expenses. Evidence that the costs and expenses
(including reasonable attorneys' fees) referred to in Section 11.1, to the
extent incurred, shall have been paid in full by Borrower;
(o) Commitment Fee. Evidence that the Commitment Fee to Lender has been
paid in full by Borrower;
(p) Payoff Letter. Receipt of evidence satisfactory to Lender that the
outstanding loan from Bank of Texas, N.A. to Borrower will be repaid in full and
released upon its receipt of the proceeds of the Term Loan; and
(q) Additional Items. The additional items set forth on Schedule
5.1(n).
Section 5.2 All Extensions of Credit. The obligation of Lender to make
any Advance or issue any Letter of Credit (including the initial Advance and the
initial Letter of Credit) is subject to the following additional conditions
precedent:
(a) Request for Advance or Letter of Credit. Lender shall have received
in accordance with this Agreement, as the case may be, an Advance Request Form
or Letter of Credit Request Form pursuant to Lender's requirements dated the
date of such Advance or Letter of Credit and executed by an authorized officer
of Borrower;
15
(b) No Default, Etc. No Default or material adverse change or effect
shall have occurred and be continuing, or would result from or after giving
effect to such Advance or Letter of Credit;
(c) Representations and Warranties. All of the representations and
warranties contained in Article VI hereof and in the other Loan Documents shall
be true and correct on and as of the date of such Advance with the same force
and effect as if such representations and warranties had been made on and as of
such date; and
(d) Additional Documentation. Lender shall have received such
additional approvals, opinions, or documents as Lender or its legal counsel may
reasonably request.
ARTICLE VI
Representations and Warranties
------------------------------
To induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender that:
Section 6.1 Corporate Existence. Borrower and each of its Subsidiaries
(a) is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation; (b) has all requisite
power and authority to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a material adverse effect
on its business, condition (financial or otherwise), operations, prospects, or
properties. Borrower has the power and authority to execute, deliver, and
perform its obligations under this Agreement and the other Loan Documents to
which it is or may become a party.
Section 6.2 Financial Statements; Etc. Borrower has delivered to Lender
audited consolidated financial statements of Borrower and its Subsidiaries as at
and for the fiscal year ended 2004 and unaudited consolidated financial
statements of Borrower and its Subsidiaries for the six-month period ended June
30, 2005. Such financial statements are true and correct, have been prepared in
accordance with GAAP, and fairly and accurately present, on a consolidated
basis, the financial condition of Borrower and its Subsidiaries as of the
respective dates indicated therein and the results of operations for the
respective periods indicated therein. Neither Borrower nor any of its
Subsidiaries has any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments, or unrealized or anticipated losses
from any unfavorable commitments except as referred to or reflected in such
financial statements. There has been no material adverse change in the business,
condition (financial or otherwise), operations, prospects, or properties of
Borrower or any of its Subsidiaries since the effective date of the most recent
financial statements referred to in this Section. All projections delivered by
Borrower to Lender have been prepared in good faith, with care and diligence and
use assumptions that are reasonable under the circumstances at the time such
projections were prepared and delivered to Lender and all such assumptions are
disclosed in the projections.
Section 6.3 Action; No Breach. The execution, delivery, and performance
by Borrower of this Agreement and the other Loan Documents to which Borrower is
or may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite action on the part of
Borrower and do not and will not (a) violate or conflict with, or result in a
breach of, or require any consent under (i) Constituent Documents of Borrower or
any of its Subsidiaries, (ii) any applicable law, rule, or regulation or any
order, writ, injunction, or decree of any Governmental Authority or arbitrator,
or (iii) any agreement or instrument to which Borrower or any of its
16
Subsidiaries is a party or by which any of them or any of their Properties is
bound or subject, or (b) constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any of the
revenues or assets of Borrower or any Subsidiary.
Section 6.4 Operation of Business. Borrower and each of its
Subsidiaries possess all licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, necessary to conduct their
respective businesses substantially as now conducted and as presently proposed
to be conducted, and Borrower and each of its Subsidiaries are not in violation
of any valid rights of others with respect to any of the foregoing.
Section 6.5 Litigation and Judgments. There is no action, suit,
investigation, or proceeding before or by any Governmental Authority or
arbitrator pending, or to the knowledge of Borrower, threatened against or
affecting Borrower or any of its Subsidiaries, that would, if adversely
determined, have a material adverse effect on the business, condition (financial
or otherwise), operations, prospects, or properties of Borrower or any of its
Subsidiaries or the ability of Borrower to pay and perform the Obligations.
There are no outstanding judgments against Borrower or any Subsidiary of
Borrower.
Section 6.6 Rights in Properties; Liens. Borrower and each of its
Subsidiaries have good and indefeasible title to or valid leasehold interests in
their respective Properties, including the Properties reflected in the financial
statements described in Section 6.2, and none of the Properties of Borrower or
any Subsidiary is subject to any Lien, except as permitted by Section 8.2.
Section 6.7 Enforceability. This Agreement constitutes, and the other
Loan Documents to which Borrower is party, when delivered, shall constitute
legal, valid, and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the enforcement of
creditors' rights.
Section 6.8 Approvals. No authorization, approval, or consent of, and
no filing or registration with, any Governmental Authority or third party is or
will be necessary for the execution, delivery, or performance by Borrower of
this Agreement and the other Loan Documents to which Borrower is or may become a
party or the validity or enforceability thereof.
Section 6.9 Debt. Borrower and its Subsidiaries have no Debt.
Section 6.10 Taxes. Borrower and each Subsidiary have filed all tax
returns (federal, state, and local) required to be filed, including all income,
franchise, employment, property, and sales tax returns, and have paid all of
their respective liabilities for taxes, assessments, governmental charges, and
other levies that are due and payable. Borrower knows of no pending
investigation of Borrower or any Subsidiary by any taxing authority or of any
pending but unassessed tax liability of Borrower or any Subsidiary.
Section 6.11 Use of Proceeds; Margin Securities. Neither Borrower nor
any Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T, U, or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying margin stock.
Section 6.12 ERISA. Borrower and each Subsidiary are in compliance in
all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan. No notice of intent to terminate a Plan has been
17
filed, nor has any Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such proceedings.
Neither Borrower nor any ERISA Affiliate has completely or partially withdrawn
from a Multiemployer Plan. Borrower and each ERISA Affiliate have met their
minimum funding requirements under ERISA with respect to all of their Plans, and
the present value of all vested benefits under each Plan do not exceed the fair
market value of all Plan assets allocable to such benefits, as determined on the
most recent valuation date of the Plan and in accordance with ERISA. Neither
Borrower nor any ERISA Affiliate has incurred any liability to the PBGC under
ERISA.
Section 6.13 Disclosure. No statement, information, report,
representation, or warranty made by Borrower in this Agreement or in any other
Loan Document or furnished to Lender in connection with this Agreement or any of
the transactions contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact necessary to make the statements herein
or therein not misleading. There is no fact known to Borrower which has a
material adverse effect, or which might in the future have a material adverse
effect, on the business, condition (financial or otherwise), operations,
prospects, or properties of Borrower or any Subsidiary that has not been
disclosed in writing to Lender.
Section 6.14 Subsidiaries, Ventures, Etc. Borrower has no Subsidiaries,
Affiliates or joint ventures or partnerships other than those listed on Schedule
6.14 and Schedule 6.14 sets forth the jurisdiction of incorporation or
organization of each such Person and the percentage of Borrower's ownership
interest in such Person. All of the outstanding capital stock or other ownership
interest of Person described in Schedule 6.14 has been validly issued, is fully
paid, and is nonassessable.
Section 6.15 Agreements. Neither Borrower nor any Subsidiary is a party
to any indenture, loan, or credit agreement, or to any lease or other agreement
or instrument, or subject to any charter or corporate or other organizational
restriction which could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties of
Borrower or any Subsidiary, or the ability of Borrower to pay and perform its
obligations under the Loan Documents to which it is a party. Neither Borrower
nor any Subsidiary is in default in any respect in the performance, observance,
or fulfillment of any of the obligations, covenants, or conditions contained in
any agreement or instrument material to its business to which it is a party.
Section 6.16 Compliance with Laws. Neither Borrower nor any Subsidiary
is in violation in any material respect of any law, rule, regulation, order, or
decree of any Governmental Authority or arbitrator.
Section 6.17 Inventory. All inventory of Borrower has been and will
hereafter be produced in compliance with all applicable laws, rules,
regulations, and governmental standards, including, without limitation, the
minimum wage and overtime provisions of the Fair Labor Standards Act, as amended
(29 U.S.C. ▇▇.▇▇. 201-219), and the regulations promulgated thereunder.
Section 6.18 Investment Company Act. Neither Borrower nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 6.19 Public Utility Holding Company Act. Neither Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or a "public utility" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 6.20 Environmental Matters.
18
(a) Borrower, each Subsidiary, and all of their respective properties,
assets, and operations are in full compliance with all Environmental Laws.
Borrower is not aware of, nor has Borrower received notice of, any past,
present, or future conditions, events, activities, practices, or incidents which
may interfere with or prevent the compliance or continued compliance of Borrower
and the Subsidiaries with all Environmental Laws;
(b) Borrower and each Subsidiary have obtained all permits, licenses,
and authorizations that are required under applicable Environmental Laws, and
all such permits are in good standing and Borrower and its Subsidiaries are in
compliance with all of the terms and conditions of such permits;
(c) No Hazardous Materials exist on, about, or within or have been
used, generated, stored, transported, disposed of on, or Released from any of
the properties or assets of Borrower or any Subsidiary. The use which Borrower
and the Subsidiaries make and intend to make of their respective properties and
assets will not result in the use, generation, storage, transportation,
accumulation, disposal, or Release of any Hazardous Material on, in, or from any
of their properties or assets;
(d) Neither Borrower nor any of its Subsidiaries nor any of their
respective currently or previously owned or leased properties or operations is
subject to any outstanding or threatened order from or agreement with any
Governmental Authority or other Person or subject to any judicial or docketed
administrative proceeding with respect to (i) failure to comply with
Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities
arising from a Release or threatened Release;
(e) There are no conditions or circumstances associated with the
currently or previously owned or leased properties or operations of Borrower or
any of its Subsidiaries that could reasonably be expected to give rise to any
Environmental Liabilities;
(f) Neither Borrower nor any of its Subsidiaries is a treatment,
storage, or disposal facility requiring a permit under the Resource Conservation
and Recovery Act, 42 U.S.C. ss. 6901 et seq., regulations thereunder or any
comparable provision of state law. Borrower and its Subsidiaries are in
compliance with all applicable financial responsibility requirements of all
Environmental Laws;
(g) Neither Borrower nor any of its Subsidiaries has filed or failed to
file any notice required under applicable Environmental Law reporting a Release;
and
(h) No Lien arising under any Environmental Law has attached to any
property or revenues of Borrower or its Subsidiaries.
Section 6.21 Intellectual Property. All material Intellectual Property
owned or used by Borrower, any Subsidiary or any Obligated Party is listed,
together with application or registration numbers, where applicable, on Schedule
6.21. Each Person identified on Schedule 6.21 owns, or is licensed to use, all
Intellectual Property necessary to conduct its business as currently conducted
except for such Intellectual Property the failure of which to own or license
could not reasonably be expected to have a material adverse effect. Each Person
identified on Schedule 6.21will maintain the patenting and registration of all
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office, or other appropriate Governmental Authority and
each Person identified on Schedule 6.21will promptly patent or register, as the
case may be, all new Intellectual Property and notify Lender in writing five (5)
Business Days prior to filing any such new patent or registration.
19
ARTICLE VII
Affirmative Covenants
---------------------
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the following positive covenants, unless Lender shall
otherwise consent in writing:
Section 7.1 Reporting Requirements. Borrower will furnish to Lender:
(a) Annual Financial Statements. As soon as available, and in any event
within ninety (90) days after the end of each fiscal year of Borrower, beginning
with the fiscal year ending December 31, 2005, (i) a copy of the annual audit
report of Borrower and the Subsidiaries for such fiscal year containing, on a
consolidated and consolidating basis, balance sheets and statements of income,
retained earnings, and cash flow as at the end of such fiscal year and for the
12-month period then ended, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and audited and
certified by an independent certified public accountants of recognized standing
acceptable to Lender, to the effect that such report has been prepared in
accordance with GAAP and containing no material qualifications or limitations on
scope; and (ii) a certificate of such independent certified public accountants
to Lender (A) stating that to their knowledge no Default has occurred and is
continuing, or if in their opinion a Default has occurred and is continuing, a
statement as to the nature thereof, and (B) confirming the calculations set
forth in the officer's certificate delivered simultaneously therewith;
(b) Quarterly Financial Statements. As soon as available, and in any
event within thirty (30) days after the end of each of the quarters of each
fiscal year of Borrower, a copy of an unaudited financial report of Borrower and
its Subsidiaries as of the end of such fiscal quarter and for the portion of the
fiscal year then ended, containing, on a consolidated and consolidating basis,
balance sheets and statements of income, retained earnings, and cash flow, in
each case setting forth in comparative form the figures for the corresponding
period of the preceding fiscal year, all in reasonable detail certified by the
chief financial officer of Borrower to have been prepared in accordance with
GAAP and to fairly and accurately present (subject to year-end audit
adjustments) the financial condition and results of operations of Borrower and
its Subsidiaries, on a consolidated and consolidating basis, at the date and for
the periods indicated therein;
(c) Monthly Financial Statements. As soon as available, and in any
event within thirty (30) days after the end of each month of each fiscal year of
Borrower, a copy of an unaudited financial report of Borrower and the
Subsidiaries as of the end of such month and for the portion of the fiscal year
then ended, containing, on a consolidated and consolidating basis, balance
sheets and statements of income, retained earnings, and cash flow, all in
reasonable detail certified by the chief financial officer of Borrower to have
been prepared in accordance with GAAP and to fairly and accurately present
(subject to year-end audit adjustments) the financial condition and results of
operations of Borrower and the Subsidiaries, on a consolidated and consolidating
basis, at the date and for the periods indicated therein;
(d) Borrowing Base Report. As soon as available, and in any event
within thirty (30) days after the end of each calendar month, a Borrowing Base
Report, in a form acceptable to Lender, certified by the chief financial officer
of Borrower;
(e) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Subsections 7.1(a) and 7.1(b), a
certificate of the chief financial officer of Borrower (i) stating that to the
best of such officer's knowledge, no Default has occurred and is continuing, or
if a Default has occurred and is continuing, a statement as to the nature
20
thereof and the action which is proposed to be taken with respect thereto, and
(ii) showing in reasonable detail the calculations demonstrating compliance with
Article IX;
(f) Management Letters. Promptly upon receipt thereof, a copy of any
management letter, regulatory reports, audits, or written other report submitted
to Borrower or any Subsidiary by independent certified public accountants with
respect to the business, condition (financial or otherwise), operations,
prospects, or properties of Borrower or any Subsidiary;
(g) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any Governmental Authority
or arbitrator affecting Borrower or any Subsidiary which, if determined
adversely to Borrower or such Subsidiary, could have a material adverse effect
on the business, condition (financial or otherwise), operations, prospects, or
properties of Borrower or such Subsidiary;
(h) Notice of Default. As soon as possible and in any event within five
(5) days after the occurrence of each Default, a written notice setting forth
the details of such Default and the action that Borrower has taken and proposes
to take with respect thereto;
(i) ERISA Reports. Promptly after the filing or receipt thereof, copies
of all reports, including annual reports, and notices which Borrower or any
Subsidiary files with or receives from the PBGC or the U.S. Department of Labor
under ERISA; and as soon as possible and in any event within five (5) days after
Borrower or any Subsidiary knows or has reason to know that any Reportable Event
or Prohibited Transaction has occurred with respect to any Plan or that the PBGC
or Borrower or any Subsidiary has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, a certificate of the chief financial
officer of Borrower setting forth the details as to such Reportable Event or
Prohibited Transaction or Plan termination and the action that Borrower proposes
to take with respect thereto;
(j) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, or credit or similar agreement and not otherwise
required to be furnished to Lender pursuant to any other clause of this Section;
(k) Notice of Material Adverse Change. As soon as possible and in any
event within five (5) days after the occurrence thereof, written notice of any
matter that could have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects, or properties of Borrower or
any Subsidiary;
(l) Accounts Receivable Aging. As soon as available, and in any event
within thirty (30) days after the end of each calendar month, an account
receivable aging, classifying Borrower's domestic and export accounts receivable
in categories of 0-30, 31-60, 61-90 and over 90 days from date of invoice, and
in such form and detail as Lender shall require;
(m) Inventory Report. As soon as available, and in any event within
thirty (30) days after the end of each calendar month, an inventory report, in
such form and detail as Lender shall reasonably require certified by the chief
financial officer of Borrower;
(n) Long Term Inventory Report. As soon as available, and in any event
within thirty (30) days after the end of each June 30 and December 31 of each
calendar year, commencing on December 31, 2005, a report of all Long Term
Inventory, in such form and detail as Lender shall reasonably require certified
by the chief financial officer of Borrower;
21
(o) Pawn Loan Report. As soon as available, and in any event within
thirty (30) days after the end of each calendar month, a report of Pawn Loans,
in such form and detail as Lender shall reasonably require, certified by the
chief financial officer of Borrower;
(p) Guarantor Financial Statement. Borrower shall cause the Limited
Guarantor to provide an annual financial statement, in such form and detail as
Lender shall reasonably require, within sixty (60) days after the end of each
calendar year, including, a balance sheet, cash flow statement, and statement of
contingent liabilities, in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year;
(q) Proxy Statements, Etc. As soon as available, one copy of each
financial statement, report, notice or proxy statement sent by Borrower or any
Subsidiary to its stockholders generally and one copy of each regular, periodic
or special report, registration statement, or prospectus filed by Borrower or
any Subsidiary with any securities exchange or the Securities and Exchange
Commission or any successor agency;
(q) Public Filings. As soon as available, and in any event within five
(5) days after filing, true, correct, and complete copies of all material
reports or filings filed by or on behalf of any Company with any Governmental
Authority (including copies of each Form 10-K, Form 10-Q, and Form S-8 filed by
or on behalf of any Company with the SEC);
(r) Regulatory Report. As soon as available, and in any event within
five (5) days after receipt hereof by Borrower, copies of any regulatory
reports; and
(s) General Information. Promptly, such other information concerning
Borrower or any Subsidiary as Lender may from time to time reasonably request.
Section 7.2 Maintenance of Existence; Conduct of Business. Borrower
will preserve and maintain, and will cause each Subsidiary to preserve and
maintain, its existence and all of its leases, privileges, licenses, permits,
franchises, qualifications, and rights that are necessary or desirable in the
ordinary conduct of its business. Borrower will conduct, and will cause each
Subsidiary to conduct, its business in an orderly and efficient manner in
accordance with good business practices. Without limitation, Borrower will not
make (and will not permit any of its Subsidiaries to make) any material change
in its credit collection policies if such change would materially impair the
collectibility of any account, nor will it rescind, cancel or modify any account
except in the ordinary course of business.
Section 7.3 Maintenance of Properties. Borrower will maintain, keep,
and preserve, and cause each Subsidiary to maintain, keep, and preserve, all of
its Properties (tangible and intangible) necessary or useful in the proper
conduct of its business in good working order and condition.
Section 7.4 Taxes and Claims. Borrower will pay or discharge, and will
cause each Subsidiary to pay or discharge, at or before maturity or before
becoming delinquent (a) all taxes, levies, assessments, and governmental charges
imposed on it or its income or profits or any of its property, and (b) all
lawful claims for labor, material, and supplies, which, if unpaid, might become
a Lien upon any of its property; provided, however, that neither Borrower nor
any Subsidiary shall be required to pay or discharge any tax, levy, assessment,
or governmental charge which is being contested in good faith by appropriate
proceedings diligently pursued, and for which adequate reserves have been
established.
Section 7.5 Insurance. Borrower will maintain, and will cause each of
the Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies in such amounts and covering such risks as is usually
carried by corporations engaged in similar businesses and owning similar
22
properties in the same general areas in which Borrower and the Subsidiaries
operate, provided that in any event Borrower will maintain and cause each
Subsidiary to maintain workmen's compensation insurance, property insurance,
comprehensive general liability insurance, reasonably satisfactory to Lender.
Each insurance policy covering Collateral shall name Lender as loss payee and
shall provide that such policy will not be cancelled or reduced without thirty
(30) days prior written notice to Lender.
Section 7.6 Inspection Rights. At any reasonable time and from time to
time, Borrower will permit, and will cause each Subsidiary to permit,
representatives of Lender to examine the Collateral and conduct Collateral
audits, to examine, copy, and make extracts from its books and records, to visit
and inspect its properties, and to discuss its business, operations, and
financial condition with its officers, employees, and independent certified
public accountants.
Section 7.7 Keeping Books and Records. Borrower will maintain, and will
cause each Subsidiary to maintain, proper books of record and account in which
full, true, and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and activities.
Section 7.8 Compliance with Laws. Borrower will comply, and will cause
each Subsidiary to comply, in all material respects with all applicable laws,
rules, regulations, orders, and decrees of any Governmental Authority or
arbitrator.
Section 7.9 Compliance with Agreements. Borrower will comply, and will
cause each Subsidiary to comply, in all material respects with all agreements,
contracts, and instruments binding on it or affecting its properties or
business.
Section 7.10 Further Assurances. Borrower will, and will cause each
Subsidiary to, execute and deliver such further agreements and instruments and
take such further action as may be requested by Lender to carry out the
provisions and purposes of this Agreement and the other Loan Documents and to
create, preserve, and perfect the Liens of Lender in the Collateral.
Section 7.11 ERISA. Borrower will comply, and will cause each
Subsidiary to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.
ARTICLE VIII
Negative Covenants
------------------
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the following negative covenants, unless Lender shall
otherwise consent in writing:
Section 8.1 Debt. Borrower will not incur, create, assume, or permit to
exist, and will not permit any Subsidiary to incur, create, assume, or permit to
exist, any Debt, except:
(a) Debt to Lender;
(b) Existing Debt described on Schedule 8.1 hereto; and
(c) Additional Debt not to exceed One Hundred Thousand Dollars
($100,000) in the aggregate.
23
Section 8.2 Limitation on Liens. Borrower will not incur, create,
assume, or permit to exist, and will not permit any Subsidiary to incur, create,
assume, or permit to exist, any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired, except:
(a) Liens disclosed on the Schedule 8.2 hereto;
(b) Liens in favor of Lender;
(c) Encumbrances consisting of minor easements, zoning restrictions, or
other restrictions on the use of real property that do not (individually or in
the aggregate) materially affect the value of the assets encumbered thereby or
materially impair the ability of Borrower or the Subsidiaries to use such assets
in their respective businesses, and none of which is violated in any material
respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments, or other governmental charges which
are not delinquent or which are being contested in good faith and for which
adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers, or other
similar statutory Liens securing obligations that are not yet due and are
incurred in the ordinary course of business;
(f) Liens resulting from good faith deposits to secure payments of
workmen's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids, or
contracts (other than for payment of Debt), or leases made in the ordinary
course of business; and
(g) Purchase money Liens on specific property to secure Debt used to
acquire such property to the extent permitted in Section 8.1(d).
Section 8.3 Mergers, Etc. Borrower will not, and will not permit any
Subsidiary to, become a party to a merger or consolidation, or purchase or
otherwise acquire all or any part of the assets of any Person or any shares or
other evidence of beneficial ownership of any Person, or wind-up, dissolve, or
liquidate.
Section 8.4 Restricted Payments. Borrower will not declare or pay any
dividends or make any other payment or distribution (in cash, property, or
obligations) on account of its equity interests, or redeem, purchase, retire, or
otherwise acquire any of its equity interests, or permit any of its Subsidiaries
to purchase or otherwise acquire any equity interest of Borrower or another
Subsidiary, or set apart any money for a sinking or other analogous fund for any
dividend or other distribution on its equity interests or for any redemption,
purchase, retirement, or other acquisition of any of its equity interests.
Section 8.5 Loans and Investments. Borrower will not make, and will not
permit any Subsidiary to make, any advance, loan, extension of credit, or
capital contribution to or investment in, or purchase, or permit any Subsidiary
to purchase, any stock, bonds, notes, debentures, or other securities of, any
Person, except:
(a) readily marketable direct obligations of the United States of
America or any agency thereof with maturities of one year or less from the date
of acquisition;
(b) loans made in the ordinary course of Borrower's business, including
Pawn Loans;
(c) fully insured certificates of deposit with maturities of one year
or less from the date of acquisition issued by Lender or any commercial bank
operating in the United States of America; and
24
(d) commercial paper of a domestic issuer if at the time of purchase
such paper is rated in one of the two highest rating categories of Standard and
Poor's Corporation or ▇▇▇▇▇'▇ Investors Service.
Section 8.6 Limitation on Issuance of Equity. Borrower will not, and
will not permit any of its Subsidiaries to, at any time issue, sell, assign, or
otherwise dispose of (a) any of its equity interests, (b) any securities
exchangeable for or convertible into or carrying any rights to acquire any of
its equity interests, or (c) any option, warrant, or other right to acquire any
of its equity interests.
Section 8.7 Transactions With Affiliates. Borrower will not enter into,
and will not permit any Subsidiary to enter into, any transaction, including,
without limitation, the purchase, sale, or exchange of property or the rendering
of any service, with any Affiliate of Borrower or such Subsidiary, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's or
such Subsidiary's business and upon fair and reasonable terms no less favorable
to Borrower or such Subsidiary than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate of Borrower or such
Subsidiary.
Section 8.8 Disposition of Assets. Borrower will not sell, lease,
assign, transfer, or otherwise dispose of any of its assets, or permit any
Subsidiary to do so with any of its assets, except (a) dispositions of inventory
in the ordinary course of business or (b) dispositions, for fair value, of
worn-out and obsolete equipment not necessary or useful to the conduct of
business (the net proceeds of which shall be used to prepay Term Note Advances).
Section 8.9 Sale and Leaseback. Borrower will not enter into, and will
not permit any Subsidiary to enter into, any arrangement with any Person
pursuant to which it leases from such Person real or personal property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 8.10 Prepayment of Debt. Borrower will not prepay, and will not
permit any Subsidiary to prepay, any Debt, except the Obligations.
Section 8.11 Nature of Business. Borrower will not, and will not permit
any Subsidiary to, engage in any business other than the businesses in which
they are engaged as of the date hereof.
Section 8.12 Environmental Protection. Borrower will not, and will not
permit any of its Subsidiaries to, (a) use (or permit any tenant to use) any of
their respective properties or assets for the handling, processing, storage,
transportation, or disposal of any Hazardous Material, (b) generate any
Hazardous Material, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material, or (d) otherwise conduct any
activity or use any of their respective properties or assets in any manner that
is likely to violate any Environmental Law or create any Environmental
Liabilities for which Borrower or any of its Subsidiaries would be responsible.
Section 8.13 Accounting. Borrower will not, and will not permit any of
its Subsidiaries to, change its fiscal year or make any change (a) in accounting
treatment or reporting practices, except as required by GAAP and disclosed to
Lender, or (b) in tax reporting treatment, except as required by law and
disclosed to Lender.
Section 8.14 No Negative Pledge. Borrower will not, and will not permit
any Subsidiary to, enter into or permit to exist any arrangement or agreement,
other than pursuant to this Agreement or any Loan Document, which directly or
indirectly prohibits Borrower or any Subsidiary from creating or incurring a
Lien on any of its assets.
25
ARTICLE IX
Financial Covenants
-------------------
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will, at all times, observe and perform the following financial covenants,
unless Lender shall otherwise consent in writing.
Section 9.1 Consolidated Tangible Net Worth. Borrower will at all times
maintain on a consolidated basis Tangible Net Worth of Four Million Seven
Hundred Fifty Thousand Dollars ($4,750,000).
Section 9.2 Leverage Ratio. Borrower will at all times maintain a ratio
of consolidated Liabilities minus Subordinated Debt to consolidated Tangible Net
Worth of 1.5 to 1.0.
Section 9.3 Fixed Charge Coverage Ratio. Borrower and is Subsidiaries
shall not, as of the last day of any fiscal quarter during the following
periods, permit the ratio of (a) EBITDA, minus Cash Taxes, minus Capital
Expenditures not financed with Indebtedness permitted hereunder, to (b) Debt
Service, in each case for the four (4) fiscal quarters ending on the date of
determination, to be less than 1.35 to 1.0. This Section 9.3 shall be based on
the rolling four (4) quarter cash flow and debt service obligations of Borrower
and its Subsidiaries.
ARTICLE X
Default
-------
Section 10.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) Borrower shall fail to pay the Obligations or any part thereof
shall not be paid when due or declared due.
(b) Borrower shall fail to provide to Lender timely any notice of
Default as required by Section 7.1(f) of this Agreement or Borrower shall breach
any provision of Article VIII or Article IX of this Agreement.
(c) Any representation or warranty made or deemed made by Borrower or
any Obligated Party (or any of their respective officers) in any Loan Document
or in any certificate, report, notice, or financial statement furnished at any
time in connection with this Agreement shall be false, misleading, or erroneous
in any material respect when made or deemed to have been made.
(d) Borrower or any Obligated Party shall fail to perform, observe, or
comply with any covenant, agreement, or term contained in this Agreement or any
other Loan Document (other than as covered by Section 10.1(a) and (b) above),
and such failure continues for more than fifteen (15) days following the date
such failure first began.
(e) Borrower, any Subsidiary, or any Obligated Party shall commence a
voluntary proceeding seeking liquidation, reorganization, or other relief with
respect to itself or its debts under any bankruptcy, insolvency, or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian, or other similar official of it or a
26
substantial part of its property or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall generally fail to pay its debts as they become
due or shall take any corporate action to authorize any of the foregoing.
(f) Borrower, any Subsidiary, or any Obligated Party shall fail to pay
when due any principal of or interest on any Debt (other than the Obligations),
or the maturity of any such Debt shall have been accelerated, or any such Debt
shall have been required to be prepaid prior to the stated maturity thereof, or
any event shall have occurred that permits (or, with the giving of notice or
lapse of time or both, would permit) any holder or holders of such Debt or any
Person acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment.
(g) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower, any
Subsidiary, any Obligated Party or any of their respective shareholders, or
Borrower or any Obligated Party shall deny that it has any further liability or
obligation under any of the Loan Documents, or any lien or security interest
created by the Loan Documents shall for any reason cease to be a valid, first
priority perfected security interest in and lien upon any of the Collateral
purported to be covered thereby.
(h) Any of the following events shall occur or exist with respect to
Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving any
Plan; (ii) any Reportable Event with respect to any Plan; (iii) the filing under
Section 4041 of ERISA of a notice of intent to terminate any Plan or the
termination of any Plan; (iv) any event or circumstance that might constitute
grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA
for the termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; or (v) complete or
partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan
or the reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above, such event or condition, together with all other events or
conditions, if any, have subjected or could in the reasonable opinion of Lender
subject Borrower to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in
the aggregate exceed or could reasonably be expected to exceed Twenty-Five
Thousand Dollars ($25,000).
(i) The Guarantor or any other Obligated Party shall have died or have
been declared incompetent by a court of proper jurisdiction; or if the Guarantor
or any other Obligated Party is a corporation, partnership or other entity, such
Person shall be the subject of a bankruptcy or receivership proceeding or shall
have dissolved, liquidated or otherwise ceased doing business.
(j) Any change in the chairman, chief executive officer, president or
other executive office of Borrower shall occur, when compared to the management
as of the date of this Agreement.
(k) Borrower, any of its Subsidiaries, or any Obligated Party, or any
of their properties, revenues, or assets, shall become subject to an order of
forfeiture, seizure, or divestiture (whether under RICO or otherwise) and the
same shall not have been discharged within thirty (30) days from the date of
entry thereof.
(l) An involuntary proceeding shall be commenced against Borrower, any
Subsidiary, or any Obligated Party seeking liquidation, reorganization, or other
relief with respect to it or its debts under any bankruptcy, insolvency, or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official for it or a
substantial part of its property, and such involuntary proceeding shall remain
undismissed and unstayed for a period of thirty (30) days.
27
(m) Borrower, any Subsidiary or any Obligated Party shall fail to
discharge within a period of thirty (30) days after the commencement thereof any
attachment, sequestration, or similar proceeding or proceedings involving an
aggregate amount in excess of Twenty-Five Thousand Dollars ($25,000) against any
of its assets or properties.
(n) A final judgment or judgments for the payment of money in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate shall be rendered by a
court or courts against Borrower, any of its Subsidiaries, or any Obligated
Party and the same shall not be discharged (or provision shall not be made for
such discharge), or a stay of execution thereof shall not be procured, within
thirty (30) days from the date of entry thereof and Borrower or the relevant
Subsidiary or Obligated Party shall not, within said period of thirty (30) days,
or such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal.
Section 10.2 Remedies Upon Default. If any Event of Default shall occur
and be continuing, Lender may without notice terminate the Commitment and
declare the Obligations or any part thereof to be immediately due and payable,
and the same shall thereupon become immediately due and payable, without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to demand, protest, or other formalities
of any kind, all of which are hereby expressly waived by Borrower; provided,
however, that upon the occurrence of an Event of Default under Section 10.1(e)
or Section 10.1(m), the Commitment shall automatically terminate, and the
Obligations shall become immediately due and payable without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other formalities of any
kind, all of which are hereby expressly waived by Borrower. If any Event of
Default shall occur and be continuing, Lender may exercise all rights and
remedies available to it in law or in equity, under the Loan Documents, or
otherwise.
Section 10.3 Performance by Lender. If Borrower shall fail to perform
any covenant or agreement contained in any of the Loan Documents, Lender may
perform or attempt to perform such covenant or agreement on behalf of Borrower.
In such event, Borrower shall, at the request of Lender, promptly pay any amount
expended by Lender in connection with such performance or attempted performance
to Lender, together with interest thereon at the Default Interest Rate from and
including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that Lender shall not have any liability or responsibility for the
performance of any obligation of Borrower under this Agreement or any other Loan
Document.
Section 10.4 Cash Collateral. If any Event of Default shall occur and
be continuing or the Termination Date shall have occurred, Borrower shall, if
requested by Lender, immediately deposit with and pledge to Lender cash or cash
equivalent investments in an amount equal to the outstanding Letter of Credit
Liabilities as security for the Obligations.
ARTICLE XI
Miscellaneous
-------------
Section 11.1 Expenses. Borrower hereby agrees to pay on demand: (a) all
costs and expenses of Lender in connection with the preparation, negotiation,
execution, and delivery of this Agreement and the other Loan Documents and any
and all amendments, modifications, renewals, extensions, and supplements thereof
and thereto, including, without limitation, the reasonable fees and expenses of
legal counsel, advisors, consultants, and auditors for Lender, (b) all costs and
expenses of Lender in connection with any Default and the enforcement of this
Agreement or any other Loan Document, including, without limitation, the fees
28
and expenses of legal counsel, advisors, consultants, and auditors for Lender,
(c) all transfer, stamp, documentary, or other similar taxes, assessments, or
charges levied by any Governmental Authority in respect of this Agreement or any
of the other Loan Documents, (d) all costs, expenses, assessments, and other
charges incurred in connection with any filing, registration, recording, or
perfection of any security interest or Lien contemplated by this Agreement or
any other Loan Document, and (e) all other costs and expenses incurred by Lender
in connection with this Agreement or any other Loan Document, any litigation,
dispute, suit, proceeding or action; the enforcement of its rights and remedies,
protection of its interests in bankruptcy, insolvency or other legal
proceedings, including, without limitation, all costs, expenses, and other
charges (including Lender's internal charges) incurred in connection with
evaluating, observing, collecting, examining, auditing, appraising, selling,
liquidating, or otherwise disposing of the Collateral or other assets of
Borrower.
Section 11.2 INDEMNIFICATION. BORROWER SHALL INDEMNIFY LENDER AND EACH
AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS,
COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME
SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE
NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF
ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN
DOCUMENTS, (C) ANY BREACH BY BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT,
OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE,
RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS
MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS
OF BORROWER OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF
CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON LENDER
OR ANY OF LENDER'S CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY
OF THE FOREGOING. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY
OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD
HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES)
ARISING OUT OF OR RESULTING FROM THE SOLE CONTRIBUTORY OR ORDINARY NEGLIGENCE OF
SUCH PERSON.
Section 11.3 Limitation of Liability. Neither Lender nor any Affiliate,
officer, director, employee, attorney, or agent of Lender shall have any
liability with respect to, and Borrower hereby waives, releases, and agrees not
to ▇▇▇ any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or any
of the other Loan Documents. Borrower hereby waives, releases, and agrees not to
▇▇▇ Lender or any of Lender's Affiliates, officers, directors, employees,
attorneys, or agents for punitive damages in respect of any claim in connection
with, arising out of, or in any way related to, this Agreement or any of the
other Loan Documents, or any of the transactions contemplated by this Agreement
or any of the other Loan Documents.
29
Section 11.4 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Lender shall have the right to
act exclusively in the interest of Lender and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to Borrower or any of Borrower's shareholders or any other Person.
Section 11.5 Lender Not Fiduciary. The relationship between Borrower
and Lender is solely that of debtor and creditor, and Lender has no fiduciary or
other special relationship with Borrower, and no term or condition of any of the
Loan Documents shall be construed so as to deem the relationship between
Borrower and Lender to be other than that of debtor and creditor.
Section 11.6 Equitable Relief. Borrower recognizes that in the event
Borrower fails to pay, perform, observe, or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to Lender.
Borrower therefore agrees that Lender, if Lender so requests, shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.
Section 11.7 No Waiver; Cumulative Remedies. No failure on the part of
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power, or privilege under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power,
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 11.8 Successors and Assigns. This Agreement is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of Lender.
Section 11.9 Survival. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them. Without prejudice to the
survival of any other obligation of Borrower hereunder, the obligations of
Borrower under Sections 3.5, 11.1, and 11.2 shall survive repayment of the Note
and termination of the Commitment and the Letters of Credit.
Section 11.10 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, THE NOTE,
AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE
AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
The provisions of this Agreement and the other Loan Documents to which Borrower
is a party may be amended or waived only by an instrument in writing signed by
the parties hereto.
Section 11.11 Notices. Unless otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including by facsimile transmission) and mailed, faxed or delivered, to the
address, facsimile number or subject to the last sentence hereof electronic mail
address specified for notices below the signatures hereon or to such other
address as shall be designated by such party in a notice to the other parties.
All such other notices and other communications shall be deemed to have been
30
given or made upon the earliest to occur of (i) actual receipt by the intended
recipient or (ii) (A) if delivered by hand or courier; (B) if delivered by mail,
four business days after deposit in the mail, postage prepaid; (C) if delivered
by facsimile when sent and receipt has been confirmed by telephone; and (D) if
delivered by electronic mail (which form of delivery is subject to the
provisions of the last sentence below) when delivered; provided, however, that
notices and other communications pursuant to Article II shall not be effective
until actually received by Lender. Electronic mail and intranet websites may be
used only to distribute only routine communications, such as financial
statements and other information, and to distribute Loan Documents for execution
by the parties thereto, and may not be used for any other purpose.
Section 11.12 Governing Law; Venue; Service of Process. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Texas and the applicable laws of the United States of America. This Agreement
has been entered into in Dallas County, Texas, and it shall be performable for
all purposes in Dallas County, Texas. Any action or proceeding against Borrower
under or in connection with any of the Loan Documents may be brought in any
state or federal court in Dallas County, Texas. Borrower hereby irrevocably (a)
submits to the nonexclusive jurisdiction of such courts, and (b) waives any
objection it may now or hereafter have as to the venue of any such action or
proceeding brought in any such court or that any such court is an inconvenient
forum. Borrower agrees that service of process upon it may be made by certified
or registered mail, return receipt requested, at its address specified or
determined in accordance with the provisions of Section 11.12. Nothing herein or
in any of the other Loan Documents shall affect the right of Lender to serve
process in any other manner permitted by law or shall limit the right of Lender
to bring any action or proceeding against Borrower or with respect to any of its
property in courts in other jurisdictions. Any action or proceeding by Borrower
against Lender shall be brought only in a court located in Dallas County, Texas.
Section 11.13 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 11.14 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 11.15 Headings. The headings, captions, and arrangements used
in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 11.16 Participations; Etc. Lender shall have the right at any
time and from time to time to grant participations in, and sell and transfer,
the Obligations and any Loan Documents. Each actual or proposed participant or
assignee, as the case may be, shall be entitled to receive all information
received by Lender regarding Borrower and its Subsidiaries, including, without
limitation, information required to be disclosed to a participant or assignee
pursuant to Banking Circular 181 (Rev., August 2, 1984), issued by the
Comptroller of the Currency (whether the actual or proposed participant or
assignee is subject to the circular or not).
Section 11.17 Construction. Borrower and Lender acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Loan Documents
with its legal counsel and that this Agreement and the other Loan Documents
shall be construed as if jointly drafted by Borrower and Lender.
Section 11.18 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
31
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 11.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN
THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
Section 11.20 Arbitration.
(a) Upon the demand of any party, any dispute shall be resolved by
binding arbitration (except as set forth in Section 11.20(e) below) in
accordance with the terms of this Agreement or the other Loan Documents. Any
party may by summary proceedings bring an action in court to compel arbitration
of a Dispute. Any party who fails or refuses to submit to arbitration following
a lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Arbitration proceedings shall be administered by the American
Arbitration Association ("AAA") or such other administrator as the parties shall
mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All
Disputes submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any
conflicting choice of law provision in any of the foregoing documents. The
arbitration shall be conducted at a location in Texas selected by the AAA or
other administrator. If there is any inconsistency between the terms hereof and
any such rules, the terms and procedures set forth herein shall control.. All
statutes of limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under Section 91
of Title 12 of the United States Code or any similar applicable state law.
(c) No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation, injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver from a court of
competent jurisdiction before, after or during the pendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) Arbitrators must be active members of the Texas State Bar with
expertise in the substantive law applicable to the subject matter of the
Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing. Arbitrators
(i) shall resolve all Disputes in accordance with the substantive law of the
State of Texas, (ii) may grant any remedy or relief that a court of the State of
Texas could order or grant within the scope hereof and such ancillary relief as
is necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure or other
applicable law. Any Dispute in which the amount in controversy is $5,000,000 or
less shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any right or
32
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel of
three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.
(e) Notwithstanding anything herein to the contrary, in any arbitration
in which the amount in controversy exceeds $25,000,000, the arbitrators shall be
required to make specific, written findings of fact and conclusions of law. In
such arbitrations (i) the arbitrators shall not have the power to make any award
which is not supported by substantial evidence or which is based on legal error,
(ii) an award shall not be binding upon the parties unless the findings of fact
are supported by substantial evidence and the conclusions of law are not
erroneous under the substantive law of the State of Texas, and (iii) the parties
shall have in addition to the grounds referred to in the Federal Arbitration Act
for vacating, modifying or correcting an award the right to judicial review of
(1) whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (2) whether the conclusions of law are erroneous under
the substantive law of the State of Texas. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the substantive law of
the State of Texas.
(f) To the maximum extent practicable, the AAA, the arbitrators and the
parties shall take all action required to conclude any arbitration proceeding
within 180 days of the filing of the Dispute with the AAA. No arbitrator or
other party to an arbitration proceeding may disclose the existence, content or
results thereof, except for disclosures of information by a party required in
the ordinary course of its business, by applicable law or regulation, or to the
extent necessary to exercise any judicial review rights set forth herein. If
more than one agreement for arbitration by or between the parties potentially
applies to a Dispute, the arbitration provision most directly related to the
foregoing documents or the subject matter of the Dispute shall control. If any
provision of this Agreement shall be held to 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 any remaining provisions of this Agreement. This arbitration provision shall
survive termination, amendment or expiration of any of the foregoing documents
or any relationship between the parties.
(g) Lender and Borrower hereby agree to keep all Disputes and
arbitration proceedings strictly confidential, provided, however, that Lender
and Borrower may disclose such confidential information as is necessary in any
litigation between Lender and Borrower or as required by applicable law and, on
a confidential basis, to accountants, attorneys and other consultants in the
ordinary course of business.
Section 11.21 Additional Interest Provision. It is expressly stipulated
and agreed to be the intent of Borrower and Lender at all times to comply
strictly with the applicable Texas law governing the maximum rate or amount of
interest payable on the indebtedness evidenced by any Note, any Loan Document,
and the Related Indebtedness (or applicable United States federal law to the
extent that it permits Lender to contract for, charge, take, reserve or receive
a greater amount of interest than under Texas law). If the applicable law is
ever judicially interpreted so as to render usurious any amount (i) contracted
for, charged, taken, reserved or received pursuant to any Note, any of the other
Loan Documents or any other communication or writing by or between Borrower and
Lender related to the transaction or transactions that are the subject matter of
the Loan Documents, (ii) contracted for, charged, taken, reserved or received by
reason of Lender's exercise of the option to accelerate the maturity of any Note
and/or any and all indebtedness paid or payable by Borrower to Lender pursuant
to any Loan Document other than any Note (such other indebtedness being referred
to in this Section as the "Related Indebtedness"), or (iii) Borrower will have
paid or Lender will have received by reason of any voluntary prepayment by
Borrower of any Note and/or the Related Indebtedness, then it is Borrower's and
Lender's express intent that all amounts charged in excess of the Maximum Lawful
Rate shall be automatically canceled, ab initio, and all amounts in excess of
the Maximum Lawful Rate theretofore collected by Lender shall be credited on the
principal balance of any Note and/or the Related Indebtedness (or, if any Note
33
and all Related Indebtedness have been or would thereby be paid in full,
refunded to Borrower), and the provisions of any Note and the other Loan
Documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
and thereunder; provided, however, if any Note has been paid in full before the
end of the stated term of any such Note, then Borrower and Lender agree that
Lender shall, with reasonable promptness after Lender discovers or is advised by
Borrower that interest was received in an amount in excess of the Maximum Lawful
Rate, either refund such excess interest to Borrower and/or credit such excess
interest against such Note and/or any Related Indebtedness then owing by
Borrower to Lender. Borrower hereby agrees that as a condition precedent to any
claim seeking usury penalties against Lender, Borrower will provide written
notice to Lender, advising Lender in reasonable detail of the nature and amount
of the violation, and Lender shall have sixty (60) days after receipt of such
notice in which to correct such usury violation, if any, by either refunding
such excess interest to Borrower or crediting such excess interest against the
Note to which the alleged violation relates and/or the Related Indebtedness then
owing by Borrower to Lender. All sums contracted for, charged, taken, reserved
or received by Lender for the use, forbearance or detention of any debt
evidenced by any Note and/or the Related Indebtedness shall, to the extent
permitted by applicable law, be amortized or spread, using the actuarial method,
throughout the stated term of such Note and/or the Related Indebtedness
(including any and all renewal and extension periods) until payment in full so
that the rate or amount of interest on account of any Note and/or the Related
Indebtedness does not exceed the Maximum Lawful Rate from time to time in effect
and applicable to such Note and/or the Related Indebtedness for so long as debt
is outstanding. In no event shall the provisions of Chapter 346 of the Texas
Finance Code (which regulates certain revolving credit loan accounts and
revolving triparty accounts) apply to this Note and/or any of the Related
Indebtedness. Notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents, it is not the intention of Lender to accelerate
the maturity of any interest that has not accrued at the time of such
acceleration or to collect unearned interest at the time of such acceleration.
Section 11.22 Ceiling Election. To the extent that Lender is relying on
Chapter 303 of the Texas Finance Code to determine the Maximum Lawful Rate
payable on any such Note and/or any other portion of the Related Indebtedness,
Lender will utilize the weekly ceiling from time to time in effect as provided
in such Chapter 303, as amended. To the extent United States federal law permits
Lender to contract for, charge, take, receive or reserve a greater amount of
interest than under Texas law, Lender will rely on United States federal law
instead of such Chapter 303 for the purpose of determining the Maximum Lawful
Rate. Additionally, to the extent permitted by applicable law now or hereafter
in effect, Lender may, at its option and from time to time, utilize any other
method of establishing the Maximum Lawful Rate under such Chapter 303 or under
other applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS.]
34
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
BORROWER:
DGSE COMPANIES, INC
By: s/ ▇▇▇▇▇▇▇ ▇. Oyster
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Oyster
-----------------------------------
Title: President
----------------------------------
Address for Notices:
DGSE Companies, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------------
Telex No.:
------------------------------
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
--------------------------
e-mail: ▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
--------------------------
LENDER:
TEXAS CAPITAL BANK, NATIONAL
ASSOCIATION
By: s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇▇▇▇▇▇, Senior Vice President
Address for Notices:
Texas Capital Bank, National Association
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telecopier No.: 214.932.6607
INDEX TO SCHEDULES
------------------
Description of Schedules Article/Section
------------------------ ---------------
Additional Closing Items 5.1(h)
Subsidiaries and Joint Ventures 6.14
Intellectual Property 6.21
Existing Debt 8.1
Existing Liens 8.2
INDEX TO EXHIBITS
-----------------
Exhibit Description of Exhibit Section
------- ---------------------- -------
A Borrowing Base Report 1.1
B Compliance Certificate 1.1
C Revolving Credit Note 2.1
D Term Note 2.1