LOAN AGREEMENT
This Loan Agreement (the Agreement) is entered into as of January __,
1996 (the Effective Date), between FCA Investment Company, a Delaware
corporation (Lender), and Enhanced Services Company, Inc., a Colorado
corporation (the Company).
1. Loan.
(a) Lender agrees to loan (the Loan) to the Company, under the
terms and conditions of this Agreement from time to time hereafter an
aggregate amount that does not exceed the lesser of (a) $500,000 or (b)
the sum of the Permitted Amount (as herein called) equal to eighty
percent (80%) of the Eligible Receivables (as herein defined), and
fifty percent (50%) of the Accepted Inventory Valuation (as herein
defined) of the Company and its Subsidiaries. The Loan is secured by a
first lien on the Approved Receivables and inventory of the Company and
its subsidiaries and is evidenced by a promissory note in the original
principal sum of Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00), executed by the Borrower and payable to the order of the
Lender (the Note) in the form attached as Exhibit "A". The Note bears
interest at an annual rate equal to two percent (2%) in excess of the
prime rate of interest published by the Wall Street Journal and is
payable monthly in interest only installments on the outstanding
principal amount. The unpaid principal sum together with accrued and
unpaid interest is payable in full on or before the first anniversary
date of the Note.
(b) The capitalized terms used herein have the following
definitions:
(i) Accepted Inventory Valuation means the valuation of the
inventory of the Company and its Subsidiaries which have
pledged such inventory to secure the Loan, as reported on the
Company's most recent financial statements prepared by an
independent certified accountants, selection of which is
subject to the reasonable approval of Lender.
(ii) Approved Receivables means all receivables of the
Company, whenever created and whether now existing or created
hereafter, as reported on the Company's most recent financial
statements prepared by an independent certified accountants,
selection of which is subject to the reasonable approval of
Lender.
(iii) Eligible Receivables means all Approved Receivables
which are not more than thirty (30) days past due as of any
Reporting Date (as herein defined).
(iv) Indebtedness means all obligations for money borrowed,
contingent and otherwise, except for existing and future bank
lines of credit or indebtedness to banks, which should, in
accordance with generally accepted accounting principles
consistently applied, be classified upon the obligor's balance
sheet as liabilities, including, without limitation, all
guaranties, endorsements and other contingent obligations, in
respect of indebtedness of others, whether for money borrowed
or not and whether or not the same are or should be so
reflected in the balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business
- 1 -
(v) Permitted Sum means the sum of the Permitted Amount equal
to eighty percent (80%) of the Eligible Receivables and fifty
percent (50%) of the Accepted Inventory Valuation) of the
Company and its Subsidiaries.
(vi) Reporting Date means the last day of any calendar month
the Company is required to submit a report prescribed under
Section 10 hereof.
(vii) Subsidiaries means any of the wholly-owned
subsidiaries of the Company.
2. Closings and Advancement of Funds.
(a) The initial closing of the Loan is to be held at the Company's
offices in Houston, Texas, no later than thirty (30) days from the date
of this Agreement, or on such other date and at such time as may be
mutually agreed upon. At the initial closing the following will occur:
(i) The Company will execute and deliver the Loan
Documents (as that term is defined in Section 3).
(ii) The Lender will advance to the Company by check payable
to the order of the Company or wire transfer of funds to a
bank account of the Company, in the amount of the initial
advance requested by the Company, subject to the provisions
Section 1(a) (the Initial Advance). A listing of the initial
Eligible Receivables which forms the basis for the Initial
Advance is to be initialled by the parties at the time of the
Initial Advance is made. Commencing with the monthly report
required to be filed by Borrower under Section 10(a) hereof,
and for each monthly report required to be filed by it
thereafter, it is contemplated that a new listing of Eligible
Receivables will be substituted for the Eligible Receivables
which form the basis for the Initial Advance. Nothing
contained herein prohibits or restricts the Borrower from
accepting cash payments made under any Eligible Receivables
and applying such cash payments for general corporate purposes
as provided in Section 5 hereof, so long as the Borrower
complies with the other terms and conditions of the Loan
Documents.
(b) To the extent of any funds which have not been advanced under the
Note, provided no default exists under the terms hereof, and subject to
the provisions of Section 2(c) below, Lender agrees to advance to the
Company such sums from time to time hereafter upon submission to the
Lender of the Company's written request for such advance, a statement
setting forth the amount of the Eligible Receivables and such other
information as the Lender may reasonably request, certified by the
Chief Financial Officer of the Company as true and correct, subject to
the provisions of Section 1(a).
(c) Notwithstanding anything contained herein to the contrary, it is
specially agreed and understood that Lender will use its best efforts
to advance any funds requested by the Company as an advancement under
the Loan, including the Initial Advance, and Lender and the
Participants have no liability or obligation if in fact they are unable
to advance such requested funds, even if Borrower has furnished all
information requested by Lender and Borrower is otherwise in compliance
with the terms and conditions of the Loan Documents. To this end,
Borrower acknowledges that Lender intends to solicit from the
Participants and other prospective Participants any such requested
funds, including the Initial Advance, and that Borrower has agreed to
this financing arrangement in view
- 2 -
of the fact that no commitment or guaranty fees are being charged
Borrower by Lender for the Lender's agreement to make the Loan.
(d) Borrower agrees to pay to the Lender a loan fee equal to two (2%)
percent of the amount of any advance made by the Lender hereunder,
contemporaneously with such advance.
3. Mandatory Prepayments. If at any time the unpaid principal balance of the
Note exceeds the Approved Amount then outstanding exceeds the Permitted Sum,
simultaneously with the submission of the monthly report to Lender as prescribed
under Section 10 hereof, the Company is required to repay the Loan so the
principal amount outstanding under the Loan after such repayment does not exceed
the Permitted Sum.
4. Verification of Receivables. Lender may, at its option, no more frequently
than monthly, require that the Company's independent auditors verify the amount
of the Approved Receivables and Eligible Receivables.
5. Use of Proceeds. The Company is required to use the proceeds of the Loan
exclusively for the repayment of current liabilities of the Company and for
general working capital purposes.
6. Payments and Endorsements. The Company is obligated to make payments of
principal and interest due under the Loan directly to Lender by check duly
mailed or delivered to Lender at the last address designated in writing by
Lender, without any presentment or notation of payment.
7. Conditions to Participants' Obligations. The obligation of the Participants
to fund the Loan at the first or any subsequent closing is subject to Lender, as
agent for the Participants, having received prior to or at the closing all of
the following, each in form and substance satisfactory to it:
(a) Each of the following loan documents (the Loan Documents):
(i) This Loan Agreement and the Note;
(ii) The Receivables Security Agreement (herein so called)
creating a valid first lien security interest against the
Approved Receivables, in the form annexed hereto as Exhibit
"C"
(iii) The Security Agreement-Inventory (herein so called)
creating a security interest against the Inventory, in the
form annexed hereto as Exhibit "D";
(iv) A UCC-1 Financing Statement; and
(v) Such other documents as Lender or its counsel may
reasonably request in order to validly perfect the security
interest in the Approved Receivables.
(b) Certified copies of all charter documents of the Company and the
Subsidiaries, the by-laws of the Company, the resolutions of the Board
of Directors of the Company and the Subsidiaries evidencing approval of
this Agreement, the Loan, and other transactions contemplated under
this Agreement and documents evidencing other necessary approvals, if
any, with respect to this Agreement and the Loan.
- 3 -
(c) Payment for the costs and expenses, including filing and legal
fees, incurred by Lender in connection with the execution of this
Agreement and the consummation of the Loan contemplated under this
Agreement.
8. Representation and Warranties. The Company hereby represents and
warrants to Lender and the Participants as follows:
(a) The Company and its Subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of the state of
their formation with all requisite corporate power and authority to own
or lease its property and to carry on its business as it is now being
conducted and is duly qualified to do business in each jurisdiction
where the ownership of its property or the conduct of its business
requires such qualification.
(b) The Company and its Subsidiaries have the full right, power and
authority to execute and deliver the Loan Documents and to perform the
terms required to be performed by them, have taken all required
corporate action to approve and adopt the Loan Documents, and the Loan
Documents have been duly authorized, and are valid and binding
agreements of the Company and its Subsidiaries enforceable against them
in accordance with their terms.
(c) No authorization, consent, approval, filing or registration with
any court or governmental department, commission, board, bureau, agency
or instrumentality is or will be necessary for, or in connection with,
the offer, issuance, sale, execution or delivery by the Company of, or
for the performance by it of its obligations under the Loan Documents,
except for filings required under the Uniform Commercial Code that have
been made or will be made within the time prescribed.
(d) There are no actions or proceedings pending or threatened, or any
basis therefor known to the Company, which might result, either in any
case or in the aggregate, in any material adverse change in the
business, operations, affairs or condition of the Company or in any of
its properties or assets, or which might call into question the
validity of the Loan Documents, or any action taken or to be taken
pursuant hereto or thereto.
(e) The Company is in compliance in all respects with the terms and
provisions of the Loan Documents, and of its charter and by-laws and in
all material respects with the terms and provisions of the mortgages,
indentures, leases, agreements and other instruments and of all
judgments, decrees, governmental orders, statutes, rules or regulations
by which it is bound or to which its properties or assets are subject.
There is no term or provision in any of the foregoing documents and
instruments which materially adversely affects the business, assets or
financial condition of the Company. Neither the execution and delivery
of the Loan Documents, nor the consummation of any transaction
contemplated hereby or thereby has constituted or resulted in or will
constitute or result in a default or violation of any term or provision
in any of the foregoing documents or instruments, where any such
default or violation could, either individually or in the aggregate,
have a materially adverse effect on the business, assets or financial
condition of the Company.
(f) The Company has good and merchantable title to all of its assets,
now carried on its books including those reflected in the balance sheet
of the Company as of September 30, 1995, or acquired since the date of
such balance sheet, except personal property
- 4 -
disposed of or paid-off since that date in the ordinary course of
business, free of any mortgages, pledges, charges, liens, security
interests or other encumbrances.
(g) The interim unaudited financial statements of the Company for the
nine month period ended September 30, 1995, present fairly the
financial position of the Company as at the dates thereof and its
results of operations for the periods covered thereby and have been
prepared in accordance with generally accepted accounting principles
consistently applied.
(h) There is no financing statement or other document creating or
evidencing a security interest, lien or encumbrance now on file in any
public office covering any of the Approved Receivables, nor is there
any security interest, lien or encumbrance on any of the Approved
Receivables.
(i) To the best of Borrower's knowledge and belief, following diligent
inquiry, no dispute, right of set-off, counterclaim or defenses exist
with respect to all or any part of the Eligible Receivables.
(j) To the best of Borrower's knowledge and belief, following diligent
inquiry, all agreements constituting any of the Eligible Receivables
are enforceable against the parties thereto and are in full force and
effect; Borrower has delivered true and correct copies of all of such
agreements to the Lender.
9. Affirmative Covenants of the Company. So long as the Loan remains
outstanding, the Company agrees to perform and observe the following covenants
and provisions.
(a) Pay the principal and interest due under the Note at the time and
place and in the manner provided in the Note and this Agreement.
(b) Pay and discharge, all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any properties of the Company.
Notwithstanding the foregoing, the Company is not required to pay any
such tax, assessment, charge, levy or claim which is being contested in
good faith and by appropriate proceedings if the Company has set aside
on its books adequate reserves with respect thereto.
(c) Pay when due in conformity with customary trade terms as practiced
by the Company but no more than one hundred twenty (120) days of the
due date thereof, unless the practice of the Company is otherwise, all
lease obligations, all trade debt, and all other Indebtedness incident
to the operations of the Company, except such as are being contested in
good faith and by appropriate proceedings if the Company shall have set
aside on its books adequate reserved with respect thereto.
(d) Preserve and maintain its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, as a foreign corporation in each jurisdiction
where such qualification is necessary in view of its business and
operations or the ownership of its properties.
- 5 -
(e) Preserve and maintain all licenses and other rights to use patents,
processes, licenses, trademarks, trade names, inventions, intellectual
property rights or copyrights owned or possessed by it and necessary to
the conduct of its business.
(f) Comply with all applicable laws, rules, regulations and orders of
any governmental authority, non-compliance with which could materially
adversely affect its business or condition, financial or other.
(g) At any time and from time to time, upon reasonable written notice
to the Company, permit Lender or the Participants or any of their
agents or representatives, at the Participants' expense, to examine and
make copies of and extracts from the records and books of account of,
and visit and inspect the properties of, the Company, and to discuss
the affairs, finances and accounts of the Company with any of their
officers or directors and independent accountants.
(h) Keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions
of the Company, and in which, for each fiscal year, all proper reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
10. Reporting Requirements. So long as the Loan remains outstanding, the
Company covenants and agrees to furnish the following to Lender as agent for
the Participants:
(a) As of the last day of each calendar month (the Reporting Date), a
written report setting forth a listing of all Eligible Receivables as
of the Reporting Date and the amount of the total advances made under
the Loan and the then outstanding principal balance of the Loan, signed
by the Chief Financial Officer of the Company as true and correct,
which report must be submitted by no later than the fifth calendar day
of the following month.
(b) As soon as possible and in any event within five (5) days after the
occurrence of any Event of Default, or each event which, with the
giving of notice or lapse of time or both, would constitute an Event of
Default, the statement of the Chief Financial Officer of the Company
setting forth details of such Event of Default or event and the
corrective action the Company proposes to take;
(c) As soon as available and in any event within sixty (60) days after
the end of the first three quarters of each fiscal year of the Company,
a balance sheet of the Company as of the end of each quarter and
statements of income and retained earnings and of changes in financial
position of the Company for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting
forth in each case in comparative form the corresponding figures for
the corresponding period of the preceding fiscal year, all in
reasonable details and duly certified, subject to year-end audit
adjustments, by the Chief Financial Officer of the Company as having
been prepared in accordance with generally accepted accounting
principles consistently applied;
(d) As soon as available and in any event within one hundred sixty
(160) days after the end of each fiscal year of the Company, a copy of
the annual audit report for such year for the Company, duly certified
by an independent public accountant of recognized standing;
- 6 -
(e) At the time of delivery of each quarterly and annual statement, a
certificate, executed by the Chief Executive Officer or Chief Financial
Officer in the case of quarterly statements and the Company's
independent public accountants in the case of annual statements,
stating that such officer or accountants, as the case may be, has
caused this Agreement, and the Note to be reviewed and has no knowledge
of any default by the Company in the performance or observance of any
of the provisions of this Agreement or the other Loan Documents, or, if
such officer or accountant has such knowledge, specifying such default
and the nature thereof;
(f) Promptly upon receipt thereof, any written report submitted to the
Company by independent public accountants in connection with an annual
or interim audit of the books of the Company made by such accountants;
(g) Promptly after the commencement thereof, notice of all material
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality
domestic or foreign, affecting the Company; and
(h) Promptly after sending, making available, or filing the same, such
reports and financial statements as the Company shall send or make
available to the stockholders of the Company and such other information
respecting the business, properties or the condition or operations,
financial or otherwise, of the Company as Lender may from time to time
reasonably request.
11. Events of Default. The following are events of defaults under the
Loan Documents (Events of Default):
(a) The Company fails to pay any interest or principal due under the
Note when due and such failure continues for five (5) days thereafter
after receipt of written notice from the Lender;
(b) The Company fails to pay any other sum due under the terms of the
Note or the other Loan Documents and such failure continues for five
(5) days thereafter after receipt of written notice from the Lender;
(c) The Company fails to perform any covenant contained in this
Agreement and such failure continues for twenty (20) days after receipt
of written notice from the Lender; or
(d) Any representation or warranty made by the Company in this
Agreement or by the Company or any officers of the Company, in any
certificate, instrument or written statement contemplated by or made or
delivered in accordance with the terms of this Agreement, which proves
to be untrue when made in any material respect; or
(e) The Company becomes involved in financial difficulties as evidenced
(i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in
effect, or by its authorizing, by appropriate proceedings of its Board
of Directors or other governing body, the commencement of such a
voluntary case; (iii) by its filing an answer or other pleading
admitting or failing to deny the material allegations of a petition
filed against it commencing an involuntary case under Title 11, or
seeking, consenting to or acquiescing in the relief therein provided,
or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief
- 7 -
in any involuntary case commended under Title 11; (v) by its seeking
relief as a debtor under any applicable law, other than Title 11, of
any jurisdiction relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights of
creditors, or by its consenting to or acquiescing in such relief; (vi)
by the entry of an order by a court of competent jurisdiction (a)
finding it to be bankrupt or insolvent, (b) ordering or approving its
liquidation, reorganization or any modification or alteration of the
rights of its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or (vii) by its making an assignment for the benefit or, or
entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for all
or a substantial part of its property.
12. No Waiver; Cumulative Remedies. No failure or delay on the part of Lender or
any Participant in exercising any right, power or remedy under this Agreement
operates as a waiver. No single or partial exercise of any such right, power or
remedy precludes any other or further exercise thereof and the exercise of any
other right, power or remedy does not operate as a waiver. The remedies provided
in this Agreement are cumulative and not exclusive of any other remedies
provided by law.
13. Amendments, Waivers and Consents. Any provision in this Agreement to the
contrary notwithstanding, changes in or additions to this Agreement may be made,
and compliance with any covenant or provision herein or therein set forth may be
omitted or waived, if the Company obtains consent thereto in writing from
Lender; provided, that no such consent is effective to reduce or to postpone the
date fixed for the payment of the principal, including any required redemption,
or interest payable on the Note, without the consent of all of the Participants.
Any waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent is effective only in the specific instance and
for the specific purpose for which given.
14. Addresses for Notices, etc. All notices, claims, certificates, requests,
demands and other communications under this Agreement must be in writing and
delivered to Lender at 5847 San Felipe, Suite 850, Houston, Texas 77057 and to
the Company at 16000 Barker's Point Lane, Houston, Texas 77079. A notice or
other communication is deemed delivered when received by the party to whom
addressed.
15. Headings; Interpretation. The section and other headings contained in this
Agreement are for reference purposes only and do not in any way affect the
meaning or interpretation of this Agreement. Words used in this Agreement,
regardless of the number and gender specifically used, are deemed and construed
to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context requires.
16. Counterparts. This Agreement may be executed in any number of
separate counterparts by the parties and each shall be an original, but all of
which taken together constitutes one and the same instrument.
17. Entire Agreement. The parties acknowledge that the terms and
conditions of this Agreement supersede all prior undertakings among the parties,
whether written or oral, relating to the subject matter. This Agreement may not
be waived or amended except in writing signed by both parties.
- 8 -
18. Assignments. This Agreement may not be assigned by the Company
without the prior written consent of Lender. Lender may assign its rights and
obligations under this Agreement to any financially responsible party who agrees
to be bound by the terms of this Agreement.
19. Governing Law. This Loan is made and delivered in Harris County, Texas,
where all advances and repayments shall be made. The Borrower hereby specially
agrees that this Loan shall be construed in accordance with and governed by the
laws of the State of Texas. The Borrower further agrees that the state district
court of Texas for Harris County, Texas, or (in the case of diversity of
citizenship) the United States District Court for the Southern District of
Texas, shall have jurisdiction of any action or proceeding arising under this
Loan, including any action instituted by the Lender to collect the proceeds of
the Loan, unless the Lender agrees otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed.
FCA INVESTMENT COMPANY, acting
solely as agent for the Participants
By:_____________________________________
Name:___________________________________
Title:__________________________________
ENHANCED SERVICES COMPANY, INC.
By_______________________________________
Robert Smith, its Treasurer
- 9 -