-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4L4kMOISGklXD+T2ZxETLUsORexO6yKv6DEQJg4aeLn2aT/4obm0h+JNojtTk5/ 6kbbVkMDtyLeFkRMCDlMVQ== 0000921530-99-000082.txt : 19990429 0000921530-99-000082.hdr.sgml : 19990429 ACCESSION NUMBER: 0000921530-99-000082 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990428 GROUP MEMBERS: BERNARD A. PAULSON GROUP MEMBERS: PAULSON ACQUISITION LLC GROUP MEMBERS: PAULSON RANCH, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HITOX CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000842295 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 742081929 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-40170 FILM NUMBER: 99602926 BUSINESS ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78401 BUSINESS PHONE: 5128825175 MAIL ADDRESS: STREET 1: P.O. BOX 2544 CITY: CORPUS CHRISTI STATE: TX ZIP: 78403 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PAULSON ACQUISITION LLC CENTRAL INDEX KEY: 0001082336 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O FOUNDERS EQUITY GROUP, INC. STREET 2: 2602 MCKINNEY AVENUE, SUITE 220 CITY: DALLAS STATE: TX ZIP: 75204 MAIL ADDRESS: STREET 1: AKIN, GUMP, STAUSS, HAUER & FELD L.L.P. STREET 2: 590 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 SCHEDULE 13D RE HITOX CORPORATION OF AMERIC SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. )* HITOX CORPORATION OF AMERICA ________________________________________ (Name of Issuer) Common Stock, Par Value $0.25 Per Share _________________________________________ (Title of Class of Securities) 433658101 ________________ (CUSIP Number) Patrick J. Dooley, Esq. Akin, Gump, Strauss, Hauer & Feld, L.L.P. 590 Madison Avenue New York, New York 10022 (212) 872-1000 ___________________________________________________ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 20, 1999 _________________________________ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Continued on following page(s) Page 1 of 18 Pages Exhibit Index: Page 10 Page 2 of 18 Pages SCHEDULE 13D CUSIP No. 433658101 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person PAULSON ACQUISITION LLC 2 Check the Appropriate Box If a Member of a Group* a. [ ] b. [X] 3 SEC Use Only 4 Source of Funds* WC 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 629,474 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 629,474 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 629,474 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [X] 13 Percent of Class Represented By Amount in Row (11) 13.46% 14 Type of Reporting Person* OO;IV *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 3 of 18 Pages SCHEDULE 13D CUSIP No. 433658101 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person PAULSON RANCH, LTD. 2 Check the Appropriate Box If a Member of a Group* a. [ ] b. [X] 3 SEC Use Only 4 Source of Funds* WC, BK 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 629,474 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 629,474 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 629,474 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [X] 13 Percent of Class Represented By Amount in Row (11) 13.46% 14 Type of Reporting Person* PN;IV *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 4 of 18 Pages SCHEDULE 13D CUSIP No. 433658101 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person BERNARD A. PAULSON 2 Check the Appropriate Box If a Member of a Group* a. [ ] b. [X] 3 SEC Use Only 4 Source of Funds* Not Applicable 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization United States 7 Sole Voting Power Number of 688,974 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 688,974 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 688,974 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [ ] 13 Percent of Class Represented By Amount in Row (11) 14.73% 14 Type of Reporting Person* IN *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 5 of 18 Pages This Statement on Schedule 13D relates to shares of Common Stock, $0.25 par value per share (the "Shares"), of Hitox Corporation of America (the "Issuer"). This Statement is being filed by the Reporting Persons (as defined herein) to report the recent acquisition of Shares, as a result of which the Reporting Persons may be deemed to be the beneficial owners of more than 5% of the outstanding Shares of the Issuer. Item 1. Security and Issuer. This Statement relates to the Shares. The address of the principal executive offices of the Issuer is 722 Burleson Street, Corpus Christi, Texas 78402. Item 2. Identity and Background. This Statement is being filed on behalf of each of the following persons (collectively, the "Reporting Persons"): i) Paulson Acquisition LLC ("Paulson Acquisition"), ii) Paulson Ranch, Ltd. ("Paulson Ranch"), and iii) Bernard A. Paulson ("Mr. Paulson"). Paulson Acquisition is a Delaware limited liability company. Paulson Acquisition is a wholly owned limited liability company of Paulson Ranch. The general partner of Paulson Ranch is Paulson Ranch Management, L.L.C., a Texas limited liability company. The members of Paulson Ranch Management, L.L.C. are Mr. Bernard A. Paulson and his wife. The principal business of each of Paulson Acquisition and Paulson Ranch is investment in securities. Mr. Paulson is the President and Chief Executive Officer of Paulson Acquisition and as such may be deemed to have voting and dispositive power over the Shares held for the account of Paulson Acquisition. Mr. Paulson is a United States citizen. Mr. Paulson is a director of the Issuer and is the acting Chief Executive Officer of the Issuer. On March 22, 1999, Mr. Paulson recused himself as acting Chief Executive Officer during the pendency of the Tender Offer (as defined) and recused himself from board of director deliberations as they relate to the Tender Offer. The address of the principal business and principal office of each of Paulson Acquisition, Paulson Ranch and Mr. Paulson is 3 Ocean Park Drive, Corpus Christi, Texas 78404. On March 23, 1999 Paulson Acquisition commenced a tender offer (the "Tender Offer") to purchase up to 1,000,000 Shares at $2.50 per Share. The Tender Offer closed at 12:00 midnight New York City time on April 19, 1999 and 195,074 Shares were purchased by Paulson Acquisition on April 20, 1999. Thereafter, Paulson Acquisition also purchased Shares in the open market as described in Item 5. During the past five years, none of the Reporting Persons has been (a) convicted in a criminal proceeding, or (b) a party to any civil proceeding as a result of which he has been subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. Page 6 of 18 Pages Item 3. Source and Amount of Funds or Other Consideration. Paulson Acquisition expended approximately $487,685 of its working capital to purchase the 195,074 shares that were tendered in the Tender Offer. Paulson Acquisition expended approximately $1,284,256 to purchase the Shares that were purchased in the open market. Of the amount used to purchase Shares in the Open Market, approximately $263,180 was funded by a loan to Paulson Ranch by NationsBank, N.A. (the "NationsBank Loan") which amount was contributed to Paulson Acquisition. Pursuant to the NationsBank Loan, Paulson Ranch borrowed $1 million at LIBOR plus 1.50% per annum. The NationsBank Loan matures on June 15, 2000 with interest payable quarterly commencing on June 6, 1999. The NationsBank Loan is not secured by the Shares and does not have a prepayment penalty. Item 4. Purpose of Transaction. Except as described herein, neither the Reporting Persons nor, to the best of their knowledge, any of the other persons identified in response to Item 2, has any plans or proposals that relate to or would result in any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons, from time to time, intend to evaluate and review the Issuer's assets, operations, management and personnel and consider what, if any, changes would be desirable in light of circumstances which then exist (which may include an assessment of industry trends and conditions, and general economic and market circumstances prevailing at the time). Thereafter, the Reporting Persons may, among other things, seek to (i) acquire additional securities of the Issuer, enter into an extraordinary transaction such as a merger, reorganization or liquidation of the Issuer, (ii) sell or transfer all or substantially all of the Issuer's assets, (iii) change the Issuer's current board of directors (including changing the number or term of directors or to fill any existing vacancies on the board), (iv) change the present capitalization or dividend policy of the Issuer, (v) materially change the Issuer's business or corporate structure, (vi) change the Issuer's charter and by-laws, (vii) cause the Issuer's Common Stock to be delisted from the Nasdaq Stock Market, (viii) cause the Issuer's Common Stock to become eligible for termination of registration under the Exchange Act, or (ix) take action similar to any of those enunciated above. While the Reporting Persons currently have no plans or proposals to implement such changes, there can be no assurance that the Reporting Persons would not seek to implement such changes in the future. The Reporting Persons reserve the right to acquire, or cause to be acquired, additional securities of the Issuer, to dispose, or cause to be disposed of, such securities at any time or to formulate other purposes, plans or proposals regarding the Issuer or any of its securities, or to propose or take any action as described above or in subparagraphs (a) through (j) of Item 4 of Schedule 13D, to the extent deemed advisable in light of general investment and trading policies of the Reporting Persons, market conditions or other factors. Item 5. Interest in Securities of the Issuer. (a) (i) Paulson Acquisition may be deemed the beneficial owner of the 629,474 Shares (approximately 13.46% of the total number of Shares issued and outstanding). This number includes 629,474 Shares held for its account. (ii) Paulson Ranch may be deemed the beneficial owner of the 629,474 Shares (approximately 13.46% of the total number of Shares issued and outstanding). This number includes 629,474 Shares held for the account of Paulson Acquisition. (iii) Mr. Paulson may be deemed the beneficial owner of 688,974 Shares (approximately 14.73% of the total number of Shares issued and outstanding assuming exercise of the options Page 7 of 18 Pages held for his account). This number includes (A) 629,474 Shares held for the account of Paulson Acquisition, (B) 42,000 Shares held for his account and (C) 17,500 Shares issuable upon the exercise of currently exercisable options held for his account. (b) (i) Paulson Acquisition may be deemed to have the sole power to direct the voting and disposition of the 629,474 Shares held for its account. (ii) Paulson Ranch may be deemed to have the sole power to direct the voting and disposition of the 629,474 Shares held for the account of Paulson Acquisition. (iii) Mr. Paulson may be deemed to have the sole power to direct the voting and disposition of the 629,474 Shares held for the account of Paulson Acquisition and the 59,500 Shares (and securities derivative thereof) held for his account. (c) Except for the transactions listed on Annex A hereto, there have been no transactions effected with respect to the Shares since February 26, 1999 (60 days prior to the date hereof) by any of the Reporting Persons. (d) The members of Paulson Acquisition, a Delaware limited liability company, have the right to participate in the receipt of dividends from, or proceeds from the sale of, the Shares held for the account of Paulson Acquisition LLC in accordance with their ownership interests in Paulson Acquisition. (e) Not applicable. Each of Paulson Acquisition and Paulson Ranch expressly disclaims beneficial ownership of the Shares held for the account of Mr. Paulson. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Except as described above, the Reporting Persons do not have any contracts, arrangements, understandings or relationships with respect to any securities of the Issuer. Item 7. Material to be Filed as Exhibits. A. Joint Filing Agreement dated April 27, 1999 by and between Paulson Acquisition LLC and Mr. Bernard A. Paulson. B. Promissory Note of Paulson Ranch, Ltd. to NationsBank, N.A. dated April 5, 1999. Page 8 of 18 Pages SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this Statement is true, complete and correct. Date: April 27, 1999 PAULSON ACQUISITION LLC By: /s/ Bernard A. Paulson ------------------------------------- Name: Bernard A. Paulson Title: President and Chief Executive Officer PAULSON RANCH LTD. By: PAULSON MANAGEMENT, L.L.C. By: /s/ Bernard A. Paulson ---------------------------- Name: Bernard A. Paulson Title: Member /s/Bernard A. Paulson ---------------------------------------------- Bernard A. Paulson
Page 9 of 18 Pages ANNEX A RECENT TRANSACTIONS IN THE COMMON STOCK OF HITOX CORPORATION OF AMERICA Date of Nature of Number of Price Per For the Account of Transaction Transaction Shares Share - ------------------ ----------- ----------- ------ ----- Paulson Acquisition LLC 4/20/99 Purchase - 195,074 $2.50 Tender Offer Paulson Acquisition LLC 4/20/99 Purchase - 65,000 $2.87 Open Market Paulson Acquisition LLC 4/21/99 Purchase - 75,000 $2.92 Open Market Paulson Acquisition LLC 4/22/99 Purchase - 31,000 $2.94 Open Market Paulson Acquisition LLC 4/23/99 Purchase - 263,400 $2.99 Open Market
Page 10 of 18 Pages EXHIBIT INDEX Page No. -------- A. Joint Filing Agreement dated April 27, 1999 by and between Paulson Acquisition LLC and Mr. Bernard A. Paulson................................................. 11 B. Promissory Note of Paulson Ranch, Ltd. to NationsBank, N.A. dated April 5, 1999................................ 12 EX-99 2 EX-99.A - JOINT FILING AGREEMENT Page 11 of 18 Pages EXHIBIT A JOINT FILING AGREEMENT The undersigned hereby agree that the statement on Schedule 13D with respect to the Common Stock of Hitox Corporation of America dated April 27, 1999 is, and any amendments thereto signed by each of the undersigned shall be, filed on behalf of each of us pursuant to and in accordance with the provisions of Rule 13d-1(f) under the Securities Exchange Act of 1934. Date: April 27, 1999 PAULSON ACQUISITION LLC By: /s/ Bernard A. Paulson ------------------------------------- Name: Bernard A. Paulson Title: President and Chief Executive Officer PAULSON RANCH LTD. By: PAULSON MANAGEMENT, L.L.C. By: /s/ Bernard A. Paulson ---------------------------- Name: Bernard A. Paulson Title: Member /s/Bernard A. Paulson ---------------------------------------------- Bernard A. Paulson EX-99 3 EX-99.B - PROMISSORY NOTE Page 12 of 18 Pages EXHIBIT B Promissory Note Date: April 5, 1999 New ------------- --- Amount: $1,000,000.00 Maturity Date: June 15, 2000 ------------- ----------------------------- ================================================================================ Bank: Borrower: NationsBank, N.A. Paulson Ranch, Ltd. Banking Center: Corpus Christi 3 Ocean Park Dr. 500 N. Shoreline Blvd. Corpus Christi, Texas 78404 Corpus Christi, Texas 78471 County: Nueces County: Nuaces ================================================================================ FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and severally, if more than one) promises to pay to the order of Bank, its successors and assigns, without setoff, at its offices indicated at the beginning of this Note, or at such other place as may be designated by Bank, the principal amount of One Million Dollars ($1,000,000.00), or so much thereof as ------------------- ------------- may be advanced in immediately available funds, together with interest computed daily on the outstanding principal balance hereunder, at an annual interest rate, and in accordance with the payment schedule, indicated below. [This Note contains some provisions preceded by boxes. If a box is marked, the provision applies to this transaction; if it is not marked, the provision does not apply to this transaction] 1. Rate. Wall Street Journal Three Month LIBOR Rate. The Rate shall be the Wall ------------------------------------------- Street Journal Three Month LIBOR Rate, plus 1.50 percent, per annum. The Rate --------- will be adjusted on the 6th day of every July, October, January and March (the --- ---------------------------------- "Adjustment Date") and remain fixed until the next Adjustment Date. If the Adjustment Date in any particular month would otherwise fall on a day that is not a Business Day (as herein defined), the Adjustment Date for that particular month will be the first Business Day immediately following thereafter. The "Wall Street Journal LIBOR Rate" is a rate of interest equal to the three month London Interbank Offered Rate as published in the "Money Rates" section of the Wall Street Journal on the immediately preceding business day as adjusted from time to time in Bank's sole discretion for then applicable reserve requirements, deposit insurance assessment rates and other regulatory costs. "Business Day" means any day other than a Saturday, Sunday, or other day on which commercial banks in Charlotte, North Carolina, are closed and a day on which dealings in Dollar deposits are also open for business in London, England. "Dollars" shall mean the lawful money of the United States of America. Page 13 of 18 Pages Notwithstanding any provision of this Note, Bank does not intend to charge and Borrower shall not be required to pay any amount of interest or other charges in excess of the maximum permitted by applicable law. Borrower agrees that during the full term hereof, the maximum lawful interest rate for this Note as determined under Texas law shall be the indicated rate ceiling as specified in Article 5069-1.04 of VATS. Further, to the extent that any other lawful rate ceiling exceeds the rate ceiling so determined then the higher rate ceiling shall apply. Any payment in excess of such maximum shall be refunded to Borrower or credited against principal, at the option of Bank. 2. Accrual Method. Unless otherwise indicated, interest at the Rate set forth above will be calculated by the actual/360 day method (a daily amount of interest is computed for a hypothetical year of 360 days; that amount is multiplied by the actual number of days for which any principal is outstanding hereunder). If interest is not to be computed using this method, the method shall be: _____________________. 3. Rate Change Date. Any Rate based on a fluctuating index base rate will change, unless otherwise provided, each time and as of the date that the index or base rate changes. If the Rate is to change on any other date or at any other interval, the change shall be: ________________. In the event any index is discontinued, Bank shall substitute an index determined by Bank to be comparable, in its sole discretion. 4. Payment Schedule. All payments received hereunder shall be applied first to the payment of any expense or charges payable hereunder or under any other loan documents executed in connection with this Note, then to interest due and payable, with the balance applied to principal, or in such other order as Bank shall determine at its option. Single Principal Payment. Principal shall be paid in full in a single payment on June 15, 2000. Interest thereon shall be paid quarterly, commencing ------------- --------- on July 6, 1999, end continuing on the same day of each successive month, ------------- ---- quarter or other period (as applicable) thereafter, with final payment of all unpaid interest at the stated maturity of this Note. 5. Revolving Feature. [ ] Borrower may borrow, repay and reborrow hereunder at any time, up, to a maximum aggregate amount outstanding at any one time equal to the principal amount of this Note, provided, that Borrower is not in default under any provision of this Note, any other documents executed in connection with this Note, or any other note or other loan documents now or hereafter executed in connection with any other obligation of Borrower to Bank, and provided that the borrowings hereunder do not exceed any borrowing base or other limitation on borrowings by Borrower. Bank shall incur no liability for its refusal to advance funds based upon its determination that any conditions of such further advances have not been met. Bank records of the amounts borrowed from time to time shall be conclusive proof thereof. [ ] Uncommitted Facility. Borrower acknowledges and agrees that, notwithstanding any provisions of this Note or any other documents executed in connection with this Note, Bank has no obligation to make any advance, and that all advances are at the sole discretion of Bank. Page 14 of 18 Pages [ ] Out-Of-Debt Period. For a period of at least __________ consecutive days during [ ] each fiscal year, [ ] any consecutive 12-month period, Borrower shall fully pay down the balance of this Note, so that no amount of principal or interest and no other obligation under this Note remains outstanding. 6. Automatic Payment. [X] Borrower has elected to authorize Bank to effect payment of sums due under this Note by means of debiting Borrower's account number 5772061455. This ---------- authorization shall not affect the obligation of Borrower to pay such sums when due, without notice, if there are insufficient funds in such account to make such payment in full on the due date thereof, or if Bank fails to debit the account. 7. Waivers, Consents and Covenants. Borrower, any indorser or guarantor hereof, or any other party hereto (individually an "Obligor" and collectively "Obligors") and each of them jointly and severally: (a) waive presentment, demand, protest, notice of demand, notice of intent to accelerate, notice of acceleration of maturity, notice of protest, notice of nonpayment, notice of dishonor, and any other notice required to be given under the law to any Obligor in connection with the delivery, acceptance, performance, default or enforcement of this Note, any indorsement or guaranty of this Note, or any other documents executed in connection with this Note or any other note or other loan documents now or hereafter executed in connection with any obligation of Borrower to Bank (the "Loan Documents"): (b) consent to all delays, extensions, renewals or other modifications of this Note or the Loan Documents, or waivers of any term hereof or of the Loan Documents, or release or discharge by Bank of any of Obligors, or release, substitution or exchange of any security for the payment hereof, or the failure to act on the part of Bank, or any indulgence shown by Bank (without notice to or further assent from any of Obligors), and agree that no such action, failure to act or failure to exercise any right or remedy by Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any indorsement or guaranty of this Note or under any of the Loan Documents; and (c) agree to pay, on demand, all costs and expenses of collection or defense of this Note or of any indorsement or guaranty hereof and/or the enforcement or defense of Bank's rights with respect to, or the administration, supervision, preservation, or protection of, or realization upon, any property securing payment hereof, including, without limitation, reasonable attorney's fees, including fees related to any suit, mediation or arbitration proceeding, out of court payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such amount as may be determined reasonable by any arbitrator or court, whichever is applicable. 8. Prepayments. Prepayments may be made in whole or in part at any time on any loan for which the Rate is based on the Prime Rate. All prepayments of principal shall be applied in the inverse order of maturity, or in such other order as Bank shall determine in its sole discretion. No prepayment of any other loan shall be permitted without the prior written consent of Bank. Notwithstanding such prohibition, if there is a prepayment of any such loan, whether by consent of Bank, or because of acceleration or otherwise, Borrower shall, within 15 days of any request by Bank, pay to Bank any loss or expense which Bank may incur or sustain as a result of such prepayment. For the purposes of calculating the amounts owed only, it shall be assumed that Bank actually funded or committed to Page 15 of 18 Pages fund the loan through the purchase of an underlying deposit in an amount, and for a term comparable to the loan, and such determination by Bank shall be conclusive, absent a manifest error in computation. 9. Events of Default. The following are events of default hereunder: (a) the failure to pay or perform any obligation, liability or indebtedness of any Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation, whether under this Note or any Loan Documents, as and when due (whether upon demand, at maturity or by acceleration); (b) the failure to pay or perform any other obligation, liability or indebtedness of any Obligor to any other party; (c) the death of any Obligor (if an individual); (d) the resignation or withdrawal of any partner or a material owner/guarantor of Borrower, as determined by Bank in its sole discretion; (e) the commencement of a proceeding against any Obligor for dissolution or liquidation, the voluntary or involuntary termination or dissolution of any Obligor or the merger or consolidation of any Obligor with or into another entity; (f) the insolvency of, the business failure of, the appointment of a custodian, trustee, liquidator or receiver for or for any of the property of, the assignment for the benefit of creditors by, or the filing of a petition under bankruptcy, insolvency or debtor's relief law or the filing of a petition for any adjustment of indebtedness, composition or extension by or against any Obligor; (g) the determination by Bank that any representation or warranty made to Bank by any Obligor in any Loan Documents or otherwise is or was, when it was made, untrue or materially misleading; (h) the failure of any Obligor to timely deliver such financial statements, including tax returns, other statements of condition or other information, as Bank shall request from time to time; (i) the entry of a judgment against any Obligor which Bank deems to be of a material nature, in Bank's sole discretion; (j) the seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of any Obligor; (k) the determination by Bank that it is insecure for any reason; (l) the determination by Bank that a material adverse change has occurred in the financial condition of any Obligor; or (m) the failure of Borrower's business to comply with any law or regulation controlling its operation. 10. Remedies upon Default. Whenever there is a default under this Note (a) the entire balance outstanding hereunder and all other obligations of any Obligor to Bank (however acquired or evidenced) shall, at the option of Bank, become immediately due and payable and any obligation of Bank to permit further borrowing under this Note shall immediately cease and terminate, and/or (b) to the extent permitted by law, the Rate of interest on the unpaid principal shall be increased at Bank's discretion up to the maximum rate allowed by law, or if none, 25% per annum (the "Default Rate"). The provisions herein for a Default Rate shall not be deemed to extend the time for any payment hereunder or to constitute a "grace period" giving Obligors a right, to cure any default. At Bank's option, any accrued and unpaid interest, fees or charges may, for purposes of computing and accruing interest on a daily basis after the due date of the Note or any installment thereof, be deemed to be a part of the principal balance, and interest shall accrue on a daily compounded basis after such date at the Default Rate provided in this Note until the entire outstanding balance of principal and interest is paid in full. Upon a default under this Note, Bank is hereby authorized at any time, at its option and without notice or demand, to set off and charge against any deposit accounts of any Obligor (as well as any money, instruments, securities, documents, chattel paper, credits, claims, demands, income and any other property, rights and interests of any Obligor), which at any time shall come into the possession or custody or under the control of Bank or any of its agents, affiliates or correspondents, any and all Page 16 of 18 Pages obligations due hereunder. Additionally, Bank shall have all rights and remedies available under each of the Loan Documents, as well as all rights and remedies available at law or in equity. 11. Non-Waiver. The failure at any time of Bank to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Bank shall be cumulative and may be pursued singly, successively or together, at the option of Bank. The acceptance by Bank of any partial payment shall not constitute a waiver of any default or of any of Bank's rights under this Note. No waiver of any of its rights hereunder, and no modification or amendment of this Note, shall be deemed to be made by Bank unless the same shall be in writing, duly signed an behalf of Bank; each such waiver shall apply only with respect to the specific instance involved, and shall in no way impair the rights of Bank or the obligations of Obligors to Bank in any other respect at any other time. 12. Applicable Law, Venue and Jurisdiction. Borrower agrees that this Note shall be deemed to have been made in the State of Texas at Bank's address indicated at the beginning of this Note and shall be governed by, and construed in accordance with, the laws of the State of Texas, and is performable in the City and County of Texas indicated at the beginning of this Note. In any litigation in connection with or to enforce this Note or any indorsement or guaranty of this Note or any Loan Documents, Obligors, and each of them, irrevocably consent to and confer personal jurisdiction on the courts of the State of Texas or the United States courts located within the State of Texas. Nothing contained herein shall, however, prevent Bank from bringing any action or exercising any rights within any other state or jurisdiction or from obtaining personal jurisdiction by any other means available under applicable law. 13. Partial Invalidity. The unenforceability or invalidity of any provision of this Note shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of this Note or of the Loan Documents to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. 14. Binding Effect. This Note shall be binding upon and inure to the benefit of Borrower, Obligors and Bank and their respective successors, assigns, heirs and personal representatives, provided, however, that no obligations of Borrower or Obligors hereunder can be assigned without prior written consent of Bank. 15. Controlling Document. To the extent that this Note conflicts with or is in any way incompatible with any other document related specifically to the loan evidenced by this Note, this Note shall control over any other such document, and if this Note does not address an issue, then each other such document shall control to the extent that it deals most specifically with an issue. 16. YEAR 2000 REPRESENTATIONS AND WARRANTIES. (A) Borrower has (i) begun analyzing the operations of Borrower and its subsidiaries and affiliates that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded Page 17 of 18 Pages microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and; (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Borrower reasonably believes that it will become Year 2000 compliant for its operations and those of its subsidiaries and affiliates on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition of Borrower. (B) Borrower reasonably believes any suppliers and vendors that are material to the operations of Borrower or its subsidiaries and affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition of Borrower. (C) Borrower will promptly notify Bank in the event Borrower determines that any computer application which is material to the operations of Borrower, its subsidiaries or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a material adverse effect upon the financial condition of Borrower. 17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. (A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ------------- ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. Page 18 of 18 Pages (B) RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL --------------------- BE DEEMED TO (1) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSISTUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. Borrower represents to Bank that the proceeds of this loan are to be used primarily for business, commercial or agricultural purposes. Borrower acknowledges having read and understood, and agrees to be bound by, all terms and conditions of this Note. NOTICE OF FINAL AGREEMENT: THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES. Bank: NationsBank, N.A. Corporate or Partnership Borrower: By: /S/ TOM L. HUNT Paulson Ranch, Ltd. --------------------------- Tom L. Hunt, Vice President By: Paulson Ranch Management, LLC By: /S/ BERNARD A. PAULSON --------------------------- Name: Bernard A. Paulson Title: Member ---------------------------------- Attest (If Applicable) [Corporate Seal] -----END PRIVACY-ENHANCED MESSAGE-----