U.S.

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to          

 

Commission File Number: 001-07120

 

HARTE HANKS, INC.

(Exact name of registrant as specified in its charter)

Delaware

74-1677284

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

2800 Wells Branch Parkway, Austin, Texas 78728

(Address of principal executive offices, including zip code)

 

(512) 434-1100

(Registrant’s telephone number including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

HHS

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒

 

The number of shares outstanding of each of the issuer's classes of common stock as of April 15, 2020 was 6,441,752 shares of common stock, all of one class.

 



 

 

 

HARTE HANKS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

For the Quarterly Period Ended March 31, 2020

 

    Page
     
Part I. Financial Information  
     
Item 1. Financial Statements  

 

(Unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets — March 31, 2020 and December 31, 2019

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) — Three months ended March 31, 2020 and 2019

4

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders' Deficit — Three months ended March 31, 2020 and 2019

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2020 and 2019

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

28

 

 

 

Part II. Other Information  

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 

 

 

Item 3.

Defaults Upon Senior Securities

30

 

 

 

Item 4.

Mine Safety Disclosure

30

 

 

 

Item 5.

Other Information

30

 

 

 

Item 6.

Exhibits

30

 

 

2

 

 

Item 1.  Financial Statements

 

Harte Hanks, Inc. and Subsidiaries Condensed Consolidated Balance Sheets

(Unaudited)

 

   

March 31,

   

December 31,

 

In thousands, except per share and share amounts

 

2020

   

2019

 

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 23,462     $ 28,104  
      Restricted cash     5,253       6,018  

Accounts receivable (less allowance for doubtful accounts of $848 at March 31, 2020 and $666 at December 31, 2019)

    36,432       38,972  

Contract assets

    352       805  

Inventory

    407       354  

Prepaid expenses

    4,114       3,300  

Prepaid taxes and income tax receivable

    11,158       78  

Other current assets

    1,461       1,670  

Total current assets

    82,639       79,301  

Property, plant and equipment (less accumulated depreciation of $122,245 at March 31, 2020 and $133,559 at December 31, 2019)

    7,868       8,323  

Right-of-use assets

    20,250       18,817  

Other assets

    3,447       3,761  

Total assets

  $ 114,204     $ 110,202  
                 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

               

Current liabilities

               

Accounts payable and accrued expenses

  $ 16,666     $ 16,917  

Accrued payroll and related expenses

    4,447       4,215  

Deferred revenue and customer advances

    3,904       4,397  

Customer postage and program deposits

    8,280       9,767  

Other current liabilities

    2,527       2,619  

Short-term lease liabilities

    8,531       7,616  

Total current liabilities

    44,355       45,531  

Long-term debt

    18,700       18,700  

Pensions

    68,977       70,000  

Deferred tax liabilities, net

    301       244  

Long-term lease liabilities

    13,886       13,078  

Other long-term liabilities

    2,553       2,609  

Total liabilities

    148,772       150,162  
                 

Preferred Stock, $1 par value, 1,000,000 shares authorized; 9,926 shares of Series A Convertible Preferred Stock, issued and outstanding

    9,723       9,723  
                 

Stockholders’ deficit

               

Common stock, $1 par value, 25,000,000 shares authorized;12,121,484 and 12,121,484 shares issued, 6,441,752 and 6,302,936 shares outstanding at March 31, 2020 and December 31, 2019, respectively

    12,121       12,121  

Additional paid-in capital

    417,578       447,022  

Retained earnings

    802,935       797,817  

Less treasury stock, 5,679,732 shares at cost at March 31, 2020 and 5,818,548 shares at cost at December 31, 2019

    (1,213,842 )     (1,243,509 )

Accumulated other comprehensive loss

    (63,083 )     (63,134 )

Total stockholders’ deficit

    (44,291 )     (49,683 )

Total liabilities, Preferred Stock and stockholders’ deficit

  $ 114,204     $ 110,202  

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

3

 

 

Harte Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

   

Three Months Ended March 31,

 

In thousands, except per share amounts

 

2020

   

2019

 

Operating revenues

  $ 40,522     $ 59,150  

Operating expenses

               

Labor

    23,948       33,667  

Production and distribution

    13,246       23,000  

Advertising, selling, general and administrative

    5,948       7,475  

Restructuring expense

    1,366       4,506  

Depreciation expense

    1,121       1,442  

Total operating expenses

    45,629       70,090  

Operating loss

    (5,107 )     (10,940 )

Other expenses, net

               

Interest expense, net

    312       220  

Other, net

    757       1,577  

Total other expenses, net

    1,069       1,797  

Loss before income taxes

    (6,176 )     (12,737 )

Income tax (benefit) expense

    (11,294 )     790  

Net income (loss)

  $ 5,118     $ (13,527 )

Less: Preferred Stock dividends

    123       122  
Less: Earnings attributable to participating securities     683        

Income (loss) attributable to common stockholders

  $ 4,312     $ (13,649 )
                 

Income (loss) per common share

               
Basic   $ 0.68     $ (2.18 )
Diluted   $ 0.67     $ (2.18 )
                 

Weighted average shares used to compute income (loss) per share attributable to common shares

               

Basic

    6,320       6,268  

Diluted

    6,481       6,268  
                 

Comprehensive income (loss), net of tax:

               

Net income (loss)

  $ 5,118     $ (13,527 )
                 

Adjustment to pension liability, net:

    609       550  

Foreign currency translation adjustment

    (558 )     (28 )
Adoption of ASU 2018-02           (11,355 )

Total other comprehensive income (loss), net of tax

  $ 51     $ (10,833 )
                 

Comprehensive income (loss)

  $ 5,169     $ (24,360 )
                 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

4

 

 

Harte Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders' Deficit

(Unaudited)

 

                                           

Accumulated

         
                   

Additional

                   

Other

   

Total

 
   

Preferred

   

Common

   

Paid-in

   

Retained

   

Treasury

   

Comprehensive

   

Stockholders’

 

In thousands

 

Stock

   

Stock

   

Capital

   

Earnings

   

Stock

   

Loss

   

Deficit

 

Balance at December 31, 2018

  $ 9,723     $ 12,115     $ 453,868     $ 812,704     $ (1,251,388 )   $ (46,483 )   $ (19,184 )

Cumulative effect of accounting change

                      11,377             (11,355 )     22  

Stock-based compensation

                151                         151  

Treasury stock issued

                (1,968 )           1,984             16  

Net loss

                      (13,527 )                 (13,527 )

Other comprehensive income

                                  522       522  

Balance at March 31, 2019

  $ 9,723     $ 12,115     $ 452,051     $ 810,554     $ (1,249,404 )   $ (57,316 )   $ (32,000 )

 

                                           

Accumulated

         
                   

Additional

                   

Other

   

Total

 
   

Preferred

   

Common

   

Paid-in

   

Retained

   

Treasury

   

Comprehensive

   

Stockholders’

 

In thousands

 

Stock

   

Stock

   

Capital

   

Earnings

   

Stock

   

Loss

   

Deficit

 

Balance at December 31, 2019

  $ 9,723     $ 12,121     $ 447,022     $ 797,817     $ (1,243,509 )   $ (63,134 )   $ (49,683 )

Stock-based compensation

                223                         223  

Treasury stock issued

                (29,667 )           29,667              

Net income

                      5,118                   5,118  

Other comprehensive income

                                  51       51  

Balance at March 31, 2020

  $ 9,723     $ 12,121     $ 417,578     $ 802,935     $ (1,213,842 )   $ (63,083 )   $ (44,291 )

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

5

 

 

Harte Hanks, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   

Three Months Ended March 31,

 

In thousands

 

2020

   

2019

 

Cash flows from operating activities

               

Net income (loss)

  $ 5,118     $ (13,527 )

Adjustments to reconcile net income (loss) to net cash used in operating activities

               

Depreciation expenses

    1,121       1,442  

Restructuring

    271       2,190  

Stock-based compensation

    215       150  

Net pension cost

    (211 )     1,013  

Deferred income taxes

    (146 )     584  

Changes in assets and liabilities:

               

Decrease in accounts receivable, net and contract assets

    3,089       7,746  

(Increase) decrease in inventory

    (53 )     62  

(Increase) decrease in prepaid expenses, income tax receivable and other assets

    (11,242 )     2,689  

Decrease in accounts payable and accrued expenses

    (355 )     (5,152 )

Decrease in accrued payroll, deferred revenue, lease liabilities and other long-term liabilities

    (1,781 )     (68 )

Net cash used in operating activities

    (3,974 )     (2,871 )
                 
Cash flows from investing activities                

Purchases of property, plant and equipment

    (832 )     (1,106 )

Proceeds from sale of property, plant and equipment

    196       5  

Net cash used in investing activities

    (636 )     (1,101 )
                 

Cash flows from financing activities

               

Borrowings

          4,500  

Debt financing costs

    (129 )     (248 )

Payment of finance leases

    (110 )     (208 )

Issuance of treasury stock

          16  

Net cash (used in) provided by financing activities

    (239 )     4,060  
                 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

    (558 )     (28 )

Net (decrease) increase in cash and cash equivalents and restricted cash

    (5,407 )     60  

Cash and cash equivalents and restricted cash at beginning of period

    34,122       20,882  

Cash and cash equivalents and restricted cash at end of period

  $ 28,715     $ 20,942  
                 

Supplemental disclosures

               

Cash paid for interest

  $ 186     $ 186  

Cash received for income taxes, net of refunds

  $ 88     $ 4,565  

Non-cash investing and financing activities

               

Purchases of property, plant and equipment included in accounts payable

  $ 848     $ 685  

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

6

 

Harte Hanks, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

Note A - Overview and Significant Accounting Policies

 

Background

 

Harte Hanks, Inc., together with its subsidiaries (“Harte Hanks,” “Company”, “we,” “our,” or “us”) is a purveyor of data-driven, omni-channel marketing and customer relationship solutions and logistics. The Company has robust capabilities that offer clients the strategic guidance they need across the customer data landscape as well as the executional know-how in database build and management, data analytics, digital media, direct mail, customer contact, client fulfillment and marketing and product logistics. Harte Hanks solves marketing, commerce and logistical challenges for some of the world’s leading brands in North America, Asia-Pacific and Europe.

 

The Company operates as one reportable segment. Our Chief Executive Officer is our chief operating decision maker.  He reviews our operating results on an aggregate basis for purposes of allocating resources and evaluating financial performance.

 

The Company is closely monitoring the impact of the 2019 novel coronavirus (“COVID-19”), on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the COVID-19 outbreak a national emergency on March 13, 2020.  While the COVID-19 pandemic has not had a material adverse impact on the Company’s operations to date, the pandemic has caused significant volatility in the global markets and has caused many companies to slow production or find alternative means for employees to perform their work. It is possible that the COVID-19 pandemic, the measures taken by governments around the globe and the resulting economic impact may materially and adversely affect the Company’s results of operations, cash flows and financial position as well as the financial stability of its customers. The COVID-19 pandemic may also exacerbate other risks discussed in Part I, “Item 1A. Risk Factors” in our 2019 Annual Report on Form 10-K, which could materially affect our business, financial condition, or future results. Refer to “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for a further discussion on COVID-19.

 

Securities Purchase Agreement

 

On January 23, 2018, we entered into a Securities Purchase Agreement with Wipro, LLC (“Wipro”), pursuant to which on January 30, 2018, we issued 9,926 shares of series A convertible preferred stock, par value $1.00 per share (“Series A Preferred Stock”), for aggregate consideration of $9.9 million. Dividends on the Series A Preferred Stock accrue at a rate of 5.0% per year or the rate that cash dividends were paid in respect to shares of common stock if such rate is greater than 5.0%. The Preferred Stock issued under the Securities Purchase Agreement are convertible into 1,001,614 shares of our common stock. Dividends are payable solely upon a Liquidation (as defined in the Certificate of Designation), and only if prior to such Liquidation such shares of Series A Preferred Stock have not been converted to common stock.

 

Along with customary protective provisions, Wipro has designated an observer to the Board of Directors. We used the proceeds from the issuance for general corporate purposes including working capital purposes.

 

See Note E, Convertible Preferred Stock, for further information.

 

Related Party Transactions

 

Since 2016, we have conducted (and we continue to conduct) business with Wipro, whereby Wipro provides us with a variety of technology-related services, including database and software development, database support and analytics, IT infrastructure support, and digital campaign management. Additionally, we provide Wipro with agency and consulting services.

 

Effective January 30, 2018, Wipro became a related party when it purchased 9,926 shares of our Series A Preferred Stock (which are convertible at Wipro’s option into 1,001,614 shares, or 16% of our common stock as of January 30, 2018), for aggregate consideration of $9.9 million. For information pertaining to the Company’s Preferred Stock, See Note E, Convertible Preferred Stock.

 

Accounting Principles 

 

Our unaudited interim condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Harte Hanks Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “ 2019 10-K”) filed with the U.S. Securities and Exchange Commission on March 19, 2020.

 

Consolidation

 

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Harte Hanks, Inc. and subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. As used in this report, the terms “Harte Hanks,” “the Company,” “we,” “us,” or “our” may refer to Harte Hanks, Inc., one or more of its consolidated subsidiaries, or all of them taken as a whole, as the context may require.

 

7

 

Interim Financial Information

 

The condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 8-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes could differ from those estimates and assumptions. Such estimates include, but are not limited to, estimates related to lease accounting; pension accounting; fair value for purposes of assessing long-lived assets for impairment; income taxes; stock-based compensation; and contingencies. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances could result in revised estimates and assumptions.

 

Operating Expense Presentation in Condensed Consolidated Statements of Comprehensive Income (Loss) 

 

The “Labor” line in the Condensed Consolidated Statements of Comprehensive Income (Loss) includes all employee payroll and benefits, including stock-based compensation, along with temporary labor costs. The “Production and distribution” and “Advertising, selling, general and administrative” lines do not include labor, depreciation, or amortization.

 

Revenue Recognition

 

We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those products or services. We apply the following five-step revenue recognition model:

 

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when (or as) we satisfy the performance obligation

 

Certain client programs provide for adjustments to billings based upon whether we achieve certain performance criteria. In these circumstances, revenue is recognized when the foregoing conditions are met. We record revenue net of any taxes collected from customers and subsequently remitted to governmental authorities. Any payments received in advance of the performance of services or delivery of the product are recorded as deferred revenue until such time as the services are performed or the product is delivered. Costs incurred for search engine marketing solutions and postage costs of mailings are billed to our clients and are not directly reflected in our revenue.

 

Revenue from agency and digital services, direct mail, logistics, fulfillment and contact center is recognized as the work is performed. Fees for these services are determined by the terms set forth in the contract with the client. These are typically set at a fixed price or rate by transaction occurrence, service provided, time spent, or product delivered.

 

For arrangements requiring design and build of a database, revenue is not recognized until client acceptance occurs. Up-front fees billed during the setup phase for these arrangements are deferred and direct build costs are capitalized. Pricing for these types of arrangements are typically based on a fixed price determined in the contract. Revenue from other database marketing solutions is recognized ratably over the contractual service period. Pricing for these services are typically based on a fixed price per month or per contract.

 

8

 

Fair Value of Financial Instruments

 

FASB ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs used in valuation methodologies into three levels:

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Because of their maturities and/or variable interest rates, certain financial instruments have fair values approximating their carrying values. These instruments include cash and cash equivalents and restricted cash, accounts receivable, and trade payables, and long-term debt.  

 

Leases

 

We determine if an arrangement is a lease at its inception. Operating and finance leases are included in the lease right-of-use (“ROU”) assets and the current portion and long-term portion of lease obligations on our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease, which are included in the lease ROU asset when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain real estate leases, we account for the lease and non-lease components as a single lease component.

 

See Note B, Recent Accounting Pronouncements - Recently adopted accounting pronouncements.

 

 

Note B - Recent Accounting Pronouncements

 

Recently issued accounting pronouncements not yet adopted

 

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as a tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The standard will be effective for us in the fiscal year 2021, although early adoption is permitted. We have not elected early adoption and we do not expect that the adoption of this accounting standard update (“ASU”) will have a significant impact on our consolidated financial statements.

 

 

In August 2018, the FASB issued ASU 2018-14,Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans  (“ASU 2018-14”), which modified the disclosure requirements for defined benefit pension plans and other postretirement plans.  ASU 2018-14 is effective for fiscal years ending December 15, 2020, and earlier adoption is permitted.  We are currently evaluated the impact of our pending adoption of ASU 2018-14 on our condensed consolidated financial statements.

 

9

 

Recently adopted accounting pronouncements

 

Reference Rate Reform

 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting Summary”.  This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. LIBOR (London Inter-bank Offered Rate) and other interbank offered rates are widely used benchmarks or reference rates in the United States and globally.  With global capital markets expected to move away from LIBOR and other inter-bank offered rates toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition.  The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.  This ASU is effective March 12, 2020 through December 31, 2022.  We adopted this ASU on March 12, 2020 and it did not have a  material impact on our condensed consolidated financial statements.

 

Income taxes

 

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows for reclassification of stranded tax effects on items resulting from the change in the corporate tax rate as a result of H.R. 1, originally known as the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), from accumulated other comprehensive income to retained earnings. Tax effects unrelated to H.R. 1 are permitted to be released from accumulated other comprehensive income using either the specific identification approach or the portfolio approach, based on the nature of the underlying item. ASU 2018-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We adopted ASU 2018-02 in the first quarter of 2019. See Note I, Income Taxes, for a discussion of the impacts of this ASU.

 

Stock-based Compensation

 

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to nonemployee share-based payment accounting, which supersedes ASC 505-50, Accounting for Distributions to Shareholders with Components of Stock and Cash, and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both non-employees and employees. As a result, most of the guidance in ASC 718 associated with employee share-based payments, including most of its requirements related to classification and measurement, applies to non-employee share-based payment arrangements. This ASU is effective for annual periods beginning after December 15, 2018, and the interim periods within those fiscal years with early adoption permitted after the entity has adopted ASC 606. This standard was adopted as of January 1, 2019 and did not have a material impact on our condensed consolidated financial statements and related disclosures.

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendment ASU 2018-11, which requires all operating leases to be recorded on the balance sheet unless the practical expedient is elected for short-term operating leases. The lessee will record a liability for its lease obligations (initially measured at the present value of the future lease payments not yet paid over the lease term, and an asset for its right to use the underlying asset equal to the lease liability, adjusted for lease payments made at or before lease commencement). This ASU is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. This change is required to be applied using a modified retrospective approach for leases that exist or are entered after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited. In July 2018, the FASB approved an optional transition method to initially account for the impact of the adoption with a cumulative-effect adjustment to the January 1, 2019, rather than the January 1, 2017, financial statements. This would eliminate the need to restate amounts presented prior to January 1, 2019.

 

We adopted the standard effective January 1, 2019, and we elected the optional transition method and the practical expedients permitted under the transition guidance within the standard. Accordingly, we accounted for our existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC Topic 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments (as of December 31, 2019) would have met the definition of initial direct costs in ASC Topic 842 at lease commencement.

 

The standard had a material impact on our condensed consolidated balance sheets, but did not have an impact on our condensed consolidated statements of comprehensive income (loss) or cash flows from operations. The cumulative effect of the changes on our retained earnings was $22,000 associated with capital gain. The most significant impact was the recognition of right-of-use (ROU) assets and lease liabilities for operating leases. Our accounting for finance leases remained substantially unchanged. See Note D, Leases for further discussion.

 

Restricted Cash

 

In the first quarter of 2019, the Company adopted ASU 2016-18, Statement of Cash flows (Topic 230): Restricted Cash, which enhances and clarifies the guidance on the classification and presentation of restricted cash in the statement of cash flows and requires additional disclosures about restricted cash balances.  The adoption of ASU 2016-18 did not have a material impact on our condensed consolidated financial statements and related disclosures.

 

10

 

 

Note C - Revenue from Contracts with Customers

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASC 606, Revenue from Contracts with Customers, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the new standard, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The new standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard also includes criteria for the capitalization and amortization of certain contract acquisition and fulfillment costs.

 

Under ASC 606, revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our contracts with customers state the terms of sale, including the description, quantity, and price of the product or service purchased. Payment terms can vary by contract, but the period between invoicing and when payment is due is not significant. At March 31, 2020 and December 31, 2019, our contracts do not include any significant financing components.

 

Consistent with legacy GAAP, we present sales taxes assessed on revenue-producing transactions on a net basis.

 

Disaggregation of Revenue

 

We disaggregate revenue by vertical market and key revenue stream. The following table summarizes revenue from contracts with customers for the three months ended March 31, 2020 and 2019 by our key vertical markets:

 

In thousands

 

Three Months Ended

 
   

March 31, 2020

   

March 31, 2019

 

B2B

  $ 11,214     $ 12,785  

Consumer Brands

    11,054       12,163  

Financial Services

    8,105       12,965  

Healthcare

    4,209       4,627  

Retail

    5,261       12,311  

Transportation

    679       4,299  

Total Revenues

  $ 40,522     $ 59,150  

 

The nature of the services offered by each key revenue stream is different. The following tables summarize revenue from contracts with customers for the three months ended March 31, 2020 and 2019 by our four major revenue streams and the pattern of revenue recognition:

 

   

Three Months Ended March 31, 2020

 

In thousands

 

Revenue for performance obligations recognized over time

   

Revenue for performance obligations recognized at a point in time

   

Total

 

Agency & Digital Services

  $ 4,592     $ 139     $ 4,731  

Contact Centers

    11,836             11,836  

Database Marketing Solutions

    4,416       581       4,997  

Direct Mail, Logistics, and Fulfillment

    15,919       3,039       18,958  

Total Revenues

  $ 36,763     $ 3,759     $ 40,522  

 

 

   

Three Months Ended March 31, 2019

 

In thousands

 

Revenue for performance obligations recognized over time

   

Revenue for performance obligations recognized at a point in time

   

Total

 

Agency & Digital Services

  $ 6,193     $ 39     $ 6,232  

Contact Centers

    15,738             15,738  

Database Marketing Solutions

    6,106       786       6,892  

Direct Mail, Logistics, and Fulfillment

    24,739       5,549       30,288  

Total Revenues

  $ 52,776     $ 6,374     $ 59,150  

 

Our contracts with customers may consist of multiple performance obligations. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. For most performance obligations, we determine SSP based on the price at which the performance obligation is sold separately. Although uncommon, if the SSP is not observable through past transactions, we estimate the SSP taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Further discussion of other performance obligations in each of our major revenue streams follows:

 

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Agency & Digital Services

 

Our agency services are full-service, customer engagement agencies specializing in direct and digital communications for both consumer and business-to-business markets. Our digital solutions integrate online services within the marketing mix and include: search engine management, display, digital analytics, website development and design, digital strategy, social media, email, e-commerce, and interactive relationship management. Our contracts may include a promise to purchase media or acquire search engine marketing solutions on behalf of our clients; in such cases, we have determined we are an agent, rather than principal and therefore recognize the net consideration as revenue.

 

Agency and digital services performance obligations are mostly satisfied over time and often offered on a project basis. We have concluded that the best approach of measuring the progress toward completion of the project-based performance obligations is the input method based on costs or labor hours incurred to date dependent upon whether costs or labor hours more accurately depict the transfer of value to the customer.

 

The variable consideration in these contracts primarily relates to time and material-based services and reimbursable out-of-pocket travel costs, both of which are estimated using the expected value method. For time and material-based contracts, we use the “as invoiced” practical expedient.

 

Contact Centers

 

We operate tele-service workstations in the U.S., Asia, and Europe to provide advanced contact center solutions such as: speech, voice and video chat, integrated voice response, analytics, social cloud monitoring, and web self-service.

 

Performance obligations are stand-ready obligations and satisfied over time. With regard to account management and software as a service (“SaaS”), we use a time-elapsed output method. For performance obligations where we charge customers a transaction-based fee, we use the output method based on transaction quantities. In most cases, our contracts provide us the right to invoice for services provided, therefore, we generally use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices.

 

The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided unknown at the onset of a contract, which is estimated using the expected value method.

 

Database Marketing Solutions

 

Our solutions are built around centralized marketing databases with services rendered to build custom database, database hosting services, customer or target marketing lists and data processing services.

 

These performance obligations, including services rendered to build a custom database, database hosting services, professional services, customer or target marketing lists and data processing services, may be satisfied over time or at a point in time. We provide SaaS solutions to host data for customers and have concluded that they are stand-ready obligations to be recognized over time on a monthly basis. Our promise to provide certain data related services meets the over-time recognition criteria because our services do not create an asset with an alternative use, and we have an enforceable right to payment. For performance obligations recognized over time, we choose either the input (i.e. labor hour) or output method (i.e. number of customer records) to measure the progress toward completion depending on the nature of the services provided. Some of our other data-related services do not meet the over-time criteria and are therefore, recognized at a point-in-time, typically upon the delivery of a specific deliverable.

 

We charge our customers for certain data-related services at a fixed transaction-based rate, e.g., per thousand customer records processed. Because the quantity of transactions is unknown at the onset of a contract, our transaction price is variable, and we use the expected value method to estimate the transaction price. The uncertainty associated with the variable consideration generally resolves within a short period of time since the duration of these contracts is generally less than two months.

 

12

 

Direct Mail, Logistics, and Fulfillment

 

Our services include: digital printing, print on demand, advanced mail optimization, logistics and transportation optimization, tracking, commingling, shrink wrapping, and specialized mailings. We also maintain fulfillment centers where we provide custom kitting services, print on demand, product recalls, and freight optimization allowing our customers to distribute literature and other marketing materials.

 

The majority of performance obligations offered within this revenue stream is satisfied over time and utilize the input or output method, depending on the nature of the service, to measure progress toward satisfying the performance obligation. For performance obligations where we charge customers a transaction-based fee, we utilize the output method based on the quantities fulfilled. Services provided through our fulfillment centers are typically priced at a per transaction basis and our contracts provide us the right to invoice for services provided and reflects the value to the customer of the services transferred to date. In most cases, we use the “as invoiced” practical expedient to recognize revenue associated with these performance obligations unless significant discounts are offered in a contract and prices for services do not represent their standalone selling prices. For our direct mail revenue stream, our contracts may include a promise to purchase postage on behalf of our clients; in such cases, we have determined we are an agent, rather than principal and therefore recognize net consideration as revenue.

 

The variable consideration in our contracts results primarily from the transaction-based fee structure of some performance obligations with their total transaction quantities to be provided unknown at the onset of a contract, which is estimated using the expected value method.

    

Upfront Non-Refundable Fees

 

We may receive non-refundable upfront fees from customers for implementation of our SaaS database solutions products or for providing training in connection with our contact center solutions. These activities are not deemed to transfer a separate promised service and therefore, represent advanced payments. Where customers have an option to renew a contract, the customer is not required to pay similar upfront fees upon renewal. As a result, we have determined that these renewal options provide for the purchase of future services at a reduced rate and therefore, provide a material right. These upfront non-refundable fees are recognized over the period of benefit which is generally consistent with estimated customer life (four to five years for database solutions contracts and six months to one year for contact center contracts). The balance of upfront non-refundable fees collected from customers was immaterial as of March 31, 2020 and 2019.

 

Transaction Price Allocated to Future Performance Obligations 

 

We have elected to apply certain optional exemptions that limit the disclosure requirements over remaining performance obligations at period end to exclude: performance obligations that have an original expected duration of one year or less, transactions using the “as invoiced” practical expedient, or when a performance obligation is a series and we have allocated the variable consideration directly to the services performed. After considering the above exemptions, the transaction prices allocated to unsatisfied or partially satisfied performance obligations as of March 31, 2020 totaled $0.1 million, which is expected to be recognized in 2020.

 

Contract Balances

 

We record a receivable when revenue is recognized prior to invoicing when we have an unconditional right to consideration (only the passage of time is required before payment of that consideration is due) and a contract asset when the right to payment is conditional upon our future performance such as delivery of an additional good or service (e.g. customer contract requires customer’s final acceptance of custom database solution or delivery of final marketing strategy delivery presentation before customer payment is required). If invoicing occurs prior to revenue recognition, the unearned revenue is presented on our Condensed Consolidated Balance Sheet as a contract liability, referred to as deferred revenue. The following table summarizes our contract balances as of March 31, 2020 and December 31, 2019:

 

In thousands

 

March 31, 2020

   

December 31, 2019

 

Contract assets

  $ 352     $ 805  

Deferred revenue and customer advances

    3,904       4,397  

Deferred revenue, included in other long-term liabilities

    813       886  

 

Revenue recognized during the three months ended March 31, 2020 from amounts included in deferred revenue at December 31, 2019 was approximately $2.9 million. 

 

Costs to Obtain and Fulfill a Contract

 

We recognize an asset for the direct costs incurred to obtain and fulfill our contracts with customers to the extent that we expect to recover these costs and if the benefit is longer than one year. These costs are amortized to expense over the expected period of benefit in a manner that is consistent with the transfer of the related goods or services to which the asset relates. We capitalized a portion of commission expense, implementation and other costs that represents the cost to obtain a contract. The remaining unamortized contract costs were $1.5 million as of March 31, 2020. For the periods presented, no impairment was recognized.

 

13

 

 

Note D - Leases

 

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach with optional transition method. The Company recorded operating lease assets (right-of-use assets) of $22.8 million and operating lease liabilities of $23.9 million. There was minimal impact to retained earnings upon adoption of Topic 842. 

 

We have operating and finance leases for corporate and business offices, service facilities, call centers and certain equipment. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet, unless the arrangement includes an option to purchase the underlying asset, or an option to renew the arrangement, that we are reasonably certain to exercise (short-term leases). Our leases have remaining lease terms of 1 year to 6 years, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases within 1 year.

 

As of March 31, 2020, assets recorded under finance and operating leases were approximately $1.1 million and $19.2 million respectively, and accumulated depreciation associated with finance leases was $0.4 million. Operating lease right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The discount rate used to determine the commencement date present value of lease payment is the interest rate implicit in the lease, or when that is not readily determinable, we utilized our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

 

The following table presents supplemental balance sheet information related to our financing and operating leases:

 

In thousands

 

As of March 31, 2020

         
   

Operating Leases

   

Finance Leases

   

Total

 
Right-of-use Assets     19,179       1,071     $ 20,250  
                         

Liabilities

                       
Short-term lease liabilities     8,197       334       8,531  
Long-term lease liabilities     13,375       511       13,886  

Total Lease Liabilities

  $ 21,572     $ 845     $ 22,417  

 

 

In thousands

 

As of December 31, 2019

         
   

Operating Leases

   

Finance Leases

   

Total

 

Right-of-use Assets

    17,679       1,138     $ 18,817  
                         

Liabilities

                       

Short-term lease liabilities

    7,226       390       7,616  

Long-term lease liabilities

    12,514       564       13,078  

Total Lease Liabilities

  $ 21,730     $ 896     $ 20,694  

 

For the three months ended March 31, 2020 and 2019, the components of lease expense were as follows:

 

In thousands

 

Three Months Ended March 31, 2020

   

Three Months Ended March 31, 2019

 

Operating lease cost

  $ 2,365     $ 2,215  
                 

Finance lease cost:

               

Amortization of right-of-use assets

    67       64  

Interest on lease liabilities

    14       19  

Total Finance lease cost

    81       83  

Variable lease cost

    920       537  

Total lease cost

  $ 3,366     $ 2,835  

 

14

 

Other information related to leases was as follows:

 

In thousands

 

Three Months Ended March 31, 2020

   

Three Months Ended March 31, 2019

 

Supplemental Cash Flows Information

               
                 

Cash paid for amounts included in the measurement of lease liabilities:

               

Operating cash flows from operating leases

  $ 4,526     $ 4,285  

Operating cash flows from finance leases

    14       22  

Financing cash flows from finance leases

    110       101  
                 

Weighted Average Remaining Lease term

               
                 

Operating leases

    3.1       3.5  

Finance leases

    3.1       3.3  
                 

Weighted Average Discount Rate

               

Operating leases

    4.68 %     4.71 %

Finance leases

    6.48 %     7.16 %

 

The maturities of the Company’s finance and operating lease liabilities as of March 31, 2020 are as follows: 

 

In thousands

 

Operating Leases

   

Finance Leases

 

Year Ending December 31,

               

Remainder of 2020

  $ 6,888     $ 306  

2021

    7,268       238  

2022

    5,410       189  

2023

    2,188       152  

2024

    1,274       36  

2025

    123        

Total future minimum lease payments

    23,151       921  

Less: Imputed interest

    1,579       76  

Total lease liabilities

  $ 21,572     $ 845  

 

As of March 31, 2020, we have no additional operating leases that have not yet commenced.

 

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Note E - Convertible Preferred Stock

 

Our Amended and Restated Certificate of Incorporation authorizes us to issue 1.0 million shares of preferred stock (“Preferred Stock”). On January 30, 2018, we issued 9,926 shares of our Series A Preferred Stock to Wipro, LLC (as further described in Note A above under the heading "Securities Purchase Agreement") at an issue price of $1,000 per share, for gross proceeds of $9.9 million pursuant to a Certificate of Designation filed with the State of Delaware on January 29, 2018. We incurred $0.2 million of transaction fees in connection with the issuance of the Series A Preferred Stock which are netted against the gross proceeds of $9.9 million on our Condensed Consolidated Financial Statements.

 

Series A Preferred Stock has the following rights and privileges:

 

Liquidation Rights

 

In the event of a liquidation, dissolution or winding down of the Company or a Fundamental Transaction (defined in the Certificate of Designation for the Series A Preferred Stock), whether voluntary or involuntary, the holders of the Series A Preferred Stock are entitled to receive, prior to and in preference to the holders of common stock, from the assets of the Company available for distribution, an amount equal to the greater of (i) the original issue price, plus any dividends accrued but unpaid thereon, and (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into common stock immediately before such liquidation.

 

Upon liquidation, after the payment of all preferential amounts required to be paid to the holders of Series A Preferred Stock, the remaining assets of the Company available for distribution to its stockholders shall be distributed among the holders of common stock.

 

Dividends

 

Upon liquidation, dissolution or winding down of the Company, or a Fundamental Transaction, shares of Series A Preferred Stock which have not been otherwise converted to common stock, shall be entitled to receive dividends that accrue at a rate of (i) 5% each year, or (ii) the rate that cash dividends were paid in respect of common stock (with Series A Preferred Stock being paid on an as-converted basis in such case) for such year if such rate is greater than 5%. Dividends on the Series A Preferred Stock are cumulative and accrue to the holders thereof whether or not declared by the Board of Directors. Dividends are payable solely upon a Liquidation, and only if prior to such Liquidation such shares of Series A Preferred Stock have not been converted to common stock. As of March 31, 2020, cumulative dividends payable to the holders of Series A Preferred Stock upon a Liquidation totaled $1.1 million or $108.46 per share of Series A Preferred Stock.

 

Conversion

 

At the option of the holders of Series A Preferred Stock, shares of Series A Preferred Stock may be converted into common stock at a rate of 100.91 shares of common stock for one share of Series A Preferred Stock, subject to certain future adjustments.

 

Voting and Other Rights

 

The Series A Preferred Stock does not have voting rights, except as otherwise required by law. Other rights afforded the holders of Series A Preferred Stock, under defined circumstances, include the election and removal of one member of the Board of Directors as a separate voting class, the ability to approve certain actions of the Company prior to execution, and preemptive rights to participate in any future issuance of new securities. In addition, under certain circumstances, the holder of the Series A Preferred Stock is entitled to appoint an observer to our Board of Directors. The holder of the Series A Preferred Stock has elected to exercise its observer appointment rights but not its right to appoint the board member.

 

We determined that the Series A Preferred Stock has contingent redemption provisions allowing redemption by the holder upon certain defined events. As the event that may trigger the redemption of the Series A Preferred Stock is not solely within our control, the Series A Preferred Stock is classified as mezzanine equity (temporary equity) in the Condensed Consolidated Balance Sheet as of March 31, 2020.

 

16

 

 

Note F — Long-Term Debt

 

As of March 31, 2020 and December 31, 2019, we had $18.7 million of borrowings outstanding under the Texas Capital Facility (as defined herein). 

 

Credit Facilities

 

On April 17, 2017, we entered into a secured credit facility with Texas Capital Bank, N.A., that provided a $20.0 million revolving credit facility (the "Texas Capital Credit Facility") and letters of credit issued by Texas Capital Bank up to $5.0 million. The Texas Capital Credit Facility is being used for general corporate purposes. The Texas Capital Credit Facility is secured by substantially all of the Company's and its material domestic subsidiaries' assets. The Texas Capital Credit Facility is guaranteed by HHS Guaranty, LLC, an entity formed to provide credit support for Harte Hanks by certain members of the Shelton family (descendants of one of our founders).

 

Under the Texas Capital Credit Facility, we can elect to accrue interest on outstanding principal balances at either LIBOR plus 1.95% or prime plus 0.75%. Unused commitment balances accrue interest at 0.50%. We are required to pay a quarterly fee of $0.1 million as consideration for the guarantee provided by HHS Guaranty, LLC.

 

The Texas Capital Credit Facility is subject to customary covenants requiring insurance, legal compliance, payment of taxes, prohibition of second liens, and secondary indebtedness, as well as the filing of quarterly and annual financial statements. The Company has been in compliance of all the requirements.

 

The Texas Capital Credit Facility originally had an expiration date of April 17, 2019, at which point all outstanding amounts would have been due. On January 9, 2018, we entered into an amendment to the Texas Capital Credit Facility that increased the borrowing capacity to $22.0 million and extended the maturity by one year to April 17, 2020. On May 7, 2019, we entered into an amendment to the Texas Capital Credit Facility which further extended the maturity of the facility by one year to April 17, 2021. On May 11, 2020, we entered into an amendment to the Texas Capital Credit Facility which further extended the maturity of the facility by one year to April 17, 2022 and decreased the borrowing capacity to $19.0 million. The Texas Capital Credit Facility remains secured by substantially all of our assets and continues to be guaranteed by HHS Guaranty, LLC.

 

At March 31, 2020, we had letters of credit outstanding in the amount of $1.7 million. No amounts were drawn against these letters of credit at March 31, 2020. These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability.

 

 

Note G — Stock-Based Compensation

 

We maintain stock incentive plans for the benefit of certain officers, directors, and employees, including the 2013 Omnibus Incentive Plan. Our stock incentive plans include stock options, cash stock appreciation rights, performance stock units, phantom stock units and cash performance stock units. Our cash stock appreciation rights, phantom stock units and cash performance stock units settle solely in cash and are treated as a liability, which are adjusted each reporting period based on changes in our stock price.

 

Compensation expense for stock-based awards is based on the fair values of the awards on the date of grant and is recognized on a straight-line basis over the vesting period of the entire award in the “Labor” line of the Condensed Consolidated Statements of Comprehensive Income (Loss). We recognized $0.2 million and $0.2 million of stock-based compensation expense during the three months ended March 31, 2020 and 2019, respectively. 

 

17

 

 

Note H — Components of Net Periodic Benefit Cost

 

Prior to January 1, 1999, we provided a defined benefit pension plan for which most of our employees were eligible to participate (the “Qualified Pension Plan”).  In conjunction with significant enhancements to our 401(k) plan, we elected to freeze benefits under the Qualified Pension Plan as of December 31, 1998.

 

In 1994, we adopted a non-qualified, unfunded, supplemental pension plan (the “Restoration Pension Plan”) covering certain employees, which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from the principal pension plan were it not for limitations imposed by income tax regulation. The benefits under the Restoration Pension Plan were intended to provide benefits equivalent to our Qualified Pension Plan as if such plan had not been frozen. We elected to freeze benefits under the Restoration Pension Plan as of April 1, 2014.

 

Net pension cost for both plans included the following components:

 

   

Three Months Ended March 31,

 

In thousands

 

2020

     

2019

 
Interest cost   $ 1,473       $ 1,813  
Expected return on plan assets     (1,384 )       (1,111 )
Recognized actuarial loss     812         733  

Net periodic benefit cost

  $ 901       $ 1,435  

 

We are required to make $6.0 million minimum contribution to our Qualified Pension Plan in 2020.

 

We are not required to make, and do not intend to make, any contributions to our Restoration Pension Plan other than to the extent needed to cover benefit payments. We made benefit payments under this supplemental plan of $0.5 million and $0.4 million in the three months ended March 31, 2020 and 2019 respectively.

 

 

Note I - Income Taxes

 

Coronavirus Aid, Relief and Economic Security Act

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act removes certain deduction limitations originally imposed by the Tax Reform Act. In addition, the CARES Act requires corporate taxpayers to carryback net operating losses (“NOLs”) originating during 2018 through 2020 for up to five years, which was not previously allowed under the Tax Reform Act. The CARES Act also eliminates the 80% of taxable income limitations with respect to NOLs by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (this was previously limited to 30% under the Tax Reform Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally provided for by the Tax Reform Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. 

 

Our income tax benefit of $11.3 million for the three months ended March 31, 2020 resulted in a negative effective income tax rate of 183.06%. The effective income tax rate for the three months ended March 31, 2020 differs from the federal statutory rate of 21.0%, primarily due to the change in valuation allowances recorded on our deferred tax assets for federal net operating losses incurred, as a result of the enactment of the CARES Act during the three months ended March 31, 2020. These losses will be carried back to tax years when the federal statutory rate was 35%, which will result in additional tax benefit.  We expect to receive tax refund of approximately $8.8 million and $2.4 million in 2020 and 2021, respectively.

 

Our income tax expense of $0.8 million for the three months ended March 31, 2019 resulted in an effective income tax rate of 6.2%. The effective income tax benefit calculated for the three months ended March 31, 2019 differs from the federal statutory rate of 21.0%, primarily due to valuation allowances recorded on our deferred tax assets for current period federal net operating losses incurred, as we have concluded that it is more likely than not that these deferred tax assets will not be realized.

 

We have in general historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to ordinary income or loss for the reporting period. However, we have used a discrete effective tax rate method to calculate income taxes for the three months ended March 31, 2020 and March 31, 2019 because we determined that our ordinary income or loss cannot be reliably estimated and small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate.

 

Effective January 1, 2019 we adopted ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate from 35% to 21% due to the enactment of the Tax Reform Act. As a result of the adoption, we reclassified $11.4 million of stranded tax effects from accumulated other comprehensive income to retained earnings.

 

Harte Hanks, or one of our subsidiaries, files income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state returns, we are no longer subject to tax examinations for tax years prior to 2014. For U.S. federal and foreign returns, we are no longer subject to tax examinations for tax years prior to 2016.

 

We have elected to classify any interest expense and penalties related to income taxes within income tax expense in our Condensed Consolidated Statements of Comprehensive Income (Loss). We did not have a significant amount of interest or penalties accrued at March 31, 2020 or December 31, 2019.

 

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Note J - Earnings Per Share

 

In periods in which the Company has net income, the Company is required to calculate earnings per share (“EPS”) using the two-class method. The two-class method is required because the Company’s Series A Preferred Stock is considered a participating security with objectively determinable and non-discretionary dividend participation rights. Series A preferred stockholders have the right to participate in dividends above their five percent dividend rate should the Company declare dividends on its Common Stock at a dividend rate higher than the five percent (on an as-converted basis). Under the two-class method, undistributed and distributed earnings are allocated on a pro-rata basis to the common and the preferred stockholders. The weighted-average number of common and preferred stock outstanding during the period is then used to calculate EPS for each class of shares.

 

In periods in which the Company has a net loss, basic loss per share is calculated using the treasury stock method. The treasury stock method is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. The two-class method is not used, because the calculation would be anti-dilutive.

 

Reconciliations of basic and diluted EPS were as follows:

 

   

Three Months Ended March 31,

 

In thousands, except per share amounts

 

2020

   

2019

 
Numerator:                

Net income (loss)

  $ 5,118     $ (13,527 )

Less: Preferred stock dividends

    123       122  

Less: Earnings attributable to participating securities

    683        

Numerator for basic EPS: income (loss) attributable to common stockholders

    4,312       (13,649 )
                 

Effect of dilutive securities:

               

Add back: Allocation of earnings to participating securities

    683        

Less: Re-allocation of earnings to participating securities considering potentially dilutive securities

    (669 )      
Numerator for diluted EPS     4,326       (13,649 )
                 

Denominator:

               

Basic EPS denominator: weighted-average common shares outstanding

    6,320       6,268  
                 

Effect of dilutive securities:

               
Unvested shares     161        
Diluted EPS denominator     6,481       6,268  
                 

Basic earnings (loss) per Common Share

    0.68       (2.18 )

Diluted earnings (loss) per Common Share

    0.67       (2.18 )
                 
                 

 

For the three months ended March 31, 2020 and 2019, respectively, the following shares have been excluded from the calculation of shares used in the diluted EPS calculation: 0.1 million and 0.1 million shares of anti-dilutive market price options; 0.4 million and 0.1 million of anti-dilutive unvested shares; and 1.0 million and 0 shares of anti-dilutive preferred stock (as if converted).

 

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Note K — Comprehensive Income (loss)

 

Comprehensive income(loss) for a period encompasses net income (loss) and all other changes in equity other than from transactions with our stockholders. Our comprehensive income (loss) was as follows:

 

   

Three Months Ended March 31,

 

In thousands

 

2020

   

2019

 

Net income (loss)

  $ 5,118     $ (13,527 )
                 

Other comprehensive income (loss):

               

Adjustment to pension liability

    812       733  

Tax expense

    (203 )     (183 )
      609       550  

Foreign currency translation adjustment, net of tax

    (558 )     (28 )

Adoption of ASU 2018-2

          (11,355 )

Total other comprehensive income (loss), net of tax

    51       (10,833 )
                 

Total comprehensive income (loss)

  $ 5,169     $ (24,360 )

 

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Changes in accumulated other comprehensive income (loss) by component were as follows:

 

   

Defined Benefit

   

Foreign Currency

         

In thousands

 

Pension Items

   

Items

   

Total

 

Balance at December 31, 2019

  $ (63,887 )   $ 753     $ (63,134 )
Other comprehensive loss, net of tax, before reclassifications           (558 )     (558 )
Amounts reclassified from accumulated other comprehensive income (loss), net of tax, to other, net, on the condensed consolidated statements of comprehensive income     609             609  

Net current period other comprehensive income, net of tax

    609       (558 )     51  

Balance at March 31, 2020

  $ (63,278 )   $ 195     $ (63,083 )

 

   

Defined Benefit

   

Foreign Currency

         

In thousands

 

Pension Items

   

Items

   

Total

 

Balance at December 31, 2018

  $ (46,584 )   $ 101     $ (46,483 )

Other comprehensive loss, net of tax, before reclassifications

          (28 )     (28 )

Amounts reclassified from accumulated other comprehensive income (loss), net of tax, to other, net, on the condensed consolidated statements of comprehensive loss

    550             550  
Adoption of ASU 2018-02     (11,355 )           (11,355 )

Net current period other comprehensive loss, net of tax

    (10,805 )     (28 )     (10,833 )

Balance at March 31, 2019

  $ (57,389 )   $ 73     $ (57,316 )

 

Reclassification amounts related to the defined pension plans are included in the computation of net periodic pension benefit cost (see Note H, Components of Net Periodic Benefit Cost).

 

 

Note L — Litigation and Contingencies

 

In the normal course of our business, we are obligated under some agreements to indemnify our clients as a result of claims that we infringe on the proprietary rights of third parties. The terms and duration of these commitments vary and, in some cases, may be indefinite, and certain of these commitments do not limit the maximum amount of future payments we could become obligated to make thereunder; accordingly, our actual aggregate maximum exposure related to these types of commitments is not reasonably estimable. Historically, we have not been obligated to make significant payments for obligations of this nature, and no liabilities have been recorded for these obligations in our condensed consolidated financial statements.

 

We are also subject to various claims and legal proceedings in the ordinary course of conducting our businesses and, from time to time, we may become involved in additional claims and lawsuits incidental to our businesses. We routinely assess the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses; to the extent losses are reasonably estimable. Accruals are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonable estimable.

 

In the opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability of a material loss beyond the amounts accrued is remote. Nevertheless, we cannot predict the impact of future developments affecting our pending or future claims and lawsuits. We expense legal costs as incurred, and all recorded legal liabilities are adjusted as required as better information becomes available to us. The factors we consider when recording an accrual for contingencies include, among others: (i) the opinions and views of our legal counsel; (ii) our previous experience; and (iii) the decision of our management as to how we intend to respond to the complaints.

 

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Note M — Certain Relationships and Related Party Transactions

 

Since 2016, we have conducted (and we continue to conduct) business with Wipro, whereby Wipro provides us with a variety of technology-related services, including database and software development, database support and analytics, IT infrastructure support, leased facilities and digital campaign management. Additionally, we also provide Wipro with agency services and consulting services.

 

Effective January 30, 2018, Wipro became a related party when it purchased 9,926 shares of our Series A Preferred Stock (which are convertible at Wipro’s option into 1,001,614 shares, or 16% of our Common Stock), for aggregate consideration of $9.9 million. For information pertaining to the Company’s preferred stock, See Note E, Convertible Preferred Stock.

 

During the three months ended March 31, 2020 and 2019, we recorded an immaterial amount of revenue for services we provided to Wipro.

 

During the three months ended March 31, 2020 and 2019, we recorded $0.2 million and $6.3 million of expense, respectively, in technology-related services Wipro provided to us. Included in the $6.3 million of expense for the three months ended March 31, 2019 was also a one-time termination charge of $2.1 million because in the first quarter of 2019, we terminated several technology related service agreements with Wipro and entered into new agreements with Wipro resulting in $3.3 million of annual savings. 

 

During the three months ended March 31, 2020 and 2019, we capitalized $0 and $1.7 million of costs ($0.9 million of which was included in the asset impairment charge for the year ended December 31, 2019), respectively, for internally developed software services received from Wipro. These remaining capitalized costs are included in Other Assets on the Consolidated Balance Sheet as of March 31, 2020.

 

 As of March 31, 2020 and December 31, 2019, we had trade payables due to Wipro of $1.5 million. As of March 31, 2020 and December 31, 2019, we had an immaterial amount in trade receivables due from Wipro.

In the third quarter of 2019, we entered a business relationship with Snap Kitchen, the founder of which is a 7% owner of Harte Hanks.  We recorded a nominal amount of revenue with them in the three months ended March 31, 2020

As described in Note F, Long-Term Debt, the Company’s Texas Capital Credit Facility is secured by HHS Guaranty, LLC, an entity formed to provide credit support for the Company by certain members of the Shelton family (descendants of one of our founders). Pursuant to the Amended and Restated Fee, Reimbursement and Indemnity Agreement, dated January 9, 2018, between HHS Guaranty, LLC and the Company, HHS Guaranty, LLC has the right to appoint one representative director to the Board of Directors. Currently, David L. Copeland serves as the HHS Guaranty, LLC representative on the Board of Directors.

 

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Note N — Restructuring Activities

 

In 2019, our management team, along with members of the Board, formed a project committee focused on our cost-saving initiatives and other restructuring efforts. This committee reviewed each of our business segments and other operational areas to identify both one-time and recurring cost-saving opportunities.

 

In the three months ended March 31, 2020 and 2019 we recorded restructuring charges of $1.4 million and $4.5 million respectively. The 2020 Q1 charges were mainly related to asset impairment and facility related expenses and severance payments. The 2019 Q1 charges were primarily related to a $2.2 million impairment charge on our long-term customer databases and a $2.1 million contract termination fee.  The initiative to combine sub-scale production environments received Board approval on August 1, 2019.  As a result of the initiative we closed three production facilities in 2019 and consolidated the work previously performed at these facilities to other production facilities.

 

The following table summarizes the restructuring charges which are recorded in “Restructuring Expense” in the Condensed Consolidated Statement of Comprehensive Income (Loss).

 

In thousands

 

Three Months Ended March 31, 2020

   

Three Months Ended March 31, 2019

 

Customer database build write off

  $     $ 2,190  

Contract termination fee

          2,100  

Severance

    414       148  

Facility, asset impairment and other expense

    952       68  

Total

  $ 1,366     $ 4,506  

 

The following table summarizes the changes in liabilities related to restructuring activities:

 

In thousands

 

Three Months Ended March 31, 2020

 
   

Contract Termination Fee

   

Severance

   

Facility, asset impairment and other expense

   

Total

 

Beginning Balance:

  $ 1,491     $ 360     $ 70     $ 1,921  
Additions:           414       681       1,095  
Payments           (314 )     (744 )     (1,058 )

Ending Balance:

  $ 1,491     $ 460     $ 7     $ 1,958  

 

 

In thousands

 

Three Months Ended March 31, 2019

 
   

Contract Termination Fee

   

Severance

   

Facility, asset impairment and other expense

   

Total

 

Beginning Balance:

  $     $     $     $  

Additions:

    2,100       148             2,248  

Payments

          (86 )           (86 )

Ending Balance:

  $ 2,100     $ 62     $     $ 2,162  

 

We expect that in connection with our cost-saving and restructuring initiatives, we will incur total restructuring charges of approximately $17.4 million through the end of 2020. We had recognized $11.8 million of restructuring expense in the year ended December 31, 2019.

 

 

Note O — Subsequent Events

 

On April 20, 2020, the Company received loan proceeds (“PPP Loan”) in the amount of $10 million under the Small Business Administration Paycheck Protection Program (the “PPP”) . The PPP, established as part of the CARES Act, provides  loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable so long as, over the eight-week period following the receipt by the Company of the PPP Loan, the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

 

The unforgiven portion of the PPP Loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.  The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

 

On April 24, 2020, we sold the majority of the production equipment from our Jacksonville facility to Summit Direct Mail Inc. (“Summit”) for $1.5 million.  In addition, the Company entered into a strategic partnership with Summit.  Under this agreement, the Company will manage client relationships and Summit will perform the direct mail campaigns.  The Company is well positioned to provide the full suite of marketing solutions to Summit customers and we will leverage expanded print and direct mail capabilities to grow our business.   

 

On May 11, 2020, we entered into an amendment to the Texas Capital Credit Facility which extended the maturity of the facility by one year to April 17, 2022 and decreased the borrowing capacity to $19.0 million. The Texas Credit Facility remains secured by substantially all of our assets and continues to be guaranteed by HHS Guaranty, LLC.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Note Regarding Forward-Looking Statements

 

This report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E of the 1934 Act, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management. Statements other than historical facts are forward-looking and may be identified by words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “seeks,” “could,” “intends,” or “the negative thereof” or similar words of similar meaning. Examples include statements regarding (1) the impact the COVID-19 pandemic has had and the anticipated impact it will have on our strategies and initiatives, (2) restructuring activities and other adjustments to our cost structure and other actions designed to respond to market conditions and improve our performance, and the anticipated effectiveness and expenses associated with these actions, (3) our financial outlook for revenues, earnings per share, operating income, expense related to equity-based compensation, capital resources and other financial items, (4) expectations for our businesses and for the industries in which we operate, including the impact of economic conditions of the markets we serve on the marketing expenditures and activities of our clients and prospects, (5) competitive factors, (6) acquisition, disposition, and development plans, (7) expectations regarding legal proceedings and other contingent liabilities, (8) the impact of recent tax reform legislation on our results of operations, and (9) other statements regarding future events, conditions, or outcomes.

 

These forward-looking statements are based on current information, expectations, and estimates and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from what is expressed in or indicated by the forward-looking statements. In that event, our business, financial condition, results of operations, or liquidity could be materially adversely affected and investors in our securities could lose part or all of their investments. Some of these risks, uncertainties, assumptions, and other factors can be found in our filings with the Securities and Exchange Commission, including the factors discussed under “Item 1A. Risk Factors” in the 2019 10-K, Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in the “Cautionary Note Regarding Forward-Looking Statements” in our first quarter 2020 earnings release issued on May 14, 2020. The forward-looking statements included in this report and those included in our other public filings, press releases, our website, and oral and written presentations by management are made only as of the respective dates thereof, and we undertake no obligation to update publicly any forward-looking statement in this report or in other documents, our website, or oral statements for any reason, even if new information becomes available or other events occur in the future, except as required by law.

 

Overview

 

The following MD&A is intended to help the reader understand the results of operations and financial condition of Harte Hanks. This section is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes as well as our 2019 10-K. Our 2019 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates, and contractual obligations. See Note A, Overview and Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statements for further information.

 

Harte Hanks partners with clients to deliver relevant, connected, and quality customer interactions. Our approach starts with discovery and learning, which leads to customer journey mapping, creative and content development, analytics, and data management, and ends with execution and support in a variety of digital and traditional channels. We do something powerful: we produce engaging and memorable customer interactions to drive business results for our clients, which is why Harte Hanks is known for developing better customer relationships and experiences and defining interaction-led marketing.

 

Our services offer a wide variety of integrated, multi-channel, data-driven solutions for top brands around the globe. We help our clients gain insight into their customers’ behaviors from their data and use that insight to create innovative multi-channel marketing programs to deliver a return on marketing investment. We believe our clients’ success is determined not only by how good their tools are, but how well we help them use the tools to gain insight and analyze their consumers. This results in a strong and enduring relationship between our clients and their customers which is key to being leaders in customer interaction. We offer a full suite of capabilities and resources to provide a broad range of marketing services, utilizing a variety of media from direct mail to email, including:

 

 

Agency

 

Digital Solutions

 

Database Marketing Solutions

 

Direct mail

 

Mail and Product Fulfillment

 

Logistics

 

Contact centers

 

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We are affected by the general, national, and international economic and business conditions in the markets where we and our customers operate. Marketing budgets are largely discretionary in nature, and as a consequence are easier for our clients to reduce in the short-term than other expenses. Our revenues are also affected by the economic fundamentals of each industry that we serve, various market factors, including the demand for services by our clients, and the financial condition of and budgets available to specific clients, among other factors. We remain committed to making the investments necessary to execute our multichannel strategy while also continuing to adjust our cost structure to reduce costs in the parts of the business that are not growing as quickly.

 

We continued to face a challenging competitive environment in 2020. The sale of 3Q Digital in 2018, together with our restructuring activities that have and will continue to result in a decrease of recurring expenses, are all parts of our efforts to prioritize our investments and focus on our core business of optimizing our clients’ customer journey across an omni-channel delivery platform. We expect these actions will continue to enhance our liquidity and financial flexibility. For additional information, see “Liquidity and Capital Resources” section.

 

COVID-19

 

We are closely monitoring the impact of the COVID-19, pandemic on all aspects of our business.

 

In the first quarter of 2020, we took a number of precautionary measures designed to help minimize the risk of the spread of the virus among our employees, including suspending all non-essential employee travel worldwide, temporarily closing our domestic and foreign offices, extensively and frequently disinfecting our offices that remain open, enforcing social distancing to the extent possible and requiring the majority of our employees to work remotely.

 

This situation is changing rapidly and has caused significant volatility and uncertainty in the global markets. In connection with the pandemic, some of our customers have reduced the amount of work we provide to them while others have asked for certain accommodations including extensions of payment terms or restructuring of agreements.  In addition, some of our customers have declared bankruptcy and we expect additional customers to file for bankruptcy in the coming months.  We have also seen a number of wins for our contact centers solutions services as a result of the environment caused by the pandemic.  While the pandemic has not had a material effect on our business to date, given the dynamic nature of the pandemic additional impacts may arise that we are not aware of currently.  We recommend that you review  “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q for a further discussion on COVID-19.

 

Recent Developments

 

Restructuring Activities

 

In 2019, our management team, along with members of the Board, formed a project committee focused on our cost-saving initiatives and other restructuring efforts. This committee reviewed each of our business lines and other operational areas to identify both one-time and recurring cost-saving opportunities. To date, the committee has identified over $20 million in potential annual savings, some of which we have already begun to recognize.


In the three months ended March 31, 2020, we recorded restructuring charges of $1.4 million. These charges were mainly related to asset impairment and facility related expenses and severance payments. 

 

We expect that in connection with our cost-saving restructuring initiatives, we will incur total restructuring charges of approximately $17.4 million through the end of 2020. We had recognized $11.8 million of restructuring expense in the year ended December 31, 2019.

 

Sale of production equipment of Jacksonville facility and strategic partnership with Summit

 

On April 24, 2020, we sold the majority of the production equipment from our Jacksonville facility to Summit Direct Mail Inc. for $1.5 million. In addition, the Company entered into a strategic partnership with Summit.  Under this agreement, the Company will manage client relationships and Summit will perform the direct mail campaigns.  The Company is well positioned to provide the full suite of marketing solutions to Summit customers and we will leverage expanded print and direct mail capabilities to grow our business.  

 

Texas Capital Credit Facility

 

On May 11, 2020, we entered into an amendment to the Texas Capital Credit Facility which further extended the maturity of the facility by one year to April 17, 2022 and decreased availability under the facility to $19 million.

 

 

Results of Operations

 

Operating results were as follows:

   

Three Months Ended March 31,

         

In thousands, except percentages

 

2020

   

2019

   

% Change

 

Revenues

  $ 40,522     $ 59,150       (31.5 )%

Operating expenses

    45,629       70,090       (34.9 )%

Operating Loss

  $ (5,107 )   $ (10,940 )     53.3 %
                         

Operating margin

    (12.6 )%     (18.5 )%        
                         

(Loss) income before taxes

  $ (6,176 )   $ (12,737 )     (51.5 )%
                         

Diluted income (loss) per common share from operations

  $ 0.67     $ (2.18 )     130.6 %

 

Revenues

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

Revenues declined $18.6 million, or 31.5%, in the three months ended March 31, 2020, compared to the three months ended March 31, 2019. These results reflect the impact of declines in all of our industry verticals. Revenues declined in our retail, financial services, transportation, B2B, consumer and Healthcare verticals by $7.1 million, or 57.3%, $4.9 million, or 37.5%, $3.6 million, or 84.2%, $1.6 million, or 12.3%, $1.1 million, or 9.1%, and $0.4 million, or 9.1%, respectively. These declines were primarily due to lost clients and lower volumes of sales from existing clients. 

 

Operating Expenses

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

Operating expenses were $45.6 million in the three months ended March 31, 2020, compared to $70.1 million in the three months ended March 31, 2019. Labor costs declined $9.7 million, or 28.9%, compared to the three months ended March 31, 2019, primarily due to lower payroll and consulting expense from lower revenue and our expense reduction efforts. Production and distribution expenses declined $9.8 million, or 42.4%, compared to the first quarter of 2019 primarily due to lower revenue and cost reduction initiatives. Advertising, Selling, General and Administrative expense decreased $1.5 million, or 20.4%, compared to the three months ended March 31, 2019, primarily due to $0.7 million lower professional services expense from audit fees and $0.7 million lower business services expense due to the reduction in IT services expense including data processing fees, software license fees and online service expenses. Depreciation, software and intangible asset amortization expense declined $0.3 million, or (22.3)%, compared to the prior year quarter, primarily due to lower capital expenditure.

 

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The largest components of our operating expenses are labor, mail transportation expenses and outsourced costs. Each of these costs is, at least in part, variable and tends to fluctuate in line with revenues and the demand for our services. Mail transportation rates have increased over the last few years due to demand and supply fluctuations within the transportation industry. Future changes in mail transportation expenses will continue to impact our total production costs and total operating expenses and may have an impact on future demand for our supply chain management services.

 

Postage costs for mailings are borne by our clients and are not directly reflected in our revenues or expenses.

 

Operating Loss

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

Operating loss was $5.1 million in the three months ended March 31, 2020, compared to $10.9 million in three months ended March 31, 2019. The $5.8 million improvement was primarily driven by the impact of the restructuring activities with a $24.4 million decline in operating expenses which was partially offset by $18.6 million lower revenue.

 

Interest Expense, net

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

Interest expense, net, in the three months ended March 31, 2020 increased $0.1 million compared to the three months ended March 31, 2019. This increase was primarily due to the lower interest income when compared to prior year period.

 

Other Income and Expense

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

Other expense, net, decreased $0.8 million in the three months ended March 31, 2020, compared to the three months ended March 31, 2019 mainly due to lower currency revaluation and pension expense.

 

Income Taxes

 

Three months ended March 31, 2020 vs. Three months ended March 31, 2019

 

The income tax benefit of $11.3 million in the first quarter of 2020 represents an increase in benefit of $12.1 million when compared to the first quarter of 2019. Our effective tax rate was negative 183.1% for the first quarter of 2020, increasing from a rate of 6.2% for the first quarter of 2019. The effective income tax rate calculated for the three months ended March 31, 2020 differs from the federal statutory rate of 21.0%, primarily due to the change in valuation allowances recorded on our deferred tax assets for federal net operating losses incurred, as a result of the enactment of the CARES Act during the three months ended March 31, 2020.  These losses will be carried back to tax years when the federal statutory rate was 35%, resulting in additional tax benefit.

 

We have in general historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to ordinary income or loss for the reporting period. However, we used a discrete effective tax rate method to calculate income taxes for the three months ended March 31, 2020 and March 31, 2019 because we determined that our ordinary income or loss cannot be reliably estimated and small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rates.

 

26

 

 

Liquidity and Capital Resources

 

Sources and Uses of Cash

 

Our cash and cash equivalent and restricted cash balances were $28.7 million and $34.1 million at March 31, 2020 and December 31, 2019, respectively. In addition, on April 20, 2020, the Company received PPP Loan proceeds in the amount of $10 million. We also expect to receive tax refunds of $8.8 million and $2.4 million in 2020 and 2021, respectively as a result of the change to the tax NOL carryback provisions in the CARES Act.

 

On June 26, 2019, we received $15.9 million in aggregate federal income tax refunds related to carryback of capital losses. On May 7, 2019, we received a $5 million Contingent Payment related to the Qualified Sale of 3Q Digital.  Our principal sources of liquidity are cash on hand, cash provided by operating activities, and borrowings. Our cash is primarily used for general corporate purposes, working capital requirements, and capital expenditures.

 

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt services, operating leases and unfunded pension plan benefit payments) and other cash needs for our operations for at least the next twelve months through a combination of cash on hand, cash flow from operations, and borrowings under the Texas Capital Credit Facility. Although the Company believes that it will be able to meet its cash needs for the foreseeable future, if unforeseen circumstances arise the Company may need to seek alternative sources of liquidity. To date, the COVID-19 pandemic has not had a material impact on the Company’s liquidity or its ability to meet its obligations under the Texas Capital Credit Facility. We will continue to closely monitor the impact the COVID-19 pandemic has on the Company’s liquidity and assess whether any additional cost saving measures, including capital expenditure deferral or human capital decisions, are needed. 

 

Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2020 was $4.0 million, compared to net cash used by operating activities of $2.9 million for the three months ended March 31, 2019. The $1.1 million year-over-year increase in cash used in operating activities was primarily due to an increase in cash used in working capital in the three months ended March 31, 2020 as compared to 2019.

Investing Activities

Net cash used in investing activities was $0.6 million for the three months ended March 31, 2020, compared to the net cash used in investing activities of $1.1 million for the three months ended March 31, 2019. This change was mainly due to less capital expenditure activities in the three months ended March 31, 2020 as compared to 2019.

 

Financing Activities

 

Net cash used in financing activities was $0.2 million for the three months ended March 31, 2020, compared to $4.1 million net cash provided by financing activities for the three months ended March 31, 2019. The $4.3 million year-over-year decrease was primarily due to the $4.5 million of borrowings under the Company’s Texas Capital Credit Facility in the first quarter of 2019.

 

Foreign Holdings of Cash

 

Consolidated foreign holdings of cash as of March 31, 2020 and 2019 were $2.2 million and $2.3 million, respectively.

 

Credit Facilities

 

On January 9, 2018, we entered into an amendment to the Texas Capital Credit Facility that increased our borrowing capacity to $22.0 million and extended the maturity by one year to April 17, 2020. On May 7, 2019, we entered into an amendment to the Texas Capital Credit Facility which further extended the maturity of the facility by one year to April 17, 2021. On May 11, 2020, we entered into an amendment to the Texas Capital Credit Facility which further extended the maturity of the facility by one year to April 17, 2022 and decreased the borrowing capacity to $19.0 million. The Texas Capital Credit Facility remains secured by substantially all of our assets and continues to be guaranteed by HHS Guaranty, LLC. We pay HHS Guaranty, LLC an annual fee of 0.5% of collateral actually pledged to secure the facility, which for the three months ended March 31, 2020 amounted to $0.1 million. As of March 31, 2020, $18.7 million was outstanding under the facility.

 

At March 31, 2020, we had letters of credit in the amount of $1.7 million outstanding. No amounts were drawn against these letters of credit at March 31, 2020  These letters of credit exist to support insurance programs relating to workers’ compensation, automobile, and general liability.  We had no other off-balance sheet financing activities at March 31, 2020

 

As of March 31, 2020 and December 31, 2019, we had $18.7 million of borrowings outstanding under the Texas Capital Facility. As of March 31, 2020, we had the ability to borrow an additional $1.6 million under the facility.

 

On April 20, 2020, the Company received loan proceeds in the amount of $10 million under the Small Business Administration PPP.  The PPP, established as part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable so long as, over the eight-week period following the receipt by the Company of the PPP Loan, the Company uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

 

The unforgiven portion of the PPP Loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months.  The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

 

Outlook

 

We consider such factors as total cash and cash equivalents, current assets, current liabilities, total debt, revenues, operating income, cash flows from operations, investing activities, and financing activities when assessing our liquidity. Our management of cash is designed to optimize returns on cash balances and to ensure that it is readily available to meet our operating, investing, and financing requirements as they arise. We believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern for the 12 months following the issuance of the Condensed Consolidated Financial Statements.

 

27

 

Critical Accounting Policies

 

Critical accounting policies are defined as those that, in our judgment, are most important to the portrayal of our Company’s financial condition and results of operations and which require complex or subjective judgments or estimates. Refer to the 2019 10-K for a discussion of our critical accounting policies.

 

Our Significant Accounting policies are described in Note A, Overview and Significant Accounting Policies, in the Notes to Condensed Consolidated Financial Statement.

 

See Recent Accounting Pronouncements under Note B of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been recently issued.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Market risk includes the risk of loss arising from adverse changes in market rates and prices. We face market risks related to interest rate variations and to foreign exchange rate variations. From time to time, we may utilize derivative financial instruments to manage our exposure to such risks.

 

The interest rate on the Texas Capital Credit Facility is variable based upon the prime rate or LIBOR and, therefore, is affected by changes in market interest rates. We estimate that a 100-basis point increase in market interest rates on the actual borrowings in 2019 would have an immaterial impact on our interest expense. At March 31, 2020, the company had $18.7 million of debt outstanding under the Texas Capital Credit Facility.  The nature and amount of our borrowings can be expected to fluctuate as a result of business requirements, market conditions, and other factors. Due to our overall debt level and cash balance at March 31, 2020, anticipated cash flows from operations, and the various financial alternatives available to us, we do not believe that we currently have significant exposure to market risks associated with an adverse change in interest rates. At this time, we have not entered into any interest rate swap or other derivative instruments to hedge the effects of adverse fluctuations in interest rates.

 

Our earnings are also affected by fluctuations in foreign currency exchange rates as a result of our operations in foreign countries. Our primary exchange rate exposure is to the Euro, British Pound, and Philippine Peso. We monitor these risks throughout the normal course of business. The majority of the transactions of our U.S. and foreign operations are denominated in the respective local currencies. Changes in exchange rates related to these types of transactions are reflected in the applicable line items making up operating income (loss) in our Condensed Consolidated Statements of Comprehensive Income (Loss). Due to the current level of operations conducted in foreign currencies, we do not believe that the impact of fluctuations in foreign currency exchange rates on these types of transactions is significant to our overall annual earnings. A smaller portion of our transactions are denominated in currencies other than the respective local currencies. For example, intercompany transactions that are expected to be settled in the near-term are denominated in U.S. Dollars. Since the accounting records of our foreign operations are kept in the respective local currency, any transactions denominated in other currencies are accounted for in the respective local currency at the time of the transaction. Any foreign currency gain or loss from these transactions, whether realized or unrealized, results in an adjustment to income, which is recorded in “Other, net” in our Condensed Consolidated Statements of Comprehensive Income (Loss). Transactions such as these amounted to $0.5 million in pre-tax currency transaction gains in the three months ended March 31, 2020. At this time, we are not party to any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

 

We do not enter into derivative instruments for any purpose. We do not speculate using derivative instruments.

 

 

Item 4.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our CEO and CFO concluded that the design and operation of these disclosure controls and procedures were effective, at the “reasonable assurance” level, to ensure information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

 

 

 

28

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic.  We are continually monitoring and assessing the impact of COVID-19 on our internal controls to minimize the impact on their design and operating effectiveness.

 

 

29

 

 

PART II.    OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

Information regarding legal proceedings is set forth in Note L, Litigation and Contingencies, in the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

 

Item 1a.  Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2019 10-K, which could materially affect our business, financial condition, or future results. The risks described in our 2019 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. There have been no material changes during the three months ended March 31, 2020 to the risk factors previously disclosed in the 2019 10-K.

 

The Company included the following risk factor in its Annual Report on Form 10-K for the year ended December 31, 2019 related to the COVID-19 pandemic.

 

   The COVID-19 pandemic may have a materially adverse effect on the Company’s business and operations.

 

The outbreak of diseases, such as the COVID-19 coronavirus, may adversely affect the Company’s business, financial position, results of operations, and cash flows. In March, 2020 the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has caused, and may continue to cause significant volatility in the global economic markets and our operating results may be subject to fluctuations based on general economic conditions and the extent to which COVID-19 ultimately impacts our business. While the pandemic and the resulting effects on the global economy have not material adversely affected our business to date, the deterioration of economic conditions could materially reduce our sales and profitability. Any financial distress of our customers due to declines in the global economy could result in reduced sales and decreased collectability of accounts receivable which would negatively impact our results of operations. Furthermore, the Company faces risks due to the evolving effect of COVID-19 on our employees, customers, suppliers, and third-party providers, including the impact of U.S. and foreign government actions taken to curtail the spread of the virus, including social distancing measures and restrictions on travel. In addition, if there was on outbreak of COVID-19 at one of our facilities, we may be required to temporarily close such facility.   

 

Although we have developed and continue to develop plans to help mitigate the negative impact of the COVID-19 pandemic on our business, such efforts may not prevent our business from being materially adversely affected.  Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we could experience declines in revenues and profitability. Such impacts could be material to our consolidated financial statements in the second quarter and subsequent reporting periods. As the extent and nature of the COVID-19 pandemic are uncertain and we are unable to anticipate the complete effect the pandemic could have on our future operations, the severity of the business disruption and related financial impact from the COVID-19 pandemic cannot be reasonably estimated at this time.

 

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3.  Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information

 

On May 11, 2020, we entered into the third amendment to the Texas Capital Credit Facility among the Company, as borrower, and Texas Capital Bank, National Association ("Texas Capital"), as lender, pursuant to which the maturity of the Texas Capital Credit Facility was extended by one year to April 17, 2022 and the borrowing capacity was decreased to $19.0 million. In connection with the amendment of the Texas Capital Credit Facility we executed an amended Revolving Promissory Note, dated May 11, 2020, governing borrowings under the facility.   The Texas Capital Credit Facility remains secured by substantially all of our assets and continues to be guaranteed by HHS Guaranty, LLC.   In connection with the amendment to the Texas Capital Credit Facility we entered into a  second amendment to the security agreement, dated May 11, 2020, among the Company, the other grantors named therein and Texas Capital and a Second Amended and Restated Fee, Reimbursement and Indemnity Agreement, dated May 11, 2020, among the Company and HHS Guaranty, LLC.

 

Item 6.  Exhibits

 

Exhibit

No.

 

Description of Exhibit

 

 

 

*10.1(a)

 

Third Amendment to Credit Agreement, dated as of May 11, 2020

 

 

 

*10.1(b)

  Revolving Promissory Note, dated as of May 11, 2020
     

*10.1(c)

  Second Amendment to Security Agreement, dated May 11,2020
     
*10.1(d)   Second Amended and Restated Fee, Reimbursement and Indemnity Agreement, dated May 11, 2020
     
*10.1(e)  

Small Business Administration Paycheck Protection Program Loan Note, dated as of April 14, 2020

     

*31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.1

 

Furnished Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.2

 

Furnished Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*101

 

XBRL Instance Document.

 


*Filed or furnished herewith, as applicable.

 

**Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

 

30

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

HARTE HANKS, INC.

 

 

 

May 14, 2020

 

/s/ Andrew B. Benett

Date

 

Andrew B. Benett

 

 

Executive Chairman and Chief Executive Officer

 

 

 

 

 

 

May 14, 2020

 

/s/ Laurilee Kearnes

Date

 

Laurilee Kearnes

 

 

Vice President, and Chief Financial Officer

 

 

 

 

 

31

Exhibit 10.1(a)

 

THIRD AMENDMENT TO CREDIT AGREEMENT

 

THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of May 11, 2020, is between HARTE HANKS, INC., a Delaware corporation (“Borrower”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“Lender”).

 

RECITALS:

 

A.     Borrower and Lender entered into that certain Credit Agreement dated as of April 17, 2017, as amended by that certain First Amendment to Credit Agreement dated as of January 9, 2018 and Second Amendment to Credit Agreement dated as of May 7, 2019 (as amended, the “Agreement”).

 

B.     Pursuant to the Agreement, Pledgor executed (a) that certain Note Purchase Agreement dated as of May 7, 2019 (the “Note Purchase Agreement”) pursuant to which Pledgor agreed to purchase the Revolving Credit Note from Lender upon the circumstances described therein, and that certain Pledge Agreement dated as of April 17, 2017 (the “Pledge Agreement”) pursuant to which Pledgor granted to Lender a security interest in the collateral therein described.

 

C.     Borrower and Lender now desire to amend the Agreement as herein set forth.

 

NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.
Definitions

 

Section 1.1     Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the meanings given to such terms in the Agreement, as amended hereby.

ARTICLE II.
Amendments

 

Section 2.1     Amendment to Certain Definitions. Effective as of the date hereof, the definition of the following term contained in Section 1.1 of the Agreement amended to read in entirety as follows:

 

“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 $19,000,000.00, subject to termination pursuant to Section 10.2.

 

“Termination Date” means 11:00 A.M., Dallas, Texas time on April 17, 2022, or such earlier date on which the Commitment terminates as provided in this Agreement.

 

25612750v.8 106916/01653

 

Section 2.2 Amendment to Section 2.6. Effective as of the date hereof, Section 2.6 of the Agreement is amended to read in its entirety as follows:

 

Section 2.6. Monitoring Fee. Borrower agrees to pay to Lender a monitoring fee in the amount of $5,000.00 per calendar quarter, commencing with the calendar quarter period from April 1, 2020 to June 30, 2020. Accrued monitoring fees shall be payable quarterly in arrears on the last day of each April, July, October and January during the term of this Agreement and on the Termination Date (adjusted, in the case of the Termination Date, for the actual number of days elapsed since the immediately preceding calendar quarter for which a monitoring fee was paid; provided, however, there shall be no adjustment in the event of a Termination Date prior to April 17, 2022 or any prepayment of the Revolving Credit Note).

 

Section 2.3 Amendment to Section 8.1. Effective as of the date hereof, Section 8.1 of the Agreement is amended to read in its entirety as follows:

 

Section 8.1 Debt.

 

Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, incur, create, assume, or permit to exist any Debt for borrowed money or Debt evidenced by bonds, notes, debentures or similar investments (collectively, “Funded Debt”) or Funded Debt Guaranteed by Borrower, except:

 

(a)     Debt to Lender;

 

(b)     Intercompany Debt incurred consistent with past practices;

 

(c)     Purchase money Debt incurred consistent with past practices;

 

(d)     Capitalized Lease Obligations incurred consistent with past practices; and

 

(e)     Debt in the form of government backed loans (including through the CARES Act and/or government backed programs administrated by third party lenders) specific to the COVID-19 epidemic (each a “Government Loan”).

 

Section 2.4 Amendment to Borrower’s Address. Effective as of the date hereof the address of Borrower set forth on the signature page of the Agreement is amended to read as follows:

 

Harte Hanks, Inc.

Parent Account

2 Executive Dr., Ste 103
Chelmsford MA 01824

 

Section 2.5 Amendment to Exhibits. Effective as of the date hereof, (i) Exhibit “A” (Revolving Credit Note) to the Agreement is amended to conform in its entirety to Annex “A” to this Amendment.

 

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25612750v.8 106916/01653

 

ARTICLE III.

 

Conditions Precedent

 

Section 3.1     Conditions. The effectiveness of this Amendment is subject to the receipt

by Lender of the following in form and substance satisfactory to Lender:

 

(a)     Certificate. A certificate of a Secretary or other officer of Borrower acceptable to Lender certifying (i) resolutions of the Board of Directors of Borrower which authorize the execution, delivery and performance by Borrower of this Amendment and the other Loan Documents to which Borrower is or is to be a party and (ii) the names of the officers of Borrower authorized to sign this Amendment and each of the other Loan Documents to which Borrower is or is to be a party together with specimen signatures of such Persons.

 

(b)     Governmental Certificates.     Certificates issued by the appropriate
government officials of the state of incorporation of Borrower and Pledgor as to the existence and good or active, as applicable, standing of Borrower and Pledgor.

 

(c)     Revolving Credit Note. The Revolving Credit Note executed by Borrower in substantially the form of Annex “A” hereto.

 

(d)     New Note Purchase Agreement. An amended and restated Note Purchase Agreement executed by Pledgor substantially in the form of Annex “B” hereto (the “New Note Purchase Agreement”).

 

(e)     Amended and Restated Pledge Agreement. An Amended and Restated Pledge Agreement executed by Pledgor in substantially the form of Annex “C” hereto (the “Amended and Restated Pledge Agreement”).

 

(f)     Second Amendment to Security Agreement. A Second Amendment to Security Agreement executed by Borrower in substantially the form of Annex “D” hereto.

 

(g)     Partial Release of Lien. A Partial Release of Lien executed by Lender covering the equipment described in the Second Amendment to Security Agreement located in Jacksonville, Florida together with an UCC-3 partial release describing such equipment.

 

(h)     Release of Pledge. A Release of Pledge Agreement executed by Lender.

 

(i)     Renewal Fee. A renewal fee in the amount of $66,000.00. Such renewal fee shall be fully earned when paid.

 

(j)     Trustee and Beneficiary Certificates. A certificate from each of the trustees of the trusts which organized and capitalized Pledgor and from each of the beneficiaries of such trusts, which shall include a written acknowledgement by the beneficiaries of the New Note Purchase Agreement and the Amended and Restated Pledge Agreement and their

 

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25612750v.8 106916/01653

 

terms and conditions in substantially the forms attached to this Amendment as Annex “B” and Annex “C”.

 

(k)     Opinions of Counsel. A favorable opinion of Milbank LLP, legal counsel to Borrower and Clark Hill Strasburger legal counsel to the Pledgor, as to such matters as Lender may reasonably request.

 

(l)     Additional Information. Such additional documents, instruments and information as Lender may request.

 

Section 3.2 Additional Conditions. The effectiveness of this Amendment is also subject to the satisfaction of the additional conditions precedent that (i) the representations and warranties contained herein and in all other Loan Documents, as amended hereby, shall be true and correct in all material respects as of the date hereof as if made on the date hereof, provided that solely for purposes of this Amendment, the last sentence of the representation and warranty contained in Section 6.12 of the Agreement shall be qualified by any direct result of the COVID-19 pandemic, (ii) all proceedings, corporate or otherwise, taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Lender, and (iii) no Event of Default shall have occurred and be continuing and no event or condition shall have occurred that with the giving of notice or lapse of time or both would be an Event of Default.

 

Section 3.3 COVID-19 Additional Provisions. Borrower shall provide Lender with monthly updates (which updates may be provided over the telephone or via electronic mail) on the last Friday of each calendar month as to the status of Borrower’s Government Loans, including, without limitation, updates related to the funding, use of proceeds and debt forgiveness for such Government Loans.

 

ARTICLE IV.

 

Ratifications, Representations, and Warranties

 

Section 4.1     Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement are ratified and confirmed and shall continue in full force and effect. Borrower and Lender agree that the Agreement as amended hereby shall continue to be the legal, valid and binding obligation of such Persons enforceable against such Persons in accordance with its terms.

 

Section 4.2 Representations, Warranties and Agreements. Borrower hereby represents and warrants to Lender that (i) the execution, delivery, and performance of this Amendment and any and all other Loan Documents executed or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the Organizational Documents of Borrower, (ii) the representations and warranties contained in the Agreement as amended hereby, and all other Loan Documents are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof, provided that solely for purposes of this Amendment, the last sentence of the representation and warranty

 

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25612750v.8 106916/01653

 

contained in Section 6.12 of the Agreement shall be qualified by any direct result of the COVID-19 pandemic, (iii) no Event of Default has occurred and is continuing and no event or condition has occurred that with the giving of notice or lapse of time or both would be an Event of Default, (iv) Borrower is in full compliance with all covenants and agreements contained in the Agreement as amended hereby, (v) Borrower is indebted to Lender pursuant to the terms of the Revolving Credit Note, in the form attached hereto, as the same may have been renewed, modified, extended or rearranged, including, without limitation, any renewals, modifications and extensions made pursuant to this Amendment, (vi) the liens, security interests, encumbrances and assignments created and evidenced by the Loan Documents are, respectively, valid and subsisting liens, security interests, encumbrances and assignments and secure the Revolving Credit Note as the same may have been renewed, modified or rearranged, including, without limitation, any renewals, modifications and extensions made pursuant to this Amendment, and (vii) Borrower has no claims, credits, offsets, defenses or counterclaims arising from the Loan Documents or Lender’s performance under the Loan Documents.

ARTICLE V.
Miscellaneous

 

Section 5.1     Survival of Representations and Warranties. All representations and

warranties made in this Amendment or any other Loan Documents including any Loan Document furnished in connection with this Amendment shall fully survive the execution and delivery of this Amendment 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 on them.

 

Section 5.2 Reference to Agreement. Each of the Loan Documents, including the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement, as amended hereby, are hereby amended so that any reference in such Loan Documents to the Agreement shall mean a reference to the Agreement, as amended hereby.

 

Section 5.3 Expenses of Lender. As provided in the Agreement, Borrower agrees to pay on demand all costs and expenses incurred by Lender in connection with the preparation, negotiation and execution of this Amendment and the other documents and instruments executed pursuant hereto and any and all amendments, modifications and supplements thereto, including, without limitation, the costs and fees of Lender’s legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Agreement, as amended hereby, or any other Loan Document, including, without limitation, the costs and fees of Lender’s legal counsel.

 

Section 5.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable.

 

Section 5.5 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO

 

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25612750v.8 106916/01653

 

HAVE BEEN MADE AND TO BE PERFORMABLE IN HOUSTON, HARRIS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

 

Section 5.6 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender.

 

Section 5.7 Counterparts. This Amendment and the other Loan Documents may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Delivery of an executed signature page of this Amendment and/or any other Loan Document by a scanned PDF attached to an e-mail or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

Section 5.8 Effect of Waiver. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant, condition or duty by Borrower shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty.

 

Section 5.9 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

 

Section 5.10 RELEASE. IN CONSIDERATION OF LENDER’S AGREEMENTS CONTAINED HEREIN, EACH OF BORROWER AND PLEDGOR (FOR ITSELF AND ON BEHALF OF ITS DIRECTORS, MEMBERS, SHAREHOLDERS, MANAGERS, OFFICERS, EMPLOYEES, AGENTS, PRINCIPALS, AFFILIATES, PREDECESSORS, HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS) HEREBY WAIVES, AND RELEASES LENDER AND ITS OFFICERS, EMPLOYEES, AGENTS, DIRECTORS, SHAREHOLDERS, SUBSIDIARIES, PREDECESSORS, SUCCESSORS AND ASSIGNS FROM, ANY AND ALL CLAIMS, LOSSES, LIABILITIES, DAMAGES, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES), WHETHER KNOWN OR UNKNOWN, ASSERTED OR UNASSERTED, THAT DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF THE AGREEMENT, ANY OTHER RELATED DOCUMENT OR THIS AMENDMENT, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT, ANY OTHER RELATED DOCUMENT OR THIS AMENDMENT OR (C) ANY BREACH BY BORROWER OR PLEDGOR OF ANY COVENANT, AGREEMENT OR REPRESENTATION CONTAINED IN THE AGREEMENT, ANY OTHER RELATED DOCUMENT OR THIS AMENDMENT.

 

Section 5.11 INDEMNIFICATION. BORROWER, INDIVIDUALLY AND ON BEHALF OF ITS DIRECTORS, MEMBERS, SHAREHOLDERS, MANAGERS, OFFICERS, EMPLOYEES, AGENTS, PRINCIPALS, AFFILIATES, PREDECESSORS, HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS

 

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25612750v.8 106916/01653

 

(COLLECTIVELY, THE “INDEMNIFYING PARTIES”), HEREBY UNCONDITIONALLY AND IRREVOCABLY INDEMNIFIES AND HOLDS HARMLESS LENDER AND ITS OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS, DIRECTORS, SHAREHOLDERS, SUBSIDIARIES, PREDECESSORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “INDEMNIFIED PARTIES”) FROM AND AGAINST ANY AND ALL COSTS, EXPENSES, CLAIMS, DEMANDS, DAMAGES, ACTIONS, CAUSES OF ACTION, LIABILITY OR SUITS AT LAW OR IN EQUITY, OF WHATEVER KIND OR NATURE, WHETHER ARISING UNDER STATE OR FEDERAL LAW, RULE OR REGULATION, WHETHER NOW EXISTING OR HEREAFTER ARISING, WHETHER KNOWN OR UNKNOWN OR ASSERTED OR UNASSERTED, THAT DIRECTLY OR INDIRECTLY IN ANY WAY RELATE TO, ARE BASED UPON, OR ARISE OUT OF ANY CIRCUMSTANCE, EVENT, MATTER, OCCURRENCE, COURSE OF DEALING, TRANSACTION, FACT, ACT, OMISSION, OBLIGATION, DUTY, RESPONSIBILITY, WARRANTY, STATEMENT OR REPRESENTATION WHATSOEVER RELATED IN ANY WAY TO (A) THE AGREEMENT, (B) THIS AMENDMENT, (C) ANY OTHER RELATED DOCUMENT OR (D) ANY DOCUMENTS OR INSTRUMENTS EXECUTED IN CONNECTION WITH OR IN EVIDENCE OF ANY INDEBTEDNESS BETWEEN BORROWER AND ANY GUARANTOR AND LENDER (ALL OF WHICH CLAIMS ARE REFERRED TO COLLECTIVELY AS THE “INDEMNIFIED CLAIMS”), INCLUDING, WITH RESPECT TO ALL OF THE ABOVE, INDEMNIFIED CLAIMS WHICH AROSE FROM THE NEGLIGENCE OF AN INDEMNIFIED PARTY, PROVIDED THAT THE OBLIGATIONS OF THE INDEMNIFYING PARTIES UNDER THIS SECTION SHALL NOT APPLY TO THE EXTENT AN INDEMNIFIED CLAIM AROSE FROM AN INDEMNIFIED PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. EACH INDEMNIFYING PARTY HEREBY COVENANTS AND AGREES NOT TO IN ANY MANNER WHATSOEVER SUE ANY INDEMNIFIED PARTY IN ANY COURT OR TRIBUNAL OR BRING ANY ACTION, LAWSUIT OR CAUSE OF ACTION (WHETHER BY WAY OF DIRECT ACTION, COUNTERCLAIM, CROSSCLAIM OR INTERPLEADER) AGAINST ANY INDEMNIFIED PARTY IN ANY MANNER WHATSOEVER BASED UPON ANY MATTER DIRECTLY OR INDIRECTLY RELATED TO ANY INDEMNIFIED CLAIM.

 

Section 5.12 WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS AMENDMENT, THE AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY RELATIONSHIP BETWEEN BORROWER AND LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THE AGREEMENT AND THE LOAN DOCUMENTS.

 

Section 5.13 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS, AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ANY AND ALL PRIOR

 

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25612750v.8 106916/01653

 

COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT AND THE OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT, 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.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

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25612750v.8 106916/01653

 

Executed as of the date first written above.

 

BORROWER: 

 

HARTE HANKS, INC.

 

 

 

 

 

By:

 

Name: Title:

LENDER: 

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

By:      

Annalese Smolik Senior Vice President

 

 

 

[Signature Page to Third Amendment to Credit Agreement]

 

Executed as of the date first written above.

 

BORROWER: 

 

HARTE HANKS, INC.

 

By:      

Name:      

Title:      

 

 


LENDER:

 

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

   
   

 

 

 

 

Armalese Smolik Senior Vice President

 

 

 

[Signature Page to Third Amendment to Credit Agreement]

 

The undersigned Pledgor hereby consents and agrees to this Amendment and the other Loan Documents executed and/or delivered in connection with this Amendment and agrees that the Amended and Restated Pledge Agreement executed by Pledgor in substantially the form of Annex "C" attached hereto shall be the legal, valid and binding obligations of Pledgor, enforceable against Pledgor in accordance with its terms and shall secured the repayment of the Obligations, including, without limitation, as evidenced by the renewal, extension and decrease of the Revolving Credit Note in substantially the form of Annex "A" attached hereto, as renewed, extended and/or modified from time to time.

 

The undersigned Pledgor further agrees that, by its execution of this Amendment in the space provided below, (a) it is obligated under Section 5.10 of this Amendment as if it were a party to this Amendment, and (b) acknowledges and agrees that Lender has no obligation to monitor or enforce Borrower's obligations to Pledgor under the Second Amended and Restated Fee, Reimbursement and Indemnity Agreement dated as of May 11 , 2020, between Borrower and Pledgor, including, without limitation, to monitor or enforce Borrower's obligations therein to comply with its Borrowing Base (as therein defined) obligations.

 

HHS GUARANTY, LLC

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: Title:

 

 

 

(Signature Page to Third Amendment to Credit Agreement]

 

LIST OF ANNEXES

 

 

 

Annex     Document

 

A     Revolving Credit Note

 

B     New Note Purchase Agreement

 

C     Amended and Restated Pledge Agreement

 

D     Second Amendment to Security Agreement

 

 

 

Annexes

 

25612750v.8 106916/01653

 

ANNEX A

 

 

 

REVOLVING CREDIT NOTE

 

 

 

Annex A - i

 

25612750v.8 106916/01653

 

REVOLVING PROMISSORY NOTE

 

$19,000,000.00     May 11, 2020

 

FOR VALUE RECEIVED, HARTE HANKS, INC., a Delaware corporation (“Borrower”), having an address at 9601 McAllister Freeway, Suite 610, San Antonio, Texas 78216, hereby promises to pay to the order of TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (together with its successors and assigns and any subsequent holders of this Note, “Lender”), as hereinafter provided, the principal sum of NINETEEN MILLION AND NO/100 DOLLARS ($19,000,000.00) or so much thereof as may be advanced by Lender from time to time hereunder to or for the benefit or account of Borrower, together with interest thereon at the Note Rate (as hereinafter defined), and otherwise in strict accordance with the terms and provisions hereof.

 

1.     DEFINITIONS

 

1.1     Definitions. As used in this Note, the following terms shall have the following meanings:

 

Applicable Marginmeans the percent per annum set forth below:

 

Applicable Margin for
Base Rate Portion

Applicable Margin
for LIBOR Portion

 

 

-0.75 %

1.95 %

 

 

Applicable Rate” means: (a) in the case of a Portion bearing interest based upon the Base Rate, the Base Rate plus the Applicable Margin; and (b) in the case of a Portion bearing interest based upon LIBOR, LIBOR plus the Applicable Margin.

Base Rate” means for any day, a rate of interest equal to the Prime Rate for such day. “Borrower” has the meaning set forth in the introductory paragraph of this Note.

 

Business Day” means a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in Dallas, Texas are authorized or required by law to be closed. Unless otherwise provided, the term “days” when used herein means calendar days.

 

Change” means (a) any change after the date of this Note in the risk-based capital guidelines applicable to Lender, or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Note that affects capital adequacy or the amount of capital required or expected to be maintained by Lender or any entity controlling Lender; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change,” regardless of the date enacted, adopted or issued.

 

REVOLVING NOTE     PAGE 1 OF 13 25614252v.4

 

 

Charges” means all fees, charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Lender in connection with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.

 

Credit Agreement” means the Credit Agreement dated as of April 17, 2017, executed by Lender and Borrower, as amended by First Amendment to Credit Agreement dated as of January 9, 2018 and Second Amendment to Credit Agreement dated as of even date herewith, as modified, amended, renewed, extended, and restated from time to time.

 

Debtor Relief Laws” means Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition, extension or adjustment of debts, or similar laws affecting the rights of creditors.

 

Default Interest Rate” means a rate per annum equal to the Note Rate plus four percent (4%), but in no event in excess of the Maximum Rate.

 

Event of Default” has the meaning set forth in the Credit Agreement.

 

Funding Lossmeans the amount (which shall be payable on demand by Lender) necessary to promptly compensate Lender for, and hold it harmless from, any loss, cost or expense incurred by Lender as a result of:

 

(a)     any payment or prepayment of any Portion bearing interest based upon LIBOR on a day other than the last day of the relevant LIBOR Interest Period (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

 

(b)     any failure by Borrower to prepay, borrow, continue or convert a Portion bearing or selected to bear interest based upon LIBOR on the date or in the amount selected by Borrower;

 

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. Borrower shall also pay any customary administrative fees charged by Lender in connection with the foregoing. For purposes of calculating amounts payable by Borrower to Lender hereunder, Lender shall be deemed to have funded the Portion based upon LIBOR by a matching deposit or other borrowing in the London inter-bank market for a comparable amount and for a comparable period, whether or not such Portion was in fact so funded.

 

Lender” has the meaning set forth in the introductory paragraph of this Note.

 

LIBORmeans, with respect to each LIBOR Interest Period, the rate (expressed as a percentage per annum and adjusted as described in the last sentence of this definition of LIBOR) for deposits in United States Dollars (commonly known as “LIBOR”) for a term equal to the LIBOR Interest Period that is published or announced on Bloomberg BTMM as calculated by Intercontinental Exchange (ICE) Benchmark Administration Limited (“ICE”) (or any successor thereto) as of 11:00 a.m., London, England, time, on the related LIBOR Determination Date. If such rate shall cease to be published or announced on Bloomberg BTMM or if Lender determines (which determination shall be conclusive absent manifest error) that the rate calculated by ICE no longer accurately reflects the

 

 

 

REVOLVING NOTE     PAGE 2 OF 13

 

 

rate available to Lender in the London interbank market and, that such circumstance is likely to be temporary, LIBOR shall be determined by Lender to be the offered rate as announced by a recognized commercial service as representing the average LIBOR rate for deposits in United States dollars for a term equal to the LIBOR Interest Period as of 11:00 a.m. on the relevant LIBOR Determination Date.

 

LIBOR shall be adjusted on each LIBOR Determination Date by dividing LIBOR by a number determined by subtracting from 1.00 the then-stated maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained by member banks of the United States Federal Reserve System for eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D).

 

Notwithstanding anything herein to the contrary, in no event shall LIBOR (or any Alternative Rate) ever be less than one percent (1.00%). LIBOR and any Alternative Rate may be adjusted from time to time in Lender’s sole discretion for then-applicable, but actual, reserve requirements, deposit insurance assessment rates, marginal emergency, supplemental, special and other reserve percentages, and other actual regulatory costs.

 

LIBOR Banking Daymeans a day on which commercial banks in the City of London, England are open for business and dealing in offshore dollars.

 

LIBOR Determination Datemeans a day that is three (3) LIBOR Banking Days prior to the beginning of the relevant LIBOR Interest Period.

 

LIBOR Interest Periodmeans a period of one (1) month. The first day of the interest period must be a LIBOR Banking Day. The last day of the interest period and the actual number of days during the interest period will be determined by Lender using the practices of the London inter-bank market.

Loan Documentshas the meaning set forth in the Credit Agreement. “Maturity Date” means April 17, 2022.

 

Maximum Rate” means, at all times, 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 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 Rate resulting from a change in the Maximum Rate shall take effect without notice to Borrower at the time of such change in the Maximum Rate.

 

Note” means this Note.

 

Note Rate” means the rate equal to the lesser of (a) the Maximum Rate or (b) the Applicable Rate.

 

 

 

REVOLVING NOTE     PAGE 3 OF 13

 

 

Payment Date” means the first day of each and every calendar month during the term of this Note.

 

Portionmeans any principal amount bearing interest based upon the Base Rate or LIBOR.

 

Prime Ratemeans, for any day, the rate of interest announced from time to time by Lender as its “base” or “prime” rate of interest, which Borrower hereby acknowledges and agrees may not be the lowest interest rate charged by Lender and is set by Lender in its sole discretion, changing when and as said prime rate changes. Notwithstanding anything herein to the contrary, in no event shall the Prime Rate ever be less than three and one-fourth percent (3.25%).

 

Related Indebtedness” means any and all indebtedness paid or payable by Borrower to Lender pursuant to the 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, except such indebtedness which has been paid or is payable by Borrower to Lender under this Note.

 

1.2     Rules of Construction. Any capitalized term used in this Note and not otherwise defined herein shall have the meaning ascribed to such term in the Credit Agreement. All terms used herein, whether or not defined in Section 1.1 hereof, and whether used in singular or plural form, shall be deemed to refer to the object of such term whether such is singular or plural in nature, as the context may suggest or require. All personal pronouns used herein, whether used in the masculine, feminine or neutral gender, shall include all other genders; the singular shall include the plural and vice versa.

 

2.     PAYMENT TERMS

 

2.1     Payment of Principal and Interest; Revolving Nature. All accrued but unpaid interest on the principal balance of this Note outstanding from time to time shall be payable on each Payment Date. The then outstanding principal balance of this Note and all accrued but unpaid interest thereon shall be due and payable on the Maturity Date. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of the Credit Agreement; provided, however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this Note at any time shall be the total amount advanced hereunder by Lender less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by Lender or otherwise noted in Lender’s records, which notations shall be, absent manifest error, conclusive evidence of the amounts owing hereunder from time to time.

 

2.2     Application. Except as expressly provided herein to the contrary, all payments on this Note shall be applied in the following order of priority: (a) the payment or reimbursement of any expenses, costs or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Borrower shall be obligated or Lender shall be entitled pursuant to the provisions of this Note or the other Loan Documents; (b) the payment of accrued but unpaid interest hereon; and (c) the payment of all or any portion of the principal balance hereof then outstanding hereunder, in the direct order of maturity. If an Event of Default exists under this Note or under any of the other Loan Documents, then Lender may, at the sole option of Lender, apply any such payments, at any

 

 

 

REVOLVING NOTE     PAGE 4 OF 13

 

 

time and from time to time, to any of the items specified in clauses (a), (b) or (c) above without regard to the order of priority otherwise specified in this Section 2.2 and any application to the outstanding principal balance hereof may be made in either direct or inverse order of maturity.

 

2.3     Payments. All payments under this Note made to Lender shall be made in

immediately available funds at 745 E. Mulberry, Suite 300, San Antonio Texas 78212 (or at such other place as Lender, in Lender’s sole discretion, may have established by delivery of written notice thereof to Borrower from time to time), without offset, in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private. Payments by check or draft shall not constitute payment in immediately available funds until the required amount is actually received by Lender in full. Payments in immediately available funds received by Lender in the place designated for payment on a Business Day prior to 11:00 a.m. (Dallas, Texas time) at such place of payment shall be credited prior to the close of business on the Business Day received, while payments received by Lender on a day other than a Business Day or after 11:00 a.m. (Dallas, Texas time) on a Business Day shall not be credited until the next succeeding Business Day. If any payment of principal or interest on this Note shall become due and payable on a day other than a Business Day, then such payment shall be made on the next succeeding Business Day. Any such extension of time for payment shall be included in computing interest which has accrued and shall be payable in connection with such payment.

 

2.4     Rate Selection, Etc. (a) Borrower may select, subject to the terms and conditions set

forth below, a Note Rate based upon either LIBOR or the Base Rate for the entire principal amount of this Note then outstanding or any Portion thereof. Borrower’s ability to select a Note Rate based on LIBOR shall be subject to the definition of “LIBOR” in Section 1 and be suspended or terminated as provided for therein and in this Section 2.4. No more than three (3) LIBOR Interest Periods may be outstanding at any time, and each Portion bearing interest based on LIBOR shall be at least $100,000. Borrower may designate the Portion to bear interest based upon LIBOR by giving Lender written notice of its selection before 11:00 a.m. (Dallas, Texas time) on the LIBOR Determination Date, which selection shall be irrevocable, for each LIBOR Interest Period. If an Event of Default has occurred and is continuing, the option to select LIBOR as a basis for the Note Rate shall be terminated. No LIBOR Interest Period may extend beyond the Maturity Date. Any Portion for which LIBOR Interest Period is not selected shall bear interest at a Note Rate based upon the Base Rate. The determination by Lender of the Note Rate shall, in the absence of manifest error, be conclusive and binding in all respects.

 

(b)     Notwithstanding anything contained herein to the contrary and subject to clause 2.4(c) below, if at any time, Lender determines (which determination shall be conclusive in the absence of manifest error) that (i) ICE (or any other successor thereto) has ceased to calculate LIBOR, (ii) deposits in United States Dollars in the relevant amounts and of the relevant maturity are not being offered to banks in the London interbank market for the applicable amount and requested LIBOR Interest Period, (iii) adequate and reasonable means do not exist for determining LIBOR for any requested LIBOR Interest Period, (iv) LIBOR for any requested LIBOR Interest Period does not accurately reflect the rate available to Lender in the London interbank market, (v) any applicable law or regulation or any change therein on the interpretation or application thereof or compliance therewith by Lender prohibits, restricts, or makes impossible the charging of interest based on LIBOR or shall make it unlawful for Lender to make or maintain the indebtedness evidenced by this Note in Eurodollars, (vi) LIBOR does not adequately and fairly reflect the cost to Lender of making or maintaining the Loan, due to changes in administrative costs, fees, tariffs and taxes and other matters

 

 

 

REVOLVING NOTE     PAGE 5 OF 13

 

 

outside of Lender’s reasonable control, then Lender shall give Borrower prompt notice thereof, and this Note shall bear interest, and continue to bear interest until Lender determines that the applicable circumstance described in the foregoing clauses (b)(i), (ii), (iii), (iv), (v) or (vi) no longer pertains, at the Base Rate plus Applicable Margin.

 

(c)     If, at any time, Lender determines (which determination shall be conclusive absent manifest error) that (i) any circumstance described in clauses (b)(i)-(b)(vi) has arisen and is not likely to be temporary, or (ii) if (x) ICE or the Alternative Reference Rates Committee convened by the Board of Governors of the Federal Reserve System has announced a commercial loan index as an alternative to LIBOR and commercial banks in the United States are using such alternative loan index for new commercial loans, (y) LIBOR is no longer being widely used by commercial banks as a loan index in the United States for new commercial loans similar to the loan to Borrower, or (z) a governmental authority having jurisdiction over Lender has made a public statement identifying a specific date after which LIBOR shall no longer be used for determining interest rates for new commercial loans originated in the United States, then Lender may notify Borrower of such circumstance. Following such notice, any obligation of Lender to maintain any indebtedness under this Note at a rate based on LIBOR and Borrower’s option to elect a rate based on LIBOR shall terminate; provided, however, Lender may establish an alternate index rate of interest to LIBOR (and an interest rate margin) after giving due consideration to the then-prevailing market convention for determining an index rate of interest for new commercial loans originated by commercial banks in the United States as determined by Lender (the “Alternative Rate”). If requested by Lender, Borrower shall enter into an amendment to this Note to reflect the Alternative Rate and such other related changes to this Note as may be applicable. If no Alternative Rate has been established and Lender has notified Borrower that any circumstance under clauses (c)(i) or (c)(ii) has arisen, then any indebtedness under this Note shall bear interest (and continue to bear interest) at the Base Rate (with LIBOR no longer being used to determine the Base Rate) plus the Applicable Margin unless and until an Alternative Rate is established.

 

2.5     Computation Period. Interest on the indebtedness evidenced by this Note shall be

computed on the basis of a three hundred sixty (360) day year and shall accrue on the actual number of days elapsed for any whole or partial month in which interest is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to the close of business on the Business Day received as provided in Section 2.3 hereof. Each determination by Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

 

2.6     Prepayment. Borrower shall have the right to prepay, at any time and from time to

time upon at least five (5) Business Days prior written notice to Lender, without fee, premium or penalty, all or any portion of the outstanding principal balance hereof; provided, however, that (a) such prepayment shall also include any and all accrued but unpaid interest on the amount of principal being so prepaid through and including the date of prepayment, plus any other sums which have become due to Lender under the other Loan Documents on or before the date of prepayment, but which have not been fully paid and (b) such prepayment shall also include any Funding Loss. Prepayments of principal shall be applied in inverse order of maturity.

 

2.7     Unconditional Payment. Borrower is and shall be obligated to pay all principal,

interest and any and all other amounts which become payable under this Note or under any of the

 

 

 

REVOLVING NOTE     PAGE 6 OF 13

 

 

other Loan Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction whatsoever and without any reduction for counterclaim or setoff whatsoever. If at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any Debtor Relief Law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

 

2.8     Partial or Incomplete Payments. Remittances in payment of any part of this Note

other than in the required amount in immediately available funds at the place where this Note is payable shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in full in accordance herewith and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the full amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default in the payment of this Note.

 

2.9     Default Interest Rate. For so long as any Event of Default exists under this Note or

under any of the other Loan Documents, regardless of whether or not there has been an acceleration of the indebtedness evidenced by this Note, and at all times after the maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and in addition to all other rights and remedies of Lender hereunder, interest shall accrue on the outstanding principal balance hereof at the Default Interest Rate, and such accrued interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender’s actual damages resulting from any late payment or Event of Default, and such late charges and accrued interest are reasonable estimates of those damages and do not constitute a penalty.

 

2.10 Late Charge. At the option of Lender, Borrower will pay Lender, on demand, (i) a “late charge” equal to $2,500 (but not to exceed the Maximum Rate) when such installment is not paid within five (5) days following the date such installment is due and (ii) a processing fee in the amount of $25.00 for each check which is provided to Lender by Borrower in payment for an obligation owing to Lender under any Loan Document but is returned or dishonored for any reason, in order to cover the additional expenses involved in handling delinquent and returned or dishonored payments.

 

2.11 Change. If Lender determines that the amount of capital required or expected to be maintained by Lender or any entity controlling Lender, is increased as a result of a Change, then, within fifteen (15) days of demand by Lender, Borrower shall pay to Lender the amount necessary to compensate Lender for any shortfall in the rate of return on the portion of such increased capital that Lender determines is attributable to this Note or the principal amount outstanding hereunder (after taking into account Lender’s policies as to capital adequacy).

 

 

 

REVOLVING NOTE     PAGE 7 OF 13

 

3.     EVENT OF DEFAULT AND REMEDIES

 

3.1     Remedies. Upon the occurrence of an Event of Default, Lender shall have the right

to exercise any rights and remedies set forth in the Credit Agreement and the other Loan Documents.

 

3.2     Remedies. Upon the occurrence of an Event of Default, Lender shall have the

immediate right, at the sole discretion of Lender and without notice, demand, presentment, notice of nonpayment or nonperformance, protest, notice of protest, notice of intent to accelerate, notice of acceleration, or any other notice or any other action (ALL OF WHICH BORROWER HEREBY EXPRESSLY WAIVES AND RELINQUISHES): (a) to declare the entire unpaid balance of the indebtedness evidenced by this Note (including, without limitation, the outstanding principal balance hereof, all sums advanced or accrued hereunder or under any other Loan Document, and all accrued but unpaid interest thereon) at once immediately due and payable (and upon such declaration, the same shall be at once immediately due and payable) and may be collected forthwith, whether or not there has been a prior demand for payment and regardless of the stipulated date of maturity; (b) to foreclose any Liens and security interests securing payment hereof or thereof (including, without limitation, any Liens and security interests); and (c) to exercise any of Lender’s other rights, powers, recourses and remedies under the Loan Documents or at law or in equity, and the same (i) shall be cumulative and concurrent, (ii) may be pursued separately, singly, successively, or concurrently against Borrower or others obligated for the repayment of this Note or any part hereof, or against any one or more of them, at the sole discretion of Lender, (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower that the exercise, discontinuance of the exercise of or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse, and (iv) are intended to be, and shall be, nonexclusive. All rights and remedies of Lender hereunder and under the other Loan Documents shall extend to any period after the initiation of foreclosure proceedings, judicial or otherwise, with respect to the Mortgaged Property or any portion thereof.

 

3.3 WAIVERS. EXCEPT AS SPECIFICALLY PROVIDED IN THE LOAN DOCUMENTS TO THE CONTRARY, BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NONPAYMENT OR NONPERFORMANCE, PROTEST, NOTICE OF PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION OR ANY OTHER NOTICES OR ANY OTHER ACTION. BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO THE BENEFITS OF ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, VALUATION, STAY, EXTENSION, REDEMPTION, APPRAISEMENT, EXEMPTION AND HOMESTEAD NOW OR HEREAFTER PROVIDED BY THE CONSTITUTION AND LAWS OF THE UNITED STATES OF AMERICA AND OF EACH STATE THEREOF, BOTH AS TO ITSELF AND IN AND TO ALL OF ITS PROPERTY, REAL AND PERSONAL, AGAINST THE ENFORCEMENT AND COLLECTION OF THE OBLIGATIONS EVIDENCED BY THIS NOTE OR BY THE OTHER LOAN DOCUMENTS.

 

4.     GENERAL PROVISIONS

 

4.1     No Waiver; Amendment. No failure to accelerate the indebtedness evidenced by this

Note by reason of an Event of Default hereunder, acceptance of a partial or past due payment, or

 

 

 

REVOLVING NOTE     PAGE 8 OF 13

 

 

indulgences granted from time to time shall be construed (a) as a novation of this Note or as a reinstatement of the indebtedness evidenced by this Note or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (b) to prevent the exercise of such right of acceleration or any other right granted under this Note, under any of the other Loan Documents or by any applicable laws. Borrower hereby expressly waives and relinquishes the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. The failure to exercise any remedy available to Lender shall not be deemed to be a waiver of any rights or remedies of Lender under this Note or under any of the other Loan Documents, or at law or in equity. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part, unless Lender specifically, unequivocally and expressly agrees otherwise in writing.

 

4.2     Interest Provisions.

 

(a)     Savings Clause. 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 this Note 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 this 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 this Note and/or the Related Indebtedness, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this 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 Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Rate theretofore collected by Lender shall be credited on the principal balance of this Note and/or the Related Indebtedness (or, if this Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of this 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, that if this Note has been paid in full before the end of the stated term of this 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 Rate, either refund such excess interest to Borrower and/or credit such excess interest against this 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

 

 

 

REVOLVING NOTE     PAGE 9 OF 13

 

 

to Borrower or crediting such excess interest against this Note 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 this 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 this 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 this Note and/or the Related Indebtedness does not exceed the Maximum Rate from time to time in effect and applicable to this Note and/or the Related Indebtedness for so long as debt is outstanding. 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.

 

(b)     Ceiling Election. To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Rate payable on the Note and/or any other portion of the Obligations, 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 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 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.

 

4.3     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. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.3.

 

4.4     GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS NOTE SHALL

BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS AGREEMENT HAS BEEN ENTERED INTO IN BEXAR COUNTY, TEXAS, AND IS PERFORMABLE FOR ALL PURPOSES IN BEXAR COUNTY, TEXAS. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR

 

 

 

REVOLVING NOTE     PAGE 10 OF 13

 

 

RELATING TO ANY OF THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN BEXAR COUNTY, TEXAS. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES REFERENCED IN SECTION 11.11 OF THE CREDIT AGREEMENT.

 

4.5     Relationship of the Parties. Notwithstanding any prior business or personal

relationship between Borrower and Lender, or any officer, director or employee of Lender, that may exist or have existed, the relationship between Borrower and Lender is solely that of debtor and creditor, Lender has no fiduciary or other special relationship with Borrower, Borrower and Lender are not partners or joint venturers, 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.

 

4.6     Successors and Assigns. The terms and provisions hereof shall be binding upon and

inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them. The terms “Borrower” and “Lender” as used hereunder shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them.

 

4.7     Time is of the Essence. Time is of the essence with respect to all provisions of this

Note and the other Loan Documents.

 

4.8     Headings. The Section and Subsection titles hereof are inserted for convenience of

reference only and shall in no way alter, modify, define, limit, amplify or be used in construing the text, scope or intent of such Sections or Subsections or any provisions hereof.

 

4.9     Controlling Agreement. In the event of any conflict between the provisions of this

Note and the Credit Agreement, it is the intent of the parties hereto that the provisions of the Credit Agreement shall control. In the event of any conflict between the provisions of this Note and any of the other Loan Documents (other than the Credit Agreement), it is the intent of the parties hereto that the provisions of this Note shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of this Note and the other Loan Documents and that this Note and the other Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same.

 

4.10 Notices. Whenever any notice is required or permitted to be given under the terms of this Note, the same shall be given in accordance with Section 11.11 of the Credit Agreement.

 

 

 

REVOLVING NOTE     PAGE 11 OF 13

 

 

4.11 Severability. If any provision of this Note or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of this Note nor the application of such provision to other persons or circumstances nor the other instruments referred to herein shall be affected thereby, but rather shall be enforced to the greatest extent permitted by applicable law.

 

4.12 Right of Setoff. In addition to all Liens upon and rights of setoff against the money, securities, or other property of Borrower given to Lender that may exist under applicable law, Lender shall have and Borrower hereby grants to Lender a Lien upon and a right of setoff against all money, securities, and other property of Borrower, now or hereafter in possession of or on deposit with Lender, whether held in a general or special account or deposit, for safe-keeping or otherwise, and every such Lien and right of setoff may be exercised without demand upon or notice to Borrower. No Lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender, or by any neglect to exercise such right of setoff or to enforce such Lien, or by any delay in so doing, and every right of setoff and Lien shall continue in full force and effect until such right of setoff or Lien is specifically waived or released by an instrument in writing executed by Lender.

 

4.13 Costs of Collection. If any holder of this Note retains an attorney-at-law in connection with any Event of Default or at maturity or to collect, enforce, or defend this Note or any part hereof, or any other Loan Document in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Borrower sues any holder in connection with this Note or any other Loan Document and does not prevail, then Borrower agrees to pay to each such holder, in addition to the principal balance hereof and all interest hereon, all costs and expenses of collection or incurred by such holder or in any such suit or proceeding, including, but not limited to, reasonable attorneys’ fees.

 

4.14 Statement of Unpaid Balance. At any time and from time to time, Borrower will furnish promptly, upon the request of Lender, a written statement or affidavit, in form satisfactory to Lender, stating the unpaid balance of the indebtedness evidenced by this Note and the Related Indebtedness and that there are no offsets or defenses against full payment of the indebtedness evidenced by this Note and the Related Indebtedness and the terms hereof, or if there are any such offsets or defenses, specifying them.

 

4.15 FINAL AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT 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 ORAL AGREEMENTS BETWEEN THE PARTIES.

 

4.16 Renewal, Extension and Decrease. This Note is executed in renewal, extension and decrease of, and not in novation or discharge of, that certain promissory note dated May 7, 2019, executed by Borrower and payable to the order of Lender in the original principal amount of $22,000,000.00, which promissory note was extended in renewal and extension of, but not in novation or discharge of, that certain promissory note dated January 9, 2018, executed by Borrower and payable to the order of Lender in the original principal amount of $22,000,000.00, which promissory note was executed in renewal, extension and increase of, and not in novation or discharge of, that certain promissory note dated April 17, 2017, executed by Borrower and payable to the order of Lender in the original principal amount of $20,000,000.00.

 

 

 

REVOLVING NOTE     PAGE 12 OF 13

 

 

IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note as of the day and year first written above.

 

BORROWER: 

 

HARTE HANKS, INC.

 

By:      

Name:      

Title:      

 

 

 

REVOLVING NOTE     PAGE 13 OF 13

 

ANNEX B

 

 

 

NEW NOTE PURCHASE AGREEMENT

 

 

 

Annex B - i

 

25612750v.8 106916/01653

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (the “Agreement”) is made and dated as of the 11th day of May, 2020, by and between TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“Seller”) and HHS Guaranty, LLC, a Texas limited liability company (“Purchaser”).

 

RECITALS

 

A.     Seller, as lender, and Harte Hanks, Inc., a Delaware corporation (“Borrower”), as borrower, have entered into that certain Credit Agreement dated as of April 17, 2017, as amended by that certain First Amendment to Credit Agreement (the “First Amendment”) dated as of January 9, 2018, that certain Second Amendment to Credit Agreement (the “Second Amendment”) dated as of May 7, 2019, and that certain Third Amendment to Credit Agreement (the “Third Amendment”) dated as of even date herewith (as amended, and as the same may be further amended, supplemented or modified from time to time, the “Credit Agreement”).

 

B.     Purchaser and Seller entered into that certain Note Purchase Agreement dated as of April 17, 2017 (the “Original Note Purchase Agreement”), pursuant to which Purchaser was obligated to purchase the promissory note described therein (the “Original Note”) from Seller upon the terms and conditions described in the Original Note Purchase Agreement.

 

C.     Pursuant to the First Amendment, Borrower executed that certain promissory note dated January 9, 2018, payable to the order of Seller in the original principal amount of $22,000,000.00 (the “First Renewal Note”), which First Renewal Note was executed in renewal, extension and increase of the Original Note.

 

D.     Pursuant to the First Amendment, Purchaser and Seller entered into that certain Note Purchase Agreement dated as of January 9, 2018 (the “First Amended and Restated Note Purchase Agreement”) which amended and restated the Original Note Purchase Agreement, pursuant to which Purchaser was obligated to purchase the First Renewal Note from Seller upon the terms and conditions described in the First Amended and Restated Note Purchase Agreement.

 

E.     Pursuant to the Second Amendment, Borrower executed that certain promissory note dated May 7, 2019, payable to the order of Seller in the original principal amount of $22,000,000.00 (the “Second Renewal Note”), which Second Renewal Note was executed in renewal and extension of the First Renewal Note.

 

F.     Pursuant to the Second Amendment, Purchaser and Seller entered into that certain Note Purchase Agreement dated as of May 7, 2019 (the “Second Amended and Restated Note Purchase Agreement”) which amended and restated the First Amended and Restated Note Purchase Agreement pursuant to which Purchaser was obligated to purchase the Second Renewal Note from Seller upon the terms and conditions described in the Second Amended and Restated Note Purchase Agreement.

 

25614303v.3

 

G.     Pursuant to the Third Amendment, Borrower executed that certain promissory note dated as of even date herewith (herein called the “Third Renewal Note” or the “Note”), which Third Renewal Note was executed in renewal, extension and decrease of the Second Renewal Note.

 

H.     Purchaser and Seller desire to amend and restate, in its entirety, the Second Amended and Restated Note Purchase Agreement by entering into this Agreement setting forth the terms and conditions governing the purchase and sale of the Second Renewal Note.

 

NOW, THEREFORE, in consideration of the above Recitals and the mutual covenants contained herein, the parties hereto hereby amend and restate the Second Amended and Restated Note Purchase Agreement and agree as follows:

 

ARTICLE I

 

DEFINITIONS  

 

In this Agreement, the following terms have the following meanings:

 

1.1     “Pledge Agreement” shall mean the Pledge Agreement (as defined in the Credit

Agreement), as amended and restated by the Amended and Restated Pledge Agreement dated as of even date herewith.

 

1.2     “Loan Package” shall mean the Credit Agreement, the Third Renewal Note, the

Pledge Agreement and those of the Related Agreements which are to be sold and assigned to Purchaser from time to time hereunder.

 

1.3     “Obligor” means the Borrower.

 

1.4     “Related Agreements” shall mean those agreements executed and/or delivered in

connection with the Credit Agreement.

 

ARTICLE II

 

PURCHASE AND SALE OF LOAN PACKAGE

 

2.1     Purchase Date. On or before the earliest of (a) three (3) Business Days (hereinafter

defined) after notice from Seller to Purchaser of the occurrence of an Event of Default (as defined in the Credit Agreement) arising under Section 10.1(a), Section 10.1(e) or Section 10.1(f), or (b) five (5) Business Days after notice from Seller to Purchaser that the Borrowing Base (as defined in the Credit Agreement) is less than the Commitment, or (c) five (5) Business Days after notice from Purchaser to Seller of the occurrence of a Credit Support Event (as defined in that certain Second Amended and Restated Fee, Reimbursement and Indemnity Agreement, dated as of even date herewith, between Borrower and Purchaser), in each case which remains uncured (the “Outside Purchase Date”), Seller will sell to Purchaser, and Purchaser will purchase and take from Seller, all right, title and interest of Seller in the Loan Package for a purchase price (the “Purchase Price”) equal to (i) the sum of outstanding principal balance of the Note, plus (ii) interest accrued but unpaid on the Note, plus (iii) Seller’s reasonable costs and expenses in connection with such Event of Default and the sale of the Note, including, without limitation, reasonable attorneys’ fees.

 

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25614303v.3

 

In addition, if there are any outstanding Letters of Credit (as defined in the Credit Agreement), Purchaser shall deposit with Seller cash in an amount equal to one hundred ten percent (110%) of the undrawn face amount of all outstanding Letters of Credit, to be held by Seller in escrow (the “Escrowed Funds”) upon terms reasonably satisfactory to Seller until such time no Letters of Credit remain outstanding and Seller has been repaid for all amounts drawn on such Letters of Credit. Seller shall from time to time use such Escrowed Funds to satisfy any drawings on such Letters of Credit funded by Seller. After all Letters of Credit have expired and Seller has been reimbursed for all draws funded by Seller on such Letters of Credit, Seller shall return all remaining Escrow Funds to Purchaser. As used herein, “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the State of Texas are authorized to be closed or in fact closed and, in addition to the above requirements, the days that the New York Stock Exchange is closed for normal trading.

 

2.2     Seller’s Deliveries. Upon receipt by the Seller of each of the documents, instruments and agreements referred to in Section 2.3 below, Seller shall deliver to Purchaser each of the following:

 

(a)     The original Third Renewal Note, duly endorsed as follows:

 

“Pay to the order of     , without recourse or warranty

of any kind except as expressly set forth in that certain Note Purchase Agreement dated as of April , 2020 between HHS Guaranty, LLC and Texas Capital Bank, National Association.

 

By:      

 

 

 

Name: Title:

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

 


     ”

 

 

(b)     The original Pledge Agreement and Related Agreements with respect to the Third Renewal Note (or a copy thereof certified by Seller as a true copy thereof); and

 

(c)     A UCC-3 financing statement, duly executed by Seller, assigning to Purchaser the rights of Seller as “Secured Party” under the UCC-1 financing statements reflecting Borrower as debtor included in the Related Agreements.

 

2.3     Conditions Precedent to Closing. As conditions precedent:

 

The obligation of Purchaser to purchase the Loan Package from Seller hereunder on or before the Outside Purchase Date shall only be conditioned upon the delivery to Purchaser the documents from Seller described in Section 2.2 above; provided that Seller shall not be obligated to deliver such documents to Purchaser unless and until Purchaser has delivered to Seller the Purchase Price in immediately available funds on or before the Outside Purchase date. In the event that Purchaser has not delivered such Purchase Price to Seller on or before the Outside Purchase Date, Seller shall be entitled to liquidate all collateral pledged to Seller under the Pledge

 

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25614303v.3

 

Agreement of Purchaser in favor of Seller dated as of even date herewith without any further notice to Purchaser or any other Person.

 

2.4     Closing; Effective Date. The sale contemplated by this Agreement shall be

effective upon receipt by Seller, in immediately available funds, of the entire Purchase Price and delivery of possession of the Loan Package to Purchaser, which shall be deemed to have occurred for all purposes at the opening of business of Seller on the date all conditions precedent set forth above have been met or waived in writing (the “Effective Date”). All risk of loss of diminution of value of any collateral pledged by Borrower to Seller shall be on Seller until the Effective Date and on Purchaser from and after the Effective Date.

 

2.5     Non-Recourse Sale. It is agreed by the parties hereto that the purchase and sale of

the Loan Package hereunder is as is without recourse to, and without representation or warranty, express (except as expressly set forth in Article III below) or implied by, Seller. Purchaser agrees that the purchase of the Loan Package by Purchaser, and the sale of the Loan Package by Seller, shall be AS IS WITH ALL FAULTS WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF WHATSOEVER NATURE, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, IT BEING THE INTENTION OF SELLER AND PURCHASER TO EXPRESSLY NEGATE AND EXCLUDE ALL WARRANTIES WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, WARRANTIES CREATED BY AFFIRMATION OF FACT OR PROMISE OR BY ANY DESCRIPTION OF THE LOAN PACKAGE OR BY ANY SAMPLE OR MODEL AND ANY OTHER WARRANTIES CONTAINED IN OR CREATED BY THE TEXAS UNIFORM COMMERCIAL CODE OR ANY OTHER LAW, except that the foregoing shall not be construed to negate the warranty of title hereinafter expressly set forth in Article III below.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

To induce Purchaser to enter into this Agreement, Seller represents and warrants to Purchaser that:

 

3.1     Legal Status. Seller holds a valid Certificate of Authority from the Comptroller of

the Currency of the United States of America to do business as a national banking association under the laws of the United States.

 

3.2     Authority and Enforceability. The execution, delivery and performance of this

Agreement by Seller have been duly authorized by all necessary corporate action on the part of Seller.

 

3.3     Ownership. Seller owns the Note free and clear of all liens, security interests and

encumbrances in favor of any third party.

 

3.4     Exclusive Representations and Warranties. The representations and warranties set

forth in this Article III are the sole and exclusive representations and warranties made by Seller, its representatives, agents, officers, directors and other employees, with respect to the Loan

 

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25614303v.3

 

Package, the sale thereof to Purchaser hereunder or otherwise. Without limiting the generality of the foregoing, it is expressly acknowledged and agreed by Purchaser that no covenant, agreement, representation or warranty made by Seller or any such other person, herein or otherwise, shall be construed as a warranty, representation, guaranty or other agreement or acknowledgement as to, nor does Seller or any such other person assume any responsibility for:

 

(a)     The creditworthiness of the Obligor or the collectability of the Note by reason of the Obligor’s ability to make payments with respect thereto; or

 

(b)     The conformity of the Loan Package with laws and regulations binding upon Seller or Purchaser; or

 

(c)     The genuineness, legality, validity or enforceability of the Note, the Pledge Agreement and/or any Related Agreement, whether by Seller or otherwise.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

To induce Seller to enter into this Agreement, Purchaser represents and warrants to Seller that:

 

4.1     Legal Status. Purchaser is limited liability company which is duly organized, validly existing and in good standing under the laws of the State of Texas.

 

4.2     Capacity. Purchaser has full power, authority and legal right to execute and deliver, and to perform and observe the provisions of this Agreement and to carry out the transactions contemplated hereby, including to purchase the Loan Package from Seller.

 

4.3     Authority and Enforceability. The execution, delivery and performance of this Agreement by Purchaser have been duly authorized by all necessary action, including without limitation, the members who have organized and contributed capital to Purchaser.

 

4.4     No Reliance. (a) Purchaser has, independently and without reliance upon Seller or any of Seller’s officers, directors, employees, agents or affiliates, and based upon such documents and information as Purchaser has deemed appropriate, made its own appraisal of and investigation into the Obligor, and the Loan Package and made its decision to enter into this Agreement and to purchase the Loan Package pursuant hereto.

 

(b)     Specifically, and not in limitation of the foregoing provisions of this Section 4.4, Purchaser acknowledges that it has reviewed the Loan Package, and specifically the representations and warranties and the affirmative and negative covenants sections in the Credit Agreement, and expressly consent to those “non-customary” revisions requested by Borrower and made by Lender.

 

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25614303v.3

 

ARTICLE V

 

INDEMNIFICATION 

 

5.1     Indemnification. Purchaser hereby agrees to indemnify, defend and hold harmless

Seller from and against any and all liabilities, claims, demands, losses, damages, costs and expenses (including reasonable attorneys’ fees), actions or causes of action (“Indemnified Matters”) assessed against or imposed upon Seller by any person or entity, including Borrower, arising out of or related to:

 

(a)     the execution, delivery and/or performance of this Agreement by Seller and/or the consummation of the transaction contemplated hereby, including any contention, whether well-founded, baseless or otherwise, that there has been a violation of or failure to comply with any existing law or regulation or any duty, contractual or otherwise, of Seller to any person or entity, or

 

(b)     any act or failure of Seller or any other person or entity, or

 

(c)     any action or inaction by Purchaser following the Effective Date as successor in interest to Seller under the Loan Package;

 

provided, however, that Purchaser shall have no obligation under this Section 5.1 with respect to any Indemnified Matter directly resulting from the gross negligence or willful misconduct of Seller.

 

ARTICLE VI

 

MISCELLANEOUS  

 

6.1     Survival. The representations and warranties, covenants and agreements of Seller

and Purchaser hereunder shall survive the Effective Date.

 

6.2     Waiver. No waiver of any term, provision or condition of this Agreement, whether

by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition, or of any other term, provision or condition of this Agreement.

 

6.3     Interpretation. Section, paragraph or other headings contained in this Agreement

are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”

 

6.4     Entire Agreement. This Agreement constitutes the entire agreement between the

parties hereto with regard to the subject matter hereof, and there are no prior agreements, understandings, restrictions, warranties or representations between the parties with regard thereto.

 

6.5     Governing Law. This Agreement shall be governed by and construed in accordance

with the laws of the State of Texas.

 

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25614303v.3

 

6.6     Confidentiality. Each of the parties hereto and their respective attorneys agrees to

keep the terms of this Agreement confidential, and not to disclose the same to any other parties except to the extent necessary to implement the terms of this Agreement or as may be required by state or federal law, or by any other rule or other regulation to which the parties are subject, or as may otherwise be agreed to by both parties in writing.

 

6.7     Assignment. This Agreement shall not be assignable, by operation of law or

otherwise, by Purchaser (or its successors or assigns) to any person or entity without the prior written consent of Seller. Any purported assignment in violation of this Section shall be void and of no effect as against Seller. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of Seller, Purchaser and their respective successors and assigns.

 

6.8     Amendment and Waiver. Neither this Agreement nor any provision hereof may be

changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

 

6.9     Counterparts. This Agreement may be executed in counterparts and such

counterparts shall, when taken together, constitute one and the same agreement.

 

6.10 WAIVER OF TRIAL BY JURY. SELLER AND PURCHASER HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN SELLER AND PURCHASER ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY RELATIONSHIP BETWEEN SELLER AND PURCHASER. THIS PROVISION IS A MATERIAL INDUCEMENT TO PURCHASER TO PROVIDE THE FINANCING EVIDENCED BY THIS AGREEMENT AND THE LOAN PACKAGE.

 

6.11 Further Assurances. Following the Effective Date, each of Seller and Purchaser shall cooperate with the other and shall take such actions as may be reasonably requested (and which actions are consistent with the provisions of this Agreement) to obtain for the requesting party the benefit of the transaction contemplated hereby; provided, however, that the requesting party shall bear all costs and expenses associated with the requested action and shall defend, indemnify and hold harmless the party of whom such action is requested against any claims assessed against or incurred by such party in complying with such request (other than claims directly resulting from such party’s gross negligence or willful misconduct).

 

6.12 Amendment and Restatement. This Agreement represents and amendment and restatement in its entirety of the Second Amended and Restated Note Purchase Agreement. This Agreement shall not in any manner constitute or be construed as a novation, discharge, forgiveness, extinguishment or release of any obligation for amounts due under the Second Amended and Restated Note Purchase Agreement, which obligations are amended and restated by this Agreement and shall continue in full force and effect.

 

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25614303v.3

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.

 

SELLER: 

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

By:      

Annalese Smolik

Senior Vice President

 

PURCHASER: 

 

HHS GUARANTY, LLC

 

By:      

David L. Copeland

Manager and President

 

 

 

[Signature Page to Note Purchase Agreement]

 

25614303v.3

 

ANNEX C

 

 

 

AMENDED AND RESTATED PLEDGE AGREEMENT

 

 

 

Annex C - i

 

25612750v.8 106916/01653

 

AMENDED AND RESTATED PLEDGE AGREEMENT

 

THIS AMENDED AND RESTATED PLEDGE AGREEMENT (this “Agreement”) is entered into as of May 11, 2020 by and between HHS Guaranty, LLC, a Texas limited liability company (“Grantor”), and Texas Capital Bank, National Association, a national banking association (“Lender”), on behalf of itself and its Affiliates (“Secured Party”).

 

R E C I T A L S

 

 


WHEREAS, Borrower and Lender are entering into a Credit Agreement dated as of April 17, 2017, as amended by that certain First Amendment to Credit Agreement dates as of January 9, 2018, Second Amendment to Credit Agreement dated as of May 7, 2019 and Third Amendment to Credit Agreement dated as of May 11, 2020 (as amended and as it may be further amended, restated or modified from time to time, the “Credit Agreement”);

 

 

WHEREAS, Grantor is entering into this Agreement in amendment and restatement of that certain Pledge Agreement dated as of April 17, 2017 by and between Grantor and Lender (as it may be amended, restated or modified from time to time, this “Agreement”) in order to, among other things, induce Lender to enter into and extend credit to Borrower under the Credit Agreement;

 

WHEREAS, the one or more of the members of the Grantor own shares of capital common stock of Borrower and the members have formed Grantor expressly in order to provide credit support for the obligations of Borrower to Lender under the Credit Agreement; and

 

WHEREAS, Grantor’s members will derive substantial direct and indirect benefit from the credit facilities being furnished by Lender to Borrower under the Credit Agreement.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

1.     DEFINITIONS

 

1.1     Reference to Pledge Agreement. Unless otherwise specified, all references herein to Articles, Sections, Preliminary Statements, Exhibits, and Schedules refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, this Agreement. All Schedules include amendments and supplements thereto from time to time.

 

1.2     Principles of Construction. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neutral, as the context indicates is appropriate. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. All references to agreements and other contractual instruments shall be deemed to include subsequent amendments, permitted assignments and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of any Loan Document. Furthermore, any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time.

 

25705872v.3

 

 

1.3     Definitions. Unless otherwise defined herein, or the context hereof otherwise requires, each term defined in either of the Credit Agreement or in the UCC is used in this Agreement with the same meaning; provided that, if the definition given to such term in the Credit Agreement conflicts with the definition given to such term in the UCC, the Credit Agreement definition shall control to the extent legally allowable; and if any definition given to such term in Article 9 of the UCC conflicts with the definition given to such term in any other chapter of the UCC, the Article 9 definition shall prevail. All definitions herein shall be equally applicable to both the singular and plural forms of the defined terms. As used herein, the following terms have the meanings indicated:

 

Borrower” means HARTE HANKS, INC, a Delaware corporation, and includes Borrower’s successors and assigns.

 

Collateral” shall have the meaning set forth in Section 2.1.

 

Control” shall have the meaning set forth in Section 9-314 of the UCC.

 

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 Secured Party 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.

 

Grantor” has the meaning set forth in the introductory paragraph of this Agreement and includes Grantor’s successors and assigns.

 

Instrument” means any “instrument”, as such term is defined in Section 9.102(a)(47) of the UCC.

 

Investment Property” means any “investment property,” as such term is defined in Section 9102(a)(49) of the UCC, now owned or hereafter acquired by Grantor and held in the Pledged Account, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Grantor and held in the Pledged Account: (a) any Security, whether certificated or uncertificated; (b) any security entitlement; (c) any commodity contract.

 

Investment Rights” means any securities, dividends or other distributions and any other right or property which Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Investment Property constituting Collateral and any securities, any right to receive securities and any right to receive earnings, in which Grantor now has or hereafter acquires any right, issued by an issuer of such securities.

 

Obligations” means:

 

(a)     Borrower’s present and future obligations, liabilities and indebtedness under the Credit Agreement, and each Loan Document;

 

(b)     Grantor’s present and future obligations, liabilities and indebtedness under the Credit Agreement, and the New Note Purchase Agreement (as defined in the Credit Agreement);

 

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(c)     all future advances by Secured Party or its Affiliates to Borrower;

 

(d)     all costs and expenses, including all attorneys’ fees and legal expenses, incurred by Secured Party or its Affiliates to preserve and maintain the Collateral, collect the obligations herein described, and enforce this Agreement or any rights under the other Loan Documents;

 

(e)     the obligation to reimburse any amount that Secured Party (in its sole and absolute discretion) elects to pay or advance on behalf of Grantor following the occurrence of any Event of Default;

 

(f)     all other obligations, indebtedness, and liabilities of Borrower or Grantor, or either of them, to Secured Party or its Affiliates, now existing or hereafter arising;

 

(g)     all amounts owed under any extension, renewal, or modification of any of the foregoing; and

 

(h)     any of the foregoing that arises after the filing of a petition by or against Grantor or Borrower under the Bankruptcy Code, even if the obligations due do not accrue because of the automatic stay under Bankruptcy Code § 362 or otherwise.

 

Permitted Liens” means Liens permitted under Section 4.1(f).

 

Pledged Account” means that certain securities account described on Exhibit A hereto.

 

Proceeds” means any “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty, or guaranty payable to Grantor from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the Collateral by any Governmental Authority (or any person acting under color of Governmental Authority), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral.

 

Section” means a numbered Section of this Agreement, unless another document is specifically referenced.

 

Secured Obligations” means the Obligations, whether or not (a) such Obligations arise or accrue before or after the filing by or against Grantor of a petition under the Bankruptcy Code, or any similar filing by or against Grantor under the laws of any jurisdiction, or any bankruptcy, insolvency, receivership or other similar proceeding, (b) such Obligations are allowable under Section 502(b)(2) of the Bankruptcy Code or under any other insolvency proceedings, (c) the right of payment in respect of such Obligations is reduced to judgment, or (d) such Obligations are liquidated, unliquidated, similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several, matured, disputed, undisputed, legal, equitable, secured, or unsecured.

 

Security” has the meaning set forth in Section 8-102(a)(15) of the UCC.

 

“Security Interests” means the pledge and security interests securing the Secured Obligations, including (a) the pledge and security interest in the Collateral granted in this Agreement, and (b) all other

 

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security interests created or assigned as additional security for the Secured Obligations pursuant to the provisions of this Agreement.

 

UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Texas; provided, however, that in any event, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority (or terms of similar import in any applicable jurisdiction) of Secured Party’s Security Interest in any Collateral is governed by the UCC (or other similar law) as in effect in a jurisdiction (whether within or outside the United States) other than the State of Texas, the term “UCC” shall mean the Uniform Commercial Code (or other similar law) as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority (or terms of similar import in such jurisdiction) and for purposes of definitions related to such provisions.

 

2.     GRANT OF SECURITY INTEREST

 

2.1     Grant of Security Interest.

 

(a)     As collateral security for the Secured Obligations, Grantor hereby pledges and grants to Secured Party (including its Affiliates), a first priority Lien on and security interest in and to, and agrees and acknowledges that Secured Party has and shall continue to have, a Security Interest in and to, and assigns, transfers, pledges and conveys to Secured Party, all of Grantor’s right, title and interest in and to the Pledged Account and the Investment Property held therein including all funds, monies, certificates, checks, drafts, wire transfer receipts, and other earnings, profits, or other Proceeds from time to time representing, evidencing, deposited into, or held in Pledged Account and Investment Rights and Proceeds (the “Collateral”) now owned or hereafter acquired, wherever located, howsoever arising or created and whether now existing or hereafter arising, existing or created.

 

(b)     If the Security Interest granted hereby in any rights of Grantor under any contract included in the Collateral is expressly prohibited by such contract, then the Security Interest hereby granted therein nonetheless remains effective to the extent allowed by Article 9 of the UCC or other applicable law but is otherwise limited by that prohibition.

 

(c)     The Security Interests are granted as security only and shall not subject Secured Party or any holder of the Secured Obligations to, or transfer or in any way modify, any Obligations or liability of Grantor with respect to any of the Collateral.

 

2.2     Grantor Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its respective duties and Obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release Grantor from any of its duties or Obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any Obligations or liability under any of the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the Obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

 

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25705872v.3

 

2.3     Authorization to File Financing Statements. Grantor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any UCC jurisdiction any initial financing statements and amendments thereto that describe the Collateral and contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether Grantor is an organization, the type of organization and any organization identification number issued to Grantor, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted Collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Grantor agrees to furnish any such information to Secured Party promptly upon request.

 

3.     REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to Secured Party that:

 

3.1     Title, Authorization, Validity and Enforceability. Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a Security Interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1(f), and has full power and authority to grant to Secured Party the Security Interest in such Collateral pursuant hereto. The execution and delivery by Grantor of this Agreement has been duly authorized by proper limited liability company proceedings, and this Agreement constitutes a legal, valid and binding obligation of Grantor and creates a Security Interest which is enforceable against Grantor in all now owned and hereafter acquired Collateral. When financing statements have been filed in the appropriate offices against Grantor in the locations listed on Exhibit B, Secured Party will have a fully perfected first priority Security Interest in that Collateral in which a Security Interest may be perfected by filing, subject only to Liens permitted under Section 4.1(f).

 

3.2     Conflicting Laws and Contracts. Neither the execution and delivery by Grantor of this Agreement, the creation and perfection of the Security Interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Grantor or Grantor’s articles or certificate of incorporation, bylaws, articles of organization or operating agreement or other charter documents, as the case may be, the provisions of any indenture, instrument or agreement to which Grantor is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien pursuant to the terms of any such indenture, instrument or agreement (other than any Lien of Secured Party).

 

3.3     Pledged Account. Exhibit A correctly identifies the securities accounts owned by Grantor and pledged hereunder as well as the institutions holding such account. No Person other than Grantor has control over any Investment Property pledged hereunder.

 

3.4     Litigation. There is no litigation investigation or governmental proceeding threatened against Grantor or any of its properties which if adversely determined would result in a Material Adverse Event with respect to the Collateral or Grantor.

 

3.5     No Other Names. Grantor has not conducted business under any name except the name in which it has executed this Agreement.

 

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3.6     No Default or Event of Default. No Default or Event of Default has occurred.

 

3.7     No Financing Statements. No financing statement describing all or any portion of the Collateral which has not lapsed or been terminated naming Grantor as debtor has been filed in any jurisdiction except (a) financing statements naming Secured Party as the secured party, and (b) as permitted by Section 4.1(d).

 

3.8     Pledged Securities and Other Investment Property. Exhibit A sets forth a true, correct, and complete list of the Instruments, Securities and other Investment Property owned by Grantor and pledged hereunder. Grantor is the direct and beneficial owner of each Instrument, Security and other type of Investment Property listed on Exhibit A as being owned by it, free and clear of any Liens, other than Permitted Liens. Grantor further represents and warrants that (a) all such Instruments, Securities, or other types of Investment Property which are shares of stock in a corporation or ownership interests in a partnership or limited liability company have been (to the extent such concepts are relevant with respect to such Instrument, Security, or other type of Investment Property) duly and validly issued, are fully paid and non-assessable and (b) with respect to any certificates delivered to Secured Party representing an ownership interest in a partnership or limited liability company, either such certificates are Securities as defined in Article 8 of the UCC of the applicable jurisdiction as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, Grantor has so informed Secured Party so that Secured Party may take steps to perfect its Security Interest therein as a general intangible.

 

4.     COVENANTS. From the date of this Agreement, and thereafter until this Agreement is terminated:

 

4.1     General.

 

(a)     Inspection. Grantor will permit Secured Party, by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make copies of the records of Grantor relating to the Collateral and (iii) to discuss the Collateral and the related records of Grantor with, and to be advised as to the same by, Grantor’s officers, employees, and accountants all at such reasonable times and intervals as Secured Party may determine, and all at Grantor’s expense.

 

(b)     Taxes. Grantor will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and with respect to which no Lien exists and as to which appropriate reserves are being maintained.

 

(c)     Records and Reports; Notification of a Default and Event of Default. Grantor will maintain true, complete, and accurate books and records with respect to the Collateral, and furnish to Secured Party such reports relating to the Collateral at such intervals as Secured Party shall from time to time request. Grantor will give prompt notice in writing to Secured Party of the occurrence of any Default or Event of Default and of any other development, financial or otherwise, which might materially and adversely affect the Collateral. Grantor shall mark its books and records to reflect the Security Interest of Secured Party under this Agreement.

 

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(d)     Financing Statements and Other Actions; Defense of Title. Grantor will deliver to Secured Party all financing statements and execute and deliver control agreements and other documents and take such other actions as may from time to time be requested by Secured Party in order to maintain a first perfected Security Interest in and, in the case of Investment Property and Pledged Account, Control of, the Collateral. Grantor will take any and all actions necessary to defend title to the Collateral against all persons and to defend the Security Interest of Secured Party in the Collateral and the priority thereof against any Lien not expressly permitted hereunder.

 

(e)     Disposition of Collateral. Grantor will not sell, lease or otherwise dispose of the Collateral.

 

(f)     Liens. Grantor will not create, incur, or suffer to exist any Lien on the Collateral except (i) the Security Interest created by this Agreement, and (ii) other Liens permitted pursuant to the Credit Agreement.

 

(g)     Change in Location, Jurisdiction of Organization or Name. Grantor will not (a) maintain a place of business at a location other than a location specified on Exhibit D, (b) change its name or taxpayer identification number, (c) change its mailing address, or (d) change its jurisdiction of organization, unless Grantor shall have given Secured Party not less than thirty (30) days’ prior written notice thereof, and Secured Party shall have determined that such change will not adversely affect the validity, perfection or priority of Secured Party’s Security Interest in the Collateral. Prior to making any of the foregoing changes, Grantor shall execute and deliver all such additional documents and perform all additional acts as Secured Party, in its sole discretion, may request in order to continue or maintain the existence and priority of its Security Interest in all of the Collateral

 

(h)     Other Financing Statements. Grantor will not sign or authorize the signing on its behalf of any financing statement naming it as debtor covering all or any portion of the Collateral, except for Permitted Liens.

 

     4.2     Instruments and Securities.     Grantor will (a) deliver to Secured Party

immediately upon execution of this Agreement the originals of all Securities and Instruments constituting Collateral, (b) hold in trust for Secured Party upon receipt and immediately thereafter deliver to Secured Party any future Securities and Instruments constituting Collateral, and (c) upon Secured Party’s request, deliver to Secured Party (and thereafter hold in trust for Secured Party upon receipt and immediately deliver to Secured Party) any document evidencing or constituting Collateral.

 

4.3     Uncertificated Securities and Certain Other Investment Property. Grantor will

permit Secured Party from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Investment Property not represented by certificates which are Collateral to mark their books and records with the numbers and face amounts of all such uncertificated securities or other types of Investment Property not represented by certificates and all rollovers and replacements therefor to reflect the Lien of Secured Party granted pursuant to this Agreement. Grantor will take any actions necessary to cause (a) the issuers of uncertificated securities which are Collateral and which are

 

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Securities and (b) any financial intermediary which is the holder of any Investment Property, to cause Secured Party to have and retain Control over such Securities or other Investment Property. Without limiting the foregoing, Grantor will, with respect to Investment Property held with a financial intermediary, cause such financial intermediary to enter into a control agreement with Secured Party in form and substance satisfactory to Secured Party.

 

4.4     [[RESERVED.]]

 

4.5     Pledged Account. Grantor will (a) upon Secured Party’s request, notify each bank or other financial institution in which it maintains the Pledged Account or other deposit (general or special, time or demand, provisional or final) of the Security Interest granted to Secured Party hereunder and cause each such bank or other financial institution to acknowledge such notification in writing and (b) upon Secured Party’s request, deliver to such bank or other financial institution a letter, in form and substance acceptable to Secured Party, transferring dominion and Control over each such account to Secured Party.

 

4.6     Compliance with Agreements. Grantor shall comply in all material respects with all mortgages, deeds of trust, instruments, and other agreements binding on it or affecting its properties or business.

 

4.7     Compliance with Laws. Grantor shall comply with all applicable laws, rules, regulations, and orders of any court or Governmental Authority.

 

4.8     Further Assurances. At any time and from time to time, upon the request of Secured Party, and at the sole expense of Grantor, Grantor shall promptly execute and deliver all such further instruments and documents and take such further action as Secured Party may deem necessary or desirable (a) to assure Secured Party that its Security Interests hereunder are perfected with a first priority Lien and (b) to carry out the provisions and purposes of this Agreement, including (i) the filing of such financing statements as Secured Party may require, (ii) executing control agreements with respect to the Collateral, in each case naming Secured Party, as secured party, in form and substance satisfactory to Secured Party; (iii) furnishing to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail, and (iv) taking all actions required by law in any relevant UCC, or by other law as applicable in any foreign jurisdiction. A carbon, photographic, or other reproduction of this Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement. Grantor shall promptly endorse and deliver to Secured Party all documents, instruments, and chattel paper that it now owns or may hereafter acquire.

 

5.     EVENTS OF DEFAULT

 

5.1     Remedies. On and after the occurrence of an Event of Default under the Credit Agreement or any other Loan Document, Secured Party may exercise any or all of the following rights and remedies:

 

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(a)     Those rights and remedies provided in this Agreement, the Credit Agreement, or any other Loan Document, provided that this Section 5.1 shall limit any rights or remedies available to Secured Party prior to the occurrence an Event of Default.

 

(b)     Those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a Grantor is in default under a security agreement.

 

(c)     Without notice except as specifically provided in the New Note Purchase Agreement or Section 8.1 or elsewhere herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Neither Secured Party’s compliance with any applicable state or federal law in the conduct of such sale, nor its disclaimer of any warranties relating to the Collateral, shall be considered to affect the commercial reasonableness of such sale.

 

(d)     On and after the occurrence of an Event of Default, all payments and distributions made on behalf of Grantor’s Investment Rights shall be paid or delivered to Secured Party, and Grantor agrees to take all such action as Secured Party may deem necessary or appropriate to cause all such payments and distributions to be made to Secured Party. Further, Secured Party shall have the right, at any time after the occurrence of any Event of Default, to notify and direct any issuer to thereafter make all payments, dividends, and any other distributions payable in respect thereof directly to Secured Party. Such issuer shall be fully protected in relying on the written statement of Secured Party that it then holds a Security Interest which entitles it to receive such payments and distributions. Any and all money and other property paid over to or received by Secured Party hereunder shall be retained by as additional Collateral hereunder.

 

(e)     Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “Securities Act”) and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Investment Property conducted without prior registration or qualification of such Investment Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Property for their own account, for investment and not with a view to the distribution or resale thereof. Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If Secured Party determines to

 

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exercise its right to sell any or all of the Investment Property, upon written request, Grantor shall and shall cause each issuer of any Securities to be sold hereunder, each partnership and each limited liability company from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number and nature of interest, shares or other instruments included in the Investment Property which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. In case of any sale of all or any part of the Investment Property on credit or for future delivery, such Collateral so sold may be retained by Secured Party until the selling price is paid by the purchaser thereof, but the Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for such assets so sold and in case of any such failure, such Collateral may again be sold upon like notice. Secured Party, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose Security Interests created hereunder and sell such Investment Property, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

 

(f)     If Secured Party sells any of the Collateral upon credit, Grantor will be credited only with payments actually made by the purchaser, received by Secured Party, and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Grantor shall be credited with the Proceeds of the sale.

 

(g)     Notwithstanding any provision hereof to the contrary, Grantor shall immediately purchase the Revolving Credit Note from Lender as and when required in the New Note Purchase Agreement (as defined in the Credit Agreement). In the event Grantor fails to purchase the Revolving Credit Note as required above, Lender will have the right to immediately liquidate the Collateral, or any part thereof, without any further notice to Grantor or any other Person.

 

5.2     Grantor’s Obligations Upon Event of Default. Upon the request of Secured Party on and after the occurrence of an Event of Default, Grantor will:

 

(a)     Assembly of Collateral. Assemble and make available to Secured Party the Collateral and all records relating thereto at any place or places specified by Secured Party.

 

(b)     Secured Party Access. Permit Secured Party, by Secured Party’s representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to remove all or any part of the Collateral.

 

6.     WAIVERS, AMENDMENTS AND REMEDIES. No delay or omission of Secured Party to exercise any right or remedy granted under this Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default, or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other

 

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variation of the terms, conditions or provisions of this Agreement whatsoever shall be valid unless in writing signed by Secured Party and then only to the extent in such writing specifically set forth. All rights and remedies contained in this Agreement or by law afforded shall be cumulative and all shall be available to Secured Party until this Agreement has been terminated pursuant to Section 8.12.

 

7.     PROCEEDS

 

7.1     Application of Proceeds. After the occurrence and during the continuation of an

Event of Default, the Proceeds of the Collateral shall be applied by Secured Party to payment of the Secured Obligations in such manner and order as Secured Party may elect in its sole discretion.

 

8.     GENERAL PROVISIONS

 

8.1     Notice of Disposition of Collateral. Grantor hereby waives notice of the time and

place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to Grantor, addressed as set forth in Section 9.1, at least three (3) Business Days prior to (a) the date of any such public sale or (b) the time after which any such private sale or other disposition may be made. Secured Party shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given. Subject to the provisions of applicable law, Secured Party may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which the sale was postponed, or Secured Party may further postpone such sale by announcement made at such time and place.

 

8.2     Secured Party Performance of Grantor’s Obligations. Without having any

obligation to do so, Secured Party may perform or pay any Obligations which Grantor has agreed to perform or pay in this Agreement, and Grantor shall reimburse Secured Party for any amounts paid by Secured Party pursuant to this Section 8.2. Grantor’s obligation to reimburse Secured Party pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

 

8.3     Authorization for Secured Party to Take Certain Action. Grantor irrevocably

authorizes Secured Party at any time and from time to time in the sole discretion of Secured Party, and appoints Secured Party as its attorney in fact, coupled with an interest, (a) to execute on behalf of Grantor as debtor and to file financing statements necessary or desirable in Secured Party’s sole discretion to perfect and to maintain the perfection and priority of Secured Party’s Security Interest in the Collateral, (b) to indorse and collect any cash Proceeds of the Collateral, (c) to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Collateral as a financing statement in such offices as Secured Party in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of Secured Party’s Security Interest in the Collateral, (d) to contract and enter into one or more agreements with the issuers of uncertificated securities which are Collateral or Securities or with financial intermediaries holding other Investment Property as may be necessary or advisable to give Secured Party Control over such Securities or other Investment Property, (e) to apply the Proceeds of any Collateral received by Secured Party to the Secured Obligations as provided in Section 7 and (f) to

 

11

25705872v.3

 

discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted hereunder), and Grantor agrees to reimburse Secured Party on demand for any payment made or any expense incurred by Secured Party in connection therewith, provided that this authorization shall not relieve Grantor of any of its obligations under this Agreement or under the Credit Agreement.

 

8.4     Specific Performance of Certain Covenants. Grantor acknowledges and agrees

that a breach of any of the covenants contained in Sections 4.1(d), 4.1(f), 4.2, or 8.8 or in Section 7 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of Secured Party to seek and obtain specific performance of other Obligations of Grantor contained in this Agreement, that the covenants of Grantor contained in the Sections referred to in this Section 8.4 shall be specifically enforceable against Grantor.

 

8.5     Single Purpose Entity. Grantor: (a) does not own any asset other than the

Collateral (other than deposit accounts maintained in the ordinary course of business); (b) is not engaged in any business other than the ownership of the Collateral; (c) has not incurred any Debt (as defined in the Credit Agreement), secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Grantor’s present and future obligations to Lender under this Agreement and the New Note Purchase Agreement; (d) has not made any loans or advances to any third party; (e) is solvent and is able to pay its debts from assets as the same shall become due; (f) has done all things necessary to preserve its existence as a limited liability company; (g) has maintained its assets in such a manner that it is not costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (h) has at all times since its formation, observed all legal and customary formalities regarding its formation; and (i) does not hold itself out to be responsible for the debts and obligations of any other Person.

 

8.6     Debt. Grantor shall not, directly or indirectly, incur, create, assume or permit any

Debt to exist other than Debt to Lender.

 

8.7     Dispositions Not Authorized. Grantor is not authorized to sell or otherwise

dispose of the Collateral and notwithstanding any course of dealing between Grantor and Secured Party or other conduct of Secured Party, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.1(e)) shall be binding upon Secured Party unless such authorization is in writing signed by Secured Party.

 

8.8     Benefit of Agreement. The terms and provisions of this Agreement shall be

binding upon and inure to the benefit of Grantor, Secured Party and their respective successors and assigns, except that Grantor shall not have the right to assign its rights or delegate its Obligations under this Agreement or any interest herein, without the prior written consent of Secured Party.

 

8.9     Survival of Representations. All representations and warranties of Grantor

contained in this Agreement shall survive the execution and delivery of this Agreement.

 

8.10 Taxes and Expenses. Any taxes (including income taxes) payable or ruled payable by Federal or State authority in respect of this Agreement shall be paid by Grantor, together with

 

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25705872v.3

 

interest and penalties, if any. Grantor shall reimburse Secured Party for any and all out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of Secured Party) paid or incurred by Secured Party in connection with the preparation, execution, delivery, and administration of this Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). In addition, Grantor shall be obligated to pay all of the costs and expenses incurred by Secured Party, including attorneys' fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Secured Obligations, or in the prosecution or defense of any action or proceeding by or against Secured Party or Grantor concerning any matter arising out of or connected with this Agreement, any Collateral or the Secured Obligations, including any of the foregoing arising in, arising under or related to a case under any bankruptcy, insolvency or similar law. Any and all costs and expenses incurred by Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by Grantor.

 

8.11 Headings. The title of and Section headings in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Agreement.

 

8.12 Termination. This Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Secured Obligations outstanding) until (a) the Credit Agreement has terminated pursuant to its express terms and (b) all of the Secured Obligations have been indefeasibly paid and performed in full and no commitments of Secured Party which would give rise to any Secured Obligations are outstanding; provided that any termination of this Agreement under this Section 8.12 is subject to Section 8.20.

 

8.13 Relationship of the Parties. Notwithstanding any prior business or personal relationship between Grantor and Lender, or any officer, director or employee of Lender, that may exist or have existed, the relationship between Grantor and Lender is solely that of debtor and creditor, Lender has no fiduciary or other special relationship with Grantor, Grantor and Lender are not partners or joint venturers, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between Grantor and Lender to be other than that of debtor and creditor.

 

8.14 Setoff. If an Event of Default exists, 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 Grantor, 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 Grantor whether or not the Obligations are then due. As further security for the Obligations, Grantor hereby grants to Lender a security interest in all money, instruments, and other Property of Grantor 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, Grantor hereby grants to Lender a security interest in all deposits (general or special, time or demand, provisional or final) and other accounts of Grantor now or hereafter on deposit with or held by Lender and all other sums at any time credited by or owing from Lender to Grantor. The rights and remedies of Lender hereunder are in addition to

 

13

25705872v.3

 

other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

 

8.15 FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT 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 ORAL AGREEMENTS BETWEEN THE PARTIES.

 

8.16 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

 

8.17 INDEMNITY. GRANTOR DOES HEREBY ASSUME ALL LIABILITY FOR THE COLLATERAL, FOR THE SECURITY INTEREST OF SECURED PARTY, AND FOR ANY USE, POSSESSION, MAINTENANCE, AND MANAGEMENT OF, ALL OR ANY OF THE COLLATERAL, INCLUDING ANY TAXES ARISING AS A RESULT OF, OR IN CONNECTION WITH, THE TRANSACTIONS CONTEMPLATED HEREIN, AND AGREES TO ASSUME LIABILITY FOR, AND TO INDEMNIFY AND HOLD SECURED PARTY AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES HARMLESS FROM AND AGAINST, ANY AND ALL CLAIMS, CAUSES OF ACTION, OR LIABILITY, FOR INJURIES TO OR DEATHS OF PERSONS AND DAMAGE TO PROPERTY, HOWSOEVER ARISING FROM OR INCIDENT TO SUCH USE, POSSESSION, MAINTENANCE, AND MANAGEMENT, WHETHER SUCH PERSONS BE AGENTS OR EMPLOYEES OF GRANTOR OR OF THIRD PARTIES, OR SUCH DAMAGE BE TO PROPERTY OF GRANTOR OR OF OTHERS. GRANTOR DOES HEREBY INDEMNIFY, SAVE, AND HOLD SECURED PARTY AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES HARMLESS FROM AND AGAINST, AND COVENANTS TO DEFEND SECURED PARTY AGAINST, ANY AND ALL LOSSES, DAMAGES, CLAIMS, COSTS, PENALTIES, LIABILITIES, AND EXPENSES (COLLECTIVELY, “CLAIMS”), INCLUDING COURT COSTS AND REASONABLE ATTORNEYS’ FEES, AND ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF SECURED PARTY OR ANY OF THEIR RESPECTIVE OFFICERS, EMPLOYEES, AGENTS, ADVISORS, EMPLOYEES, OR REPRESENTATIVES, HOWSOEVER ARISING OR INCURRED BECAUSE OF, INCIDENT TO, OR WITH RESPECT TO COLLATERAL OR ANY USE, POSSESSION, MAINTENANCE, OR MANAGEMENT THEREOF; PROVIDED, HOWEVER, THAT THE INDEMNITY SET FORTH IN THIS SECTION 8.17 WILL NOT APPLY TO CLAIMS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SECURED PARTY OR ANY OF THEIR RESPECTIVE OFFICERS, EMPLOYEES, AGENTS, ADVISORS, EMPLOYEES, OR REPRESENTATIVES, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN FINAL AND NONAPPEALABLE JUDGMENT.

 

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8.18 Limitation of Obligations.

 

(a)     The provisions of this Agreement are severable, and in any action or proceeding involving any applicable law affecting the rights of creditors generally, if the Obligations of Grantor under this Agreement would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of Grantor’s liability under this Agreement, then, notwithstanding any other provision of this Agreement to the contrary, the amount of such liability shall, without any further action by Grantor or Secured Party, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being Grantor’s “Maximum Liability”).

 

(b)     Notwithstanding any or all of the Secured Obligations becoming unenforceable against Grantor or the determination that any or all of the Secured Obligations shall have become discharged, disallowed, invalid, illegal, void or otherwise unenforceable as against Grantor (whether by operation of any present or future law or by order of any court or governmental agency), the Secured Obligations shall, for the purposes of this Agreement, continue to be outstanding and in full force and effect.

 

8.19 NO RELEASE OF GRANTOR. THE OBLIGATIONS OF GRANTOR UNDER THIS AGREEMENT SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL GRANTOR BE DISCHARGED FROM ANY OBLIGATION HEREUNDER, FOR ANY REASON WHATSOEVER (other than pursuant to Section 8.12), including (and whether or not the same shall have occurred or failed to occur once or more than once and whether or not Grantor shall have received notice thereof):

 

(a)     (i) any increase in the principal amount of, or interest rate applicable to,

(ii) any extension of the time of payment, observance or performance of, (iii) any other amendment or modification of any of the other terms and provisions of, (iv) any release, composition or settlement (whether by way of acceptance of a plan of reorganization or otherwise) of, (v) any subordination (whether present or future or contractual or otherwise) of, or (vi) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, the Secured Obligations;

 

(b)     (i) any failure to obtain, (ii) any release, composition or settlement of,

(iii) any amendment or modification of any of the terms and provisions of, (iv) any subordination of, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, any Loan Documents;

 

(c)     (i) any failure to obtain or any release of, any failure to protect or preserve, (ii) any release, compromise, settlement or extension of the time of payment of any obligations constituting, (iii) any failure to perfect or maintain the perfection or priority of any Lien upon, (iv) any subordination of any Lien upon, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of any Lien or intended Lien upon, any Collateral now or hereafter securing the Secured Obligations or any other guaranties thereof;

 

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(d)     any termination of or change in any relationship between Grantor and Secured Party or the addition or release of Grantor;

 

(e)     any exercise of, or any failure or election not to exercise, delay in the exercise of, waiver of, or forbearance of or other indulgence with respect to, any right, remedy or power available to Secured Party, including (i) any election not to or failure to exercise any right of setoff, recoupment or counterclaim, (ii) any election of remedies effected by Secured Party, including the foreclosure upon any real estate constituting Collateral, whether or not such election affects the right to obtain a deficiency judgment, and (iii) any election by Secured Party in any proceeding under the Bankruptcy Code of the application of Section 1111(b)(2) of the Bankruptcy Code; and

 

(f)     ANY OTHER ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR CIRCUMSTANCE THAT (i) VARIES THE RISK OF GRANTOR UNDER THIS AGREEMENT OR (ii) BUT FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF GRANTOR HEREUNDER OR DISCHARGE GRANTOR FROM ANY OBLIGATION HEREUNDER.

 

8.20 Subordination of Certain Claims. Any and all rights and Claims of Grantor against Borrower or against any other Person or property, arising by reason of any payment by Grantor to Secured Party pursuant to the provisions, or in respect, of this Agreement shall be subordinate, junior and subject in right of payment to the prior and indefeasible payment in full of all Secured Obligations to Secured Party, and until such time, Grantor defers all rights of subrogation, contribution or any similar right and until such time agree not to enforce any such right or remedy Secured Party may now or hereafter have against Borrower, any endorser or any other Person of all or any part of the Secured Obligations and any right to participate in, or benefit from, any security given to Secured Party to secure any of the Secured Obligations. All Liens and Security Interests of Grantor, whether now or hereafter arising and howsoever existing, in assets of Borrower or any assets securing the Secured Obligations shall be and hereby are subordinated to the rights and interests of Secured Party and in those assets until the prior and indefeasible final payment in full of all Secured Obligations to Secured Party. If any amount shall be paid to Grantor contrary to the provisions of this Section at any time when any of the Secured Obligations shall not have been indefeasibly paid in full, such amount shall be held in trust for the benefit of Secured Party and shall forthwith be turned over in kind in the form received to Secured Party (duly endorsed if necessary) to be credited and applied against the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement

 

8.21 Recovered Payments. The Secured Obligations shall be deemed not to have been paid, observed or performed, and the Grantor’s obligations under this Agreement in respect thereof shall continue and not be discharged, to the extent that any payment, observance or performance thereof by Grantor is recovered from or paid over by or for the account of Secured Party for any reason, including as a preference or fraudulent transfer or by virtue of any subordination (whether present or future or contractual or otherwise) of the Secured Obligations, whether such recovery or payment over is effected by any judgment, decree or order of any court or governmental agency, by any plan of reorganization or by settlement or compromise by Secured Party (whether or not consented to by Grantor) of any claim for any such recovery or payment over. Grantor hereby

 

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expressly waives the benefit of any applicable statute of limitations and agrees that it shall be liable hereunder whenever such a recovery or payment over occurs.

 

9.     NOTICES

 

9.1     Sending Notices. Whenever any notice is required or permitted to be given under the terms of this Agreement, the same shall, except as otherwise expressly provided for in this Agreement, be given in writing, and sent by: (a) certified mail, return receipt requested, postage pre-paid; (b) a national overnight delivery service; (c) hand delivery with written receipt acknowledged; or (d) facsimile, followed by a copy sent in accordance with clause (b) or (c) of this Section 9.1 sent the same day as the facsimile, in each case to the address or facsimile number (together with a contemporaneous copy to each copied addressee), as applicable, set forth in Exhibit D. Grantor and Secured Party shall not conduct communications contemplated by this Agreement by electronic mail or other electronic means, except by facsimile transmission as expressly provided in this Section 9.1, and the use of the phrase “in writing” or the word “written” shall not be construed to include electronic communications except by facsimile transmissions as expressly provided in this Section 9.1. Any notice required or given hereunder shall be deemed received the same Business Day if sent by hand delivery or facsimile, the next Business Day if sent by overnight courier, or three (3) Business Days after posting if sent by certified mail, return receipt requested; provided that any notice received after 5:00 p.m. Dallas, Texas time on any Business Day or received on any day that is not a Business Day shall be deemed to have been received on the following Business Day.

 

9.2     Change in Address for Notices. Grantor and Secured Party may change the address for service of notice upon it by a notice in writing to the other parties.

 

9.3     Partial Release Provisions. Secured Party has been notified by Grantor and Secured Party agrees that at the request of Grantor portions of the Collateral may be released from the Security Interest of Secured Party subject to the terms and conditions of this Section 9.3. The conditions precedent to the partial release of Collateral are: (a) the Collateral to be released shall be the Collateral (“Partial Release Collateral”) described on Exhibit E attached hereto; (b) the release shall be for the purpose of redeeming the membership interests held in Grantor by members Scottie Ann Shelton Trust, Andrew David Durham and Wendy Hanks Durham, and (c) David L. Copeland shall deliver a request for release of collateral, in form and content reasonably acceptable to Secured Party, to Secured Party at least three (3) business days prior to the date of the intended release.

 

9.4     Amendment and Restatement. This Agreement is executed in amendment and restatement (but not in novation) of that certain Pledge Agreement dated as of April 17, 2017 by and between Grantor and Lender.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS.]

 

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IN WITNESS WHEREOF, Grantor and Secured Party have executed this Agreement as of the date first above written.

 

GRANTOR: 

 

HHS GUARANTY, LLC,

a Texas limited liability company

 

By:      

David L. Copeland

Manager and President

 

SECURED PARTY:

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

By:      

Annalese Smolik

Senior Vice President

 

 

 

Signature Page to

Amended and Restated Pledge Agreement

 

25705872v.3

 

EXHIBIT A

 

List of Instruments, Securities and Other Investment Property

 

Account No. 3402P632 in the name of HHS Guaranty, LLC, a Texas limited liability company, maintained at Raymond James & Associates, Inc.

 

 

 

Exhibit A to Pledge Agreement

 

25705872v.3

 

EXHIBIT B

 

 

 

UCC Filing Jurisdictions

 

 

 

Grantor

HHS Guaranty, LLC

Jurisdiction 

Texas Secretary of State

 

 

Exhibit B to Pledge Agreement

 

25705872v.3

 

EXHIBIT C

 

 

 

Federal Employer Identification Number

 

Grantor

Federal Employer
Identification Number

 

 

HHS Guaranty, LLC

82-1144597

 

 

 

 

Exhibit C to Pledge Agreement

 

25705872v.3

 

EXHIBIT D

 

 

 

Principal Place of Business and Mailing Address:

 

273 Walnut Street
Abilene, Texas 79601

 

Attention: 

 

David L. Copeland

 

 

 

Exhibit D to Pledge Agreement

 

25705872v.3

 

ANNEX D

 

 

 

SECOND AMENDMENT TO SECURITY AGREEMENT

 

 

 

Annex D - i

 

25612750v.8 106916/01653

 

SECOND AMENDMENT TO SECURITY AGREEMENT

 

This SECOND AMENDMENT TO SECURITY AGREEMENT (this “Amendment”), dated as of May 11, 2020, is among Harte-Hanks Direct, Inc., a New York corporation, Harte-Hanks Data Services LLC, a Maryland limited liability company, Harte-Hanks Direct Marketing/Baltimore, Inc., a Maryland corporation, Harte-Hanks Direct Marketing/Dallas, Inc., a Delaware corporation, Harte-Hanks Direct Marketing/Jacksonville, LLC, a Delaware limited liability company, Harte-Hanks Direct Marketing/Kansas City, LLC, a Delaware limited liability company, Harte-Hanks Logistics, LLC, a Florida limited liability company, Harte-Hanks Response Management/Austin, Inc., a Delaware corporation, Harte-Hanks Response Management/Boston, Inc., a Massachusetts corporation, Harte-Hanks Strategic Marketing, Inc., a Delaware corporation, NSO, Inc., an Ohio corporation, Sales Support Services, Inc., a New Jersey corporation (collectively, “New Grantors”), Harte Hanks, Inc., a Delaware corporation (“Parent”, or “Borrower”, and together with New Grantors, collectively, “Grantors”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“Secured Party”).

 

RECITALS:

 

WHEREAS, Borrower and Secured Party have entered into that certain Credit Agreement dated as of April 17, 2017, as amended by First Amendment to Credit Agreement dated as of January 9, 2018, amended by Second Amendment to Credit Agreement dated as of May 7, 2019, and as amended by Third Amendment to Credit Agreement dated as of May 11, 2020 (as amended, the “Credit Agreement”).

 

WHEREAS, pursuant to the Loan Agreement Borrower executed that certain Security Agreement, dated as of April 17, 2017 and New Grantors joined the Security Agreement pursuant to that certain Joinder to Security Agreement dated as of September 21, 2017 among New Grantors, Borrower and Secured Party, as amended by that certain First Amendment to Security Agreement dated as of January 9, 2018 (as modified by the Joinder to Security Agreement and First Amendment to Security Agreement, the “Security Agreement”).

 

WHEREAS, the execution of this Amendment is a condition to Secured Party entering into the Third Amendment to Credit Agreement referred to above.

 

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are acknowledged and agreed, Grantors and Secured Party hereby agree as follows:

ARTICLE I.
Amendments

 

1.1     Amendment to Section 4.2(e). Effective as of the date hereof, Section 4.2(e) to the Security Agreement is amended to read in its entirety as follows:

 

(e)     Disposition of Collateral. No Grantor will sell, lease, license or otherwise dispose of the Collateral except (i) the disposition of Equipment located in Jacksonville,

 

- 1 -

25676593v.6 106916/01653

 

Florida pursuant to that certain Asset Purchase Agreement dated as of April 24, 2020 between Harte-Hanks Direct Marketing/Jacksonville, LLC, a Delaware limited liability company and Summit Direct Mail, Inc., a Texas corporation (the “Jacksonville Equipment”), (ii) prior to the occurrence of an Event of Default, sales, licenses, leases or other dispositions of Inventory and Equipment (other than the Jacksonville Equipment) not to exceed $2,000,000.00 in any calendar year and shall not exceed $4,000,000.00 in the aggregate from and after May 11, 2020 (other than the proceeds of the Jacksonville Equipment), (iii) following the occurrence and during the continuation of an Event of Default, such sales, licenses, leases or other dispositions permitted by the foregoing clause (ii) as long as such Grantor has not received a notice from Secured Party instructing such Grantor to cease such transactions, and (iv) the disposition of Proceeds of Inventory and Accounts collected in the ordinary course of business until such time as such Grantor receives a notice from Secured Party pursuant to Section 5.4 and during such time as the election contained in such notice remains in effect.

 

ARTICLE II.

 

Additional Provisions

 

2.1     Acknowledgment by Grantors. Except as otherwise specified herein, the terms and

provisions hereof shall in no manner impair, limit, restrict or otherwise affect the obligations of Grantors or any third party to Secured Party under any Loan Document (as defined in the Credit Agreement).

 

2.2     Additional Documentation. From time to time, Grantors shall execute or procure

and deliver to Secured Party such other and further documents and instruments evidencing, securing or pertaining to the Security Agreement or the other Loan Documents as shall be reasonably requested by Secured Party so as to evidence or effect the terms and provisions hereof.

 

2.3     Continued Effectiveness. Except as expressly modified by the terms and provisions

hereof, each of the terms and provisions of the Security Agreement and the other Loan Documents are hereby ratified and confirmed, and shall remain in full force and effect. he liens and security interests created by the Security Agreement remain in full force and effect.

 

2.4     GOVERNING LAW. THE TERMS AND PROVISIONS HEREOF SHALL

BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

 

2.5     Binding Agreement. This Amendment shall be binding upon the heirs, executors,

administrators, personal representatives, successors and assigns of the parties hereto.

 

2.6     Counterparts. This Amendment may be executed in any number of counterparts,

each of which shall be deemed an original and all of which together shall be construed as one and the same instrument. Delivery of an executed signature page of this Amendment and/or any other Loan Document by a scanned PDF attached to an e-mail or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

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25676593v.6 106916/01653

 

2.7 NO ORAL AGREEMENTS. THIS AMENDMENT, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 

 

 

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25676593v.6 106916/01653

 

EXECUTED as of the date first above written.

 

GRANTORS: 

 

HARTE-HANKS DIRECT, INC.

 

By:     
Name:
Title:

 

HARTE-HANKS DATA SERVICES LLC

 

By:     
Name:
Title:

 

HARTE-HANKS DIRECT

MARKETING/BALTIMORE, INC.

 

By:     
Name:
Title:

 

HARTE-HANKS DIRECT MARKETING/DALLAS, INC.

 

By:     
Name:
Title:

 

HARTE-HANKS DIRECT

MARKETING/JACKSONVILLE, LLC

 

By:     
Name:
Title:

 

HARTE-HANKS DIRECT

MARKETING/KANSAS CITY, LLC

 

By:     
Name:
Title:

 

[Signature Page to Second Amendment to Security Agreement]

25676593v.6 106916/01653

 

HARTE-HANKS LOGISTICS, LLC

 

By:      Name: Title:

 

HARTE-HANKS RESPONSE MANAGEMENT/AUSTIN, INC.

 

By:      Name: Title:

 

HARTE-HANKS RESPONSE MANAGEMENT/BOSTON, INC.

 

By:      Name: Title:

 

HARTE-HANKS STRATEGIC MARKETING, INC.

 

By:      Name: Title:

 

NSO, INC.

 

By:      Name: Title:

 

SALES SUPPORT SERVICES, INC.

 

By:      Name: Title:

 

[Signature Page to Second Amendment to Security Agreement]

 

25676593v.6 106916/01653

 

HARTE HANKS, INC.

 

By:     
Name:
Title:

 

SECURED PARTY:

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

By:      

Annalese Smolik

Senior Vice President

 

 

 

[Signature Page to Second Amendment to Security Agreement]

 

25676593v.6 106916/01653

 

Exhibit 10.1(b)

 

REVOLVING PROMISSORY NOTE

 

$19,000,000.00     May 11, 2020

 

FOR VALUE RECEIVED, HARTE HANKS, INC., a Delaware corporation (“Borrower”), having an address at 9601 McAllister Freeway, Suite 610, San Antonio, Texas 78216, hereby promises to pay to the order of TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (together with its successors and assigns and any subsequent holders of this Note, “Lender”), as hereinafter provided, the principal sum of NINETEEN MILLION AND NO/100 DOLLARS ($19,000,000.00) or so much thereof as may be advanced by Lender from time to time hereunder to or for the benefit or account of Borrower, together with interest thereon at the Note Rate (as hereinafter defined), and otherwise in strict accordance with the terms and provisions hereof.

 

1.     DEFINITIONS

 

1.1     Definitions. As used in this Note, the following terms shall have the following meanings:

 

Applicable Marginmeans the percent per annum set forth below:

 

Applicable Margin for
Base Rate Portion

Applicable Margin
for LIBOR Portion

 

 

-0.75 %

1.95 %

 

 

Applicable Rate” means: (a) in the case of a Portion bearing interest based upon the Base Rate, the Base Rate plus the Applicable Margin; and (b) in the case of a Portion bearing interest based upon LIBOR, LIBOR plus the Applicable Margin.

Base Rate” means for any day, a rate of interest equal to the Prime Rate for such day. “Borrower” has the meaning set forth in the introductory paragraph of this Note.

 

Business Day” means a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in Dallas, Texas are authorized or required by law to be closed. Unless otherwise provided, the term “days” when used herein means calendar days.

 

Change” means (a) any change after the date of this Note in the risk-based capital guidelines applicable to Lender, or (b) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Note that affects capital adequacy or the amount of capital required or expected to be maintained by Lender or any entity controlling Lender; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change,” regardless of the date enacted, adopted or issued.

 

REVOLVING NOTE     PAGE 1 OF 13 25614252v.4

 

 

Charges” means all fees, charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Lender in connection with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.

 

Credit Agreement” means the Credit Agreement dated as of April 17, 2017, executed by Lender and Borrower, as amended by First Amendment to Credit Agreement dated as of January 9, 2018 and Second Amendment to Credit Agreement dated as of even date herewith, as modified, amended, renewed, extended, and restated from time to time.

 

Debtor Relief Laws” means Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition, extension or adjustment of debts, or similar laws affecting the rights of creditors.

 

Default Interest Rate” means a rate per annum equal to the Note Rate plus four percent (4%), but in no event in excess of the Maximum Rate.

 

Event of Default” has the meaning set forth in the Credit Agreement.

 

Funding Lossmeans the amount (which shall be payable on demand by Lender) necessary to promptly compensate Lender for, and hold it harmless from, any loss, cost or expense incurred by Lender as a result of:

 

(a)     any payment or prepayment of any Portion bearing interest based upon LIBOR on a day other than the last day of the relevant LIBOR Interest Period (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

 

(b)     any failure by Borrower to prepay, borrow, continue or convert a Portion bearing or selected to bear interest based upon LIBOR on the date or in the amount selected by Borrower;

 

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. Borrower shall also pay any customary administrative fees charged by Lender in connection with the foregoing. For purposes of calculating amounts payable by Borrower to Lender hereunder, Lender shall be deemed to have funded the Portion based upon LIBOR by a matching deposit or other borrowing in the London inter-bank market for a comparable amount and for a comparable period, whether or not such Portion was in fact so funded.

 

Lender” has the meaning set forth in the introductory paragraph of this Note.

 

LIBORmeans, with respect to each LIBOR Interest Period, the rate (expressed as a percentage per annum and adjusted as described in the last sentence of this definition of LIBOR) for deposits in United States Dollars (commonly known as “LIBOR”) for a term equal to the LIBOR Interest Period that is published or announced on Bloomberg BTMM as calculated by Intercontinental Exchange (ICE) Benchmark Administration Limited (“ICE”) (or any successor thereto) as of 11:00 a.m., London, England, time, on the related LIBOR Determination Date. If such rate shall cease to be published or announced on Bloomberg BTMM or if Lender determines (which determination shall be conclusive absent manifest error) that the rate calculated by ICE no longer accurately reflects the

 

 

 

REVOLVING NOTE     PAGE 2 OF 13

 

 

rate available to Lender in the London interbank market and, that such circumstance is likely to be temporary, LIBOR shall be determined by Lender to be the offered rate as announced by a recognized commercial service as representing the average LIBOR rate for deposits in United States dollars for a term equal to the LIBOR Interest Period as of 11:00 a.m. on the relevant LIBOR Determination Date.

 

LIBOR shall be adjusted on each LIBOR Determination Date by dividing LIBOR by a number determined by subtracting from 1.00 the then-stated maximum rate, expressed as a decimal, at which reserves (including any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained by member banks of the United States Federal Reserve System for eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D).

 

Notwithstanding anything herein to the contrary, in no event shall LIBOR (or any Alternative Rate) ever be less than one percent (1.00%). LIBOR and any Alternative Rate may be adjusted from time to time in Lender’s sole discretion for then-applicable, but actual, reserve requirements, deposit insurance assessment rates, marginal emergency, supplemental, special and other reserve percentages, and other actual regulatory costs.

 

LIBOR Banking Daymeans a day on which commercial banks in the City of London, England are open for business and dealing in offshore dollars.

 

LIBOR Determination Datemeans a day that is three (3) LIBOR Banking Days prior to the beginning of the relevant LIBOR Interest Period.

 

LIBOR Interest Periodmeans a period of one (1) month. The first day of the interest period must be a LIBOR Banking Day. The last day of the interest period and the actual number of days during the interest period will be determined by Lender using the practices of the London inter-bank market.

Loan Documentshas the meaning set forth in the Credit Agreement. “Maturity Date” means April 17, 2022.

 

Maximum Rate” means, at all times, 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 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 Rate resulting from a change in the Maximum Rate shall take effect without notice to Borrower at the time of such change in the Maximum Rate.

 

Note” means this Note.

 

Note Rate” means the rate equal to the lesser of (a) the Maximum Rate or (b) the Applicable Rate.

 

 

 

REVOLVING NOTE     PAGE 3 OF 13

 

 

Payment Date” means the first day of each and every calendar month during the term of this Note.

 

Portionmeans any principal amount bearing interest based upon the Base Rate or LIBOR.

 

Prime Ratemeans, for any day, the rate of interest announced from time to time by Lender as its “base” or “prime” rate of interest, which Borrower hereby acknowledges and agrees may not be the lowest interest rate charged by Lender and is set by Lender in its sole discretion, changing when and as said prime rate changes. Notwithstanding anything herein to the contrary, in no event shall the Prime Rate ever be less than three and one-fourth percent (3.25%).

 

Related Indebtedness” means any and all indebtedness paid or payable by Borrower to Lender pursuant to the 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, except such indebtedness which has been paid or is payable by Borrower to Lender under this Note.

 

1.2     Rules of Construction. Any capitalized term used in this Note and not otherwise defined herein shall have the meaning ascribed to such term in the Credit Agreement. All terms used herein, whether or not defined in Section 1.1 hereof, and whether used in singular or plural form, shall be deemed to refer to the object of such term whether such is singular or plural in nature, as the context may suggest or require. All personal pronouns used herein, whether used in the masculine, feminine or neutral gender, shall include all other genders; the singular shall include the plural and vice versa.

 

2.     PAYMENT TERMS

 

2.1     Payment of Principal and Interest; Revolving Nature. All accrued but unpaid interest on the principal balance of this Note outstanding from time to time shall be payable on each Payment Date. The then outstanding principal balance of this Note and all accrued but unpaid interest thereon shall be due and payable on the Maturity Date. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of the Credit Agreement; provided, however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this Note at any time shall be the total amount advanced hereunder by Lender less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by Lender or otherwise noted in Lender’s records, which notations shall be, absent manifest error, conclusive evidence of the amounts owing hereunder from time to time.

 

2.2     Application. Except as expressly provided herein to the contrary, all payments on this Note shall be applied in the following order of priority: (a) the payment or reimbursement of any expenses, costs or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Borrower shall be obligated or Lender shall be entitled pursuant to the provisions of this Note or the other Loan Documents; (b) the payment of accrued but unpaid interest hereon; and (c) the payment of all or any portion of the principal balance hereof then outstanding hereunder, in the direct order of maturity. If an Event of Default exists under this Note or under any of the other Loan Documents, then Lender may, at the sole option of Lender, apply any such payments, at any

 

 

 

REVOLVING NOTE     PAGE 4 OF 13

 

 

time and from time to time, to any of the items specified in clauses (a), (b) or (c) above without regard to the order of priority otherwise specified in this Section 2.2 and any application to the outstanding principal balance hereof may be made in either direct or inverse order of maturity.

 

2.3     Payments. All payments under this Note made to Lender shall be made in

immediately available funds at 745 E. Mulberry, Suite 300, San Antonio Texas 78212 (or at such other place as Lender, in Lender’s sole discretion, may have established by delivery of written notice thereof to Borrower from time to time), without offset, in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private. Payments by check or draft shall not constitute payment in immediately available funds until the required amount is actually received by Lender in full. Payments in immediately available funds received by Lender in the place designated for payment on a Business Day prior to 11:00 a.m. (Dallas, Texas time) at such place of payment shall be credited prior to the close of business on the Business Day received, while payments received by Lender on a day other than a Business Day or after 11:00 a.m. (Dallas, Texas time) on a Business Day shall not be credited until the next succeeding Business Day. If any payment of principal or interest on this Note shall become due and payable on a day other than a Business Day, then such payment shall be made on the next succeeding Business Day. Any such extension of time for payment shall be included in computing interest which has accrued and shall be payable in connection with such payment.

 

2.4     Rate Selection, Etc. (a) Borrower may select, subject to the terms and conditions set

forth below, a Note Rate based upon either LIBOR or the Base Rate for the entire principal amount of this Note then outstanding or any Portion thereof. Borrower’s ability to select a Note Rate based on LIBOR shall be subject to the definition of “LIBOR” in Section 1 and be suspended or terminated as provided for therein and in this Section 2.4. No more than three (3) LIBOR Interest Periods may be outstanding at any time, and each Portion bearing interest based on LIBOR shall be at least $100,000. Borrower may designate the Portion to bear interest based upon LIBOR by giving Lender written notice of its selection before 11:00 a.m. (Dallas, Texas time) on the LIBOR Determination Date, which selection shall be irrevocable, for each LIBOR Interest Period. If an Event of Default has occurred and is continuing, the option to select LIBOR as a basis for the Note Rate shall be terminated. No LIBOR Interest Period may extend beyond the Maturity Date. Any Portion for which LIBOR Interest Period is not selected shall bear interest at a Note Rate based upon the Base Rate. The determination by Lender of the Note Rate shall, in the absence of manifest error, be conclusive and binding in all respects.

 

(b)     Notwithstanding anything contained herein to the contrary and subject to clause 2.4(c) below, if at any time, Lender determines (which determination shall be conclusive in the absence of manifest error) that (i) ICE (or any other successor thereto) has ceased to calculate LIBOR, (ii) deposits in United States Dollars in the relevant amounts and of the relevant maturity are not being offered to banks in the London interbank market for the applicable amount and requested LIBOR Interest Period, (iii) adequate and reasonable means do not exist for determining LIBOR for any requested LIBOR Interest Period, (iv) LIBOR for any requested LIBOR Interest Period does not accurately reflect the rate available to Lender in the London interbank market, (v) any applicable law or regulation or any change therein on the interpretation or application thereof or compliance therewith by Lender prohibits, restricts, or makes impossible the charging of interest based on LIBOR or shall make it unlawful for Lender to make or maintain the indebtedness evidenced by this Note in Eurodollars, (vi) LIBOR does not adequately and fairly reflect the cost to Lender of making or maintaining the Loan, due to changes in administrative costs, fees, tariffs and taxes and other matters

 

 

 

REVOLVING NOTE     PAGE 5 OF 13

 

 

outside of Lender’s reasonable control, then Lender shall give Borrower prompt notice thereof, and this Note shall bear interest, and continue to bear interest until Lender determines that the applicable circumstance described in the foregoing clauses (b)(i), (ii), (iii), (iv), (v) or (vi) no longer pertains, at the Base Rate plus Applicable Margin.

 

(c)     If, at any time, Lender determines (which determination shall be conclusive absent manifest error) that (i) any circumstance described in clauses (b)(i)-(b)(vi) has arisen and is not likely to be temporary, or (ii) if (x) ICE or the Alternative Reference Rates Committee convened by the Board of Governors of the Federal Reserve System has announced a commercial loan index as an alternative to LIBOR and commercial banks in the United States are using such alternative loan index for new commercial loans, (y) LIBOR is no longer being widely used by commercial banks as a loan index in the United States for new commercial loans similar to the loan to Borrower, or (z) a governmental authority having jurisdiction over Lender has made a public statement identifying a specific date after which LIBOR shall no longer be used for determining interest rates for new commercial loans originated in the United States, then Lender may notify Borrower of such circumstance. Following such notice, any obligation of Lender to maintain any indebtedness under this Note at a rate based on LIBOR and Borrower’s option to elect a rate based on LIBOR shall terminate; provided, however, Lender may establish an alternate index rate of interest to LIBOR (and an interest rate margin) after giving due consideration to the then-prevailing market convention for determining an index rate of interest for new commercial loans originated by commercial banks in the United States as determined by Lender (the “Alternative Rate”). If requested by Lender, Borrower shall enter into an amendment to this Note to reflect the Alternative Rate and such other related changes to this Note as may be applicable. If no Alternative Rate has been established and Lender has notified Borrower that any circumstance under clauses (c)(i) or (c)(ii) has arisen, then any indebtedness under this Note shall bear interest (and continue to bear interest) at the Base Rate (with LIBOR no longer being used to determine the Base Rate) plus the Applicable Margin unless and until an Alternative Rate is established.

 

2.5     Computation Period. Interest on the indebtedness evidenced by this Note shall be

computed on the basis of a three hundred sixty (360) day year and shall accrue on the actual number of days elapsed for any whole or partial month in which interest is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to the close of business on the Business Day received as provided in Section 2.3 hereof. Each determination by Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

 

2.6     Prepayment. Borrower shall have the right to prepay, at any time and from time to

time upon at least five (5) Business Days prior written notice to Lender, without fee, premium or penalty, all or any portion of the outstanding principal balance hereof; provided, however, that (a) such prepayment shall also include any and all accrued but unpaid interest on the amount of principal being so prepaid through and including the date of prepayment, plus any other sums which have become due to Lender under the other Loan Documents on or before the date of prepayment, but which have not been fully paid and (b) such prepayment shall also include any Funding Loss. Prepayments of principal shall be applied in inverse order of maturity.

 

2.7     Unconditional Payment. Borrower is and shall be obligated to pay all principal,

interest and any and all other amounts which become payable under this Note or under any of the

 

 

 

REVOLVING NOTE     PAGE 6 OF 13

 

 

other Loan Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction whatsoever and without any reduction for counterclaim or setoff whatsoever. If at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any Debtor Relief Law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

 

2.8     Partial or Incomplete Payments. Remittances in payment of any part of this Note

other than in the required amount in immediately available funds at the place where this Note is payable shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in full in accordance herewith and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the full amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default in the payment of this Note.

 

2.9     Default Interest Rate. For so long as any Event of Default exists under this Note or

under any of the other Loan Documents, regardless of whether or not there has been an acceleration of the indebtedness evidenced by this Note, and at all times after the maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and in addition to all other rights and remedies of Lender hereunder, interest shall accrue on the outstanding principal balance hereof at the Default Interest Rate, and such accrued interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender’s actual damages resulting from any late payment or Event of Default, and such late charges and accrued interest are reasonable estimates of those damages and do not constitute a penalty.

 

2.10 Late Charge. At the option of Lender, Borrower will pay Lender, on demand, (i) a “late charge” equal to $2,500 (but not to exceed the Maximum Rate) when such installment is not paid within five (5) days following the date such installment is due and (ii) a processing fee in the amount of $25.00 for each check which is provided to Lender by Borrower in payment for an obligation owing to Lender under any Loan Document but is returned or dishonored for any reason, in order to cover the additional expenses involved in handling delinquent and returned or dishonored payments.

 

2.11 Change. If Lender determines that the amount of capital required or expected to be maintained by Lender or any entity controlling Lender, is increased as a result of a Change, then, within fifteen (15) days of demand by Lender, Borrower shall pay to Lender the amount necessary to compensate Lender for any shortfall in the rate of return on the portion of such increased capital that Lender determines is attributable to this Note or the principal amount outstanding hereunder (after taking into account Lender’s policies as to capital adequacy).

 

 

 

REVOLVING NOTE     PAGE 7 OF 13

 

3.     EVENT OF DEFAULT AND REMEDIES

 

3.1     Remedies. Upon the occurrence of an Event of Default, Lender shall have the right

to exercise any rights and remedies set forth in the Credit Agreement and the other Loan Documents.

 

3.2     Remedies. Upon the occurrence of an Event of Default, Lender shall have the

immediate right, at the sole discretion of Lender and without notice, demand, presentment, notice of nonpayment or nonperformance, protest, notice of protest, notice of intent to accelerate, notice of acceleration, or any other notice or any other action (ALL OF WHICH BORROWER HEREBY EXPRESSLY WAIVES AND RELINQUISHES): (a) to declare the entire unpaid balance of the indebtedness evidenced by this Note (including, without limitation, the outstanding principal balance hereof, all sums advanced or accrued hereunder or under any other Loan Document, and all accrued but unpaid interest thereon) at once immediately due and payable (and upon such declaration, the same shall be at once immediately due and payable) and may be collected forthwith, whether or not there has been a prior demand for payment and regardless of the stipulated date of maturity; (b) to foreclose any Liens and security interests securing payment hereof or thereof (including, without limitation, any Liens and security interests); and (c) to exercise any of Lender’s other rights, powers, recourses and remedies under the Loan Documents or at law or in equity, and the same (i) shall be cumulative and concurrent, (ii) may be pursued separately, singly, successively, or concurrently against Borrower or others obligated for the repayment of this Note or any part hereof, or against any one or more of them, at the sole discretion of Lender, (iii) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower that the exercise, discontinuance of the exercise of or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse, and (iv) are intended to be, and shall be, nonexclusive. All rights and remedies of Lender hereunder and under the other Loan Documents shall extend to any period after the initiation of foreclosure proceedings, judicial or otherwise, with respect to the Mortgaged Property or any portion thereof.

 

3.3 WAIVERS. EXCEPT AS SPECIFICALLY PROVIDED IN THE LOAN DOCUMENTS TO THE CONTRARY, BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NONPAYMENT OR NONPERFORMANCE, PROTEST, NOTICE OF PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION OR ANY OTHER NOTICES OR ANY OTHER ACTION. BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO THE BENEFITS OF ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, VALUATION, STAY, EXTENSION, REDEMPTION, APPRAISEMENT, EXEMPTION AND HOMESTEAD NOW OR HEREAFTER PROVIDED BY THE CONSTITUTION AND LAWS OF THE UNITED STATES OF AMERICA AND OF EACH STATE THEREOF, BOTH AS TO ITSELF AND IN AND TO ALL OF ITS PROPERTY, REAL AND PERSONAL, AGAINST THE ENFORCEMENT AND COLLECTION OF THE OBLIGATIONS EVIDENCED BY THIS NOTE OR BY THE OTHER LOAN DOCUMENTS.

 

4.     GENERAL PROVISIONS

 

4.1     No Waiver; Amendment. No failure to accelerate the indebtedness evidenced by this

Note by reason of an Event of Default hereunder, acceptance of a partial or past due payment, or

 

 

 

REVOLVING NOTE     PAGE 8 OF 13

 

 

indulgences granted from time to time shall be construed (a) as a novation of this Note or as a reinstatement of the indebtedness evidenced by this Note or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (b) to prevent the exercise of such right of acceleration or any other right granted under this Note, under any of the other Loan Documents or by any applicable laws. Borrower hereby expressly waives and relinquishes the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. The failure to exercise any remedy available to Lender shall not be deemed to be a waiver of any rights or remedies of Lender under this Note or under any of the other Loan Documents, or at law or in equity. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part, unless Lender specifically, unequivocally and expressly agrees otherwise in writing.

 

4.2     Interest Provisions.

 

(a)     Savings Clause. 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 this Note 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 this 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 this Note and/or the Related Indebtedness, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this 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 Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Rate theretofore collected by Lender shall be credited on the principal balance of this Note and/or the Related Indebtedness (or, if this Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of this 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, that if this Note has been paid in full before the end of the stated term of this 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 Rate, either refund such excess interest to Borrower and/or credit such excess interest against this 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

 

 

 

REVOLVING NOTE     PAGE 9 OF 13

 

 

to Borrower or crediting such excess interest against this Note 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 this 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 this 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 this Note and/or the Related Indebtedness does not exceed the Maximum Rate from time to time in effect and applicable to this Note and/or the Related Indebtedness for so long as debt is outstanding. 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.

 

(b)     Ceiling Election. To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Rate payable on the Note and/or any other portion of the Obligations, 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 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 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.

 

4.3     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. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.3.

 

4.4     GOVERNING LAW; VENUE; SERVICE OF PROCESS. THIS NOTE SHALL

BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS AGREEMENT HAS BEEN ENTERED INTO IN BEXAR COUNTY, TEXAS, AND IS PERFORMABLE FOR ALL PURPOSES IN BEXAR COUNTY, TEXAS. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR

 

 

 

REVOLVING NOTE     PAGE 10 OF 13

 

 

RELATING TO ANY OF THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN BEXAR COUNTY, TEXAS. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES REFERENCED IN SECTION 11.11 OF THE CREDIT AGREEMENT.

 

4.5     Relationship of the Parties. Notwithstanding any prior business or personal

relationship between Borrower and Lender, or any officer, director or employee of Lender, that may exist or have existed, the relationship between Borrower and Lender is solely that of debtor and creditor, Lender has no fiduciary or other special relationship with Borrower, Borrower and Lender are not partners or joint venturers, 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.

 

4.6     Successors and Assigns. The terms and provisions hereof shall be binding upon and

inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them. The terms “Borrower” and “Lender” as used hereunder shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them.

 

4.7     Time is of the Essence. Time is of the essence with respect to all provisions of this

Note and the other Loan Documents.

 

4.8     Headings. The Section and Subsection titles hereof are inserted for convenience of

reference only and shall in no way alter, modify, define, limit, amplify or be used in construing the text, scope or intent of such Sections or Subsections or any provisions hereof.

 

4.9     Controlling Agreement. In the event of any conflict between the provisions of this

Note and the Credit Agreement, it is the intent of the parties hereto that the provisions of the Credit Agreement shall control. In the event of any conflict between the provisions of this Note and any of the other Loan Documents (other than the Credit Agreement), it is the intent of the parties hereto that the provisions of this Note shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of this Note and the other Loan Documents and that this Note and the other Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same.

 

4.10 Notices. Whenever any notice is required or permitted to be given under the terms of this Note, the same shall be given in accordance with Section 11.11 of the Credit Agreement.

 

 

 

REVOLVING NOTE     PAGE 11 OF 13

 

 

4.11 Severability. If any provision of this Note or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, then neither the remainder of this Note nor the application of such provision to other persons or circumstances nor the other instruments referred to herein shall be affected thereby, but rather shall be enforced to the greatest extent permitted by applicable law.

 

4.12 Right of Setoff. In addition to all Liens upon and rights of setoff against the money, securities, or other property of Borrower given to Lender that may exist under applicable law, Lender shall have and Borrower hereby grants to Lender a Lien upon and a right of setoff against all money, securities, and other property of Borrower, now or hereafter in possession of or on deposit with Lender, whether held in a general or special account or deposit, for safe-keeping or otherwise, and every such Lien and right of setoff may be exercised without demand upon or notice to Borrower. No Lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Lender, or by any neglect to exercise such right of setoff or to enforce such Lien, or by any delay in so doing, and every right of setoff and Lien shall continue in full force and effect until such right of setoff or Lien is specifically waived or released by an instrument in writing executed by Lender.

 

4.13 Costs of Collection. If any holder of this Note retains an attorney-at-law in connection with any Event of Default or at maturity or to collect, enforce, or defend this Note or any part hereof, or any other Loan Document in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Borrower sues any holder in connection with this Note or any other Loan Document and does not prevail, then Borrower agrees to pay to each such holder, in addition to the principal balance hereof and all interest hereon, all costs and expenses of collection or incurred by such holder or in any such suit or proceeding, including, but not limited to, reasonable attorneys’ fees.

 

4.14 Statement of Unpaid Balance. At any time and from time to time, Borrower will furnish promptly, upon the request of Lender, a written statement or affidavit, in form satisfactory to Lender, stating the unpaid balance of the indebtedness evidenced by this Note and the Related Indebtedness and that there are no offsets or defenses against full payment of the indebtedness evidenced by this Note and the Related Indebtedness and the terms hereof, or if there are any such offsets or defenses, specifying them.

 

4.15 FINAL AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT 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 ORAL AGREEMENTS BETWEEN THE PARTIES.

 

4.16 Renewal, Extension and Decrease. This Note is executed in renewal, extension and decrease of, and not in novation or discharge of, that certain promissory note dated May 7, 2019, executed by Borrower and payable to the order of Lender in the original principal amount of $22,000,000.00, which promissory note was extended in renewal and extension of, but not in novation or discharge of, that certain promissory note dated January 9, 2018, executed by Borrower and payable to the order of Lender in the original principal amount of $22,000,000.00, which promissory note was executed in renewal, extension and increase of, and not in novation or discharge of, that certain promissory note dated April 17, 2017, executed by Borrower and payable to the order of Lender in the original principal amount of $20,000,000.00.

 

 

 

REVOLVING NOTE     PAGE 12 OF 13

 

IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note as of the day and year first written above.

 

BORROWER: 

 

HARTE HANKS, INC.

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name: L

 

 


Title:     CP-0

 

 

 


 

 

 

REVOLVING NOTE     PAGE 13 OF 13

 

Exhibit 10.1(c)

 

SECOND AMENDMENT TO SECURITY AGREEMENT

 

This SECOND AMENDMENT TO SECURITY AGREEMENT (this “Amendment”), dated as of May 11, 2020, is among Harte-Hanks Direct, Inc., a New York corporation, Harte-Hanks Data Services LLC, a Maryland limited liability company, Harte-Hanks Direct Marketing/Baltimore, Inc., a Maryland corporation, Harte-Hanks Direct Marketing/Dallas, Inc., a Delaware corporation, Harte-Hanks Direct Marketing/Jacksonville, LLC, a Delaware limited liability company, Harte-Hanks Direct Marketing/Kansas City, LLC, a Delaware limited liability company, Harte-Hanks Logistics, LLC, a Florida limited liability company, Harte-Hanks Response Management/Austin, Inc., a Delaware corporation, Harte-Hanks Response Management/Boston, Inc., a Massachusetts corporation, Harte-Hanks Strategic Marketing, Inc., a Delaware corporation, NSO, Inc., an Ohio corporation, Sales Support Services, Inc., a New Jersey corporation (collectively, “New Grantors”), Harte Hanks, Inc., a Delaware corporation (“Parent”, or “Borrower”, and together with New Grantors, collectively, “Grantors”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“Secured Party”).

 

RECITALS:

 

WHEREAS, Borrower and Secured Party have entered into that certain Credit Agreement dated as of April 17, 2017, as amended by First Amendment to Credit Agreement dated as of January 9, 2018, amended by Second Amendment to Credit Agreement dated as of May 7, 2019, and as amended by Third Amendment to Credit Agreement dated as of May 11, 2020 (as amended, the “Credit Agreement”).

 

WHEREAS, pursuant to the Loan Agreement Borrower executed that certain Security Agreement, dated as of April 17, 2017 and New Grantors joined the Security Agreement pursuant to that certain Joinder to Security Agreement dated as of September 21, 2017 among New Grantors, Borrower and Secured Party, as amended by that certain First Amendment to Security Agreement dated as of January 9, 2018 (as modified by the Joinder to Security Agreement and First Amendment to Security Agreement, the “Security Agreement”).

 

WHEREAS, the execution of this Amendment is a condition to Secured Party entering into the Third Amendment to Credit Agreement referred to above.

 

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are acknowledged and agreed, Grantors and Secured Party hereby agree as follows:

ARTICLE I.
Amendments

 

1.1     Amendment to Section 4.2(e). Effective as of the date hereof, Section 4.2(e) to the Security Agreement is amended to read in its entirety as follows:

 

(e)     Disposition of Collateral. No Grantor will sell, lease, license or otherwise dispose of the Collateral except (i) the disposition of Equipment located in Jacksonville,

 

- 1 -

25676593v.6 106916/01653

 

Florida pursuant to that certain Asset Purchase Agreement dated as of April 24, 2020 between Harte-Hanks Direct Marketing/Jacksonville, LLC, a Delaware limited liability company and Summit Direct Mail, Inc., a Texas corporation (the “Jacksonville Equipment”), (ii) prior to the occurrence of an Event of Default, sales, licenses, leases or other dispositions of Inventory and Equipment (other than the Jacksonville Equipment) not to exceed $2,000,000.00 in any calendar year and shall not exceed $4,000,000.00 in the aggregate from and after May 11, 2020 (other than the proceeds of the Jacksonville Equipment), (iii) following the occurrence and during the continuation of an Event of Default, such sales, licenses, leases or other dispositions permitted by the foregoing clause (ii) as long as such Grantor has not received a notice from Secured Party instructing such Grantor to cease such transactions, and (iv) the disposition of Proceeds of Inventory and Accounts collected in the ordinary course of business until such time as such Grantor receives a notice from Secured Party pursuant to Section 5.4 and during such time as the election contained in such notice remains in effect.

 

ARTICLE II.

 

Additional Provisions

 

2.1     Acknowledgment by Grantors. Except as otherwise specified herein, the terms and

provisions hereof shall in no manner impair, limit, restrict or otherwise affect the obligations of Grantors or any third party to Secured Party under any Loan Document (as defined in the Credit Agreement).

 

2.2     Additional Documentation. From time to time, Grantors shall execute or procure

and deliver to Secured Party such other and further documents and instruments evidencing, securing or pertaining to the Security Agreement or the other Loan Documents as shall be reasonably requested by Secured Party so as to evidence or effect the terms and provisions hereof.

 

2.3     Continued Effectiveness. Except as expressly modified by the terms and provisions

hereof, each of the terms and provisions of the Security Agreement and the other Loan Documents are hereby ratified and confirmed, and shall remain in full force and effect. he liens and security interests created by the Security Agreement remain in full force and effect.

 

2.4     GOVERNING LAW. THE TERMS AND PROVISIONS HEREOF SHALL

BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

 

2.5     Binding Agreement. This Amendment shall be binding upon the heirs, executors,

administrators, personal representatives, successors and assigns of the parties hereto.

 

2.6     Counterparts. This Amendment may be executed in any number of counterparts,

each of which shall be deemed an original and all of which together shall be construed as one and the same instrument. Delivery of an executed signature page of this Amendment and/or any other Loan Document by a scanned PDF attached to an e-mail or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.

 

- 2 -

25676593v.6 106916/01653

 

2.7 NO ORAL AGREEMENTS. THIS AMENDMENT, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 

 

 

- 3 -

 

25676593v.6 106916/01653

 

 

EXECUTED as of the date first above written.

 

GRANTORS: 

 

HARTE-HANKS DIRECT, INC.

 

 

 

 

 

 

 

 

 

 

 

 

By:. 

 

 

 

Name: Title:

 

 

Lai.t li4 K eve

 

 


 

 

 

HARTE-HANKS DATA SERVICES LLC

 

 

   
   

 

 
   

 

 

 

 

 

DIRECT

MARKETING/BALTIMORE, INC.

 

By:      

Name: LA     Kea..e4e..-

Title:     C- 'Po

 

 


HARTE-HANKS DIRECT MARKETING/DALLAS, INC.

 

 

 

 

By:

 


Name: La 1,L.4- 1te Ke4a-e,

 

Title:     C.- 4-Z

 

 


HARTE-HANKS DIRECT

 

MARKETING/JACKSONVILLE, LLC

 

 

 

 

 

 

 

 

By:

 

 

 

Name: Title:

 

 

 

614,

 

L (-1/4j- ke kec      

 

 

 

 


 

 

 

HARTE-HANKS DIRECT

MARKETING/KANSAS CITY, LLC

 

 

 

By:

Name: Lt.,' t.,e     e

Title:      C

 

[Signature Page to Second Amendment to Security Agreement]

 

HARTE-HANKS LOGISTICS, LLC

 

 

 

By:

Name: 1-..at.A4 ke- V44-rile

Title:     6, P0

 

 


HARTE-HANKS RESPONSE
MANA MENT/AUSTIN, INC.

 

 

By:      6.9 lk

Name: Ltitkr k     kee,rite_s
Title:

 

 


HARTE-HANKS RESPONSE MANAGEMENT/BOSTON, INC.

 

 

By:      &Au,'

Name: Lekuk.r iee k earyie

 


Title:     e.-Clo

 

 

 


HARTE-HANKS STRATEGIC MARKETING, INC.

 

 

By:      

Name: L...excx r s 1-ee     ecur4

Title:      C., i-neo

 

NSO, IN

By:      

 

 

Name:      tive,1 ex I sect ri es

Title:     Fo

 

 


SALES SUPPORT SERVICES, INC.

 

 

By:      ? Name: LO.Lk.r; Ike k:e&,"4

 


Title:     6.1:0

 

 

 

 

[Signature Page to Second Amendment to Security Agreement]

 

HARTE HANKS, INC.

 

By:     1O-4A-444-4

Name: Leitc,Lr te-e-     r ri

Title:     1=0

 

 


SECURED PARTY:

 

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

By:      

Annalese Smolik Senior Vice President

 

[Signature Page to Second Amendment to Security Agreement]

 

 

HARTE HANKS, INC.

 

By:      

 

Name:      

Title:

 

 


SECURED PARTY:

 

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

Annalese Smolik
Senior Vice President

 

 

 

[Signature Page to Second Amendment to Security Agreement]

 

Exhibit 10.1(d)

 

Execution Version

 

SECOND AMENDED AND RESTATED FEE, REIMBURSEMENT AND INDEMNITY

AGREEMENT

 

This Second Amended and Restated Fee, Reimbursement and Indemnity Agreement (the “Agreement”) is made and entered into effective as of the 11th day of May, 2020, by and between HHS GUARANTY, LLC, a Texas limited liability company (the “LLC”), and HARTE HANKS, INC., a Delaware corporation (“Harte Hanks”). All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to a Credit Agreement (together with that certain First Amendment to Credit Agreement dated January 9, 2018, by that certain Second Amendment to Credit Agreement dated May 7, 2019 and by that certain Third Amendment to Credit Agreement (the “Third Amendment”) dated as of May 11, 2020, the “Credit Agreement”) and related documents dated as of April 17, 2017, by and between Texas Capital Bank, N.A. (the “Bank”) and Harte Hanks, as amended on the date hereof, the Bank agreed to provide Harte Hanks a revolving line of credit (the “Loan”); and

 

WHEREAS, the Credit Agreement has been modified by the Third Amendment to reduce the amount of the Loan to $19,000,000.00; and

 

WHEREAS, at the request of Harte Hanks and as required by the Bank, the LLC agreed to guaranty all of the payment obligations of Harte Hanks under the Loan by pledging the Collateral (as hereinafter defined) to the Bank, (a) pursuant to the terms of that one certain Pledge Agreement, dated as of April 17, 2017 (together with all amendments thereto and replacements thereof, including by the Amended and Restated Pledge Agreement dated as of May 11, 2020, the “Pledge Agreement”); and (b) that one certain Note Purchase Agreement, dated as of April 17, 2017, which was amended and restated that certain First Amended and Restated Note Purchase Agreement dated as of January 9, 2018, by that certain Second Amended and Restated Note Purchase Agreement dated as of May 7, 2019 and by that certain Note Purchase Agreement dated as of May 11, 2020 (collectively, the “Note Purchase Agreement”; the Pledge Agreement and Note Purchase Agreement are collectively referred to herein as the “Pledge Documents”); and

 

WHEREAS, pursuant to the Pledge Documents, the LLC will continue to pledge a minimum of $20,900,000.00 in cash and marketable securities to the Bank, and the Bank will continue to have custody and control over such cash and marketable securities (the “Collateral”); and

 

WHEREAS, Harte Hanks agreed to compensate the LLC for the LLC’s pledge of the Collateral to secure the Loan for the benefit of Harte Hanks, pursuant to the terms and conditions of that one certain Fee, Reimbursement and Indemnity Agreement, dated as of April 17, 2017 (as amended by that certain Amended and Restated Fee, Reimbursement and Indemnity Agreement

 

1

D6142\B24265\4813-6351-3788.v3

 

dated as of January 9, 2018, and collectively with all other amendments thereto, the “Reimbursement Agreement”); and

 

WHEREAS, the LLC and Harte Hanks desire to amend and restate the Reimbursement Agreement by entering into this Agreement setting forth the terms and conditions governing the compensation of the LLC for the LLC’s pledge of the Collateral to secure the Loan for the benefit of Harte Hanks; and

 

WHEREAS, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Harte Hanks and the LLC agree as follows:

 

1.     Payments, Performance, Covenants.

 

(a)     In the event the Bank makes any demand on Harte Hanks, or Harte Hanks is otherwise required to perform any obligations under the Loan (including without limitation, any payment obligation) or any Loan Documents (as hereafter defined), Harte Hanks shall promptly perform its obligations under the Loan or applicable Loan Document.

 

(b)     In the event any such amount is not timely paid or such obligation is not timely performed by Harte Hanks and the Bank seeks to enforce the LLC’s guaranty under the Pledge Documents, or, in the event the LLC is required to purchase the Loan from the Bank as set forth in the Loan Documents, Harte Hanks shall reimburse, within five days of receiving notice from the LLC, to the LLC the aggregate amount of all funds advanced by the LLC or paid to the Bank for the purchase of the Loan or otherwise, on account of such obligation, together with interest on such amount at an annual rate equal to the prime rate (as defined below) plus 6%, from the date of payment by the LLC until all such amounts have been repaid by Harte Hanks. For the purpose of this Agreement, “prime rate” shall mean the variable rate of interest, per annum, most recently announced by the Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from such bank.

 

(c)     Harte Hanks will not agree to any amendment, modification, waiver or supplement to the Loan or any of the documents, instruments or agreements executed in connection therewith (collectively, the “Loan Documents”) without the prior written consent of the LLC. Harte Hanks will use reasonable best efforts to accommodate the LLC’s written request that any subsidiary of Harte Hanks become party to that certain Security Agreement dated as of April 17, 2017 between Harte Hanks and the Bank (as amended by that First Amendment to Security Agreement dated as of January 9, 2018 and as further amended on the date hereof, the “Security Agreement”), pursuant to Section 4.21 of the Security Agreement.

 

(d)     The LLC’s willingness to pledge the Collateral with respect to the Loan is contingent (the “Credit Support Contingency”) on the LLC having one representative (the “LLC Representative”) director on Harte Hanks’ Board of Directors (the “Board”). David L. Copeland (“Copeland”) is currently a Board director and the LLC acknowledges that so long as Copeland is a Board director, Copeland shall be deemed to be the LLC Representative and the Credit Support Contingency shall be deemed to be satisfied. If Copeland (or a successor LLC Representative elected or appointed in accordance with this paragraph) is no longer a Board director, whether by death, removal, incapacity, failure to be elected, or otherwise, Harte Hanks agrees to use its best

 

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efforts to cause, within 45 days after receipt of an LLC Representative Vacancy Notice (defined below), the successor designated by the LLC Representative in the LLC Representative Vacancy Notice to become a Board director, whether by creating a vacancy on the Board, obtaining a resignation of an incumbent Board director, removing an incumbent Board director, expanding the Board, or otherwise. The “LLC Representative Vacancy Notice” (so called herein) must (i) be in writing, (ii) be executed by a duly authorized representative of the LLC, (iii) be delivered in accordance with Section 8 of this Agreement and (iv) set forth the LLC’s designee (the “LLC Designee”) to be the successor LLC Representative. The LLC Designee, if appointed or elected, shall be deemed to be the LLC Representative and shall be deemed to satisfy the Credit Support Contingency. If the LLC Designee is not appointed or elected to the Board within 45 days after Harte Hanks’ receipt of the LLC Representative Vacancy Notice (such event being referred to herein as a “Credit Support Event”), LLC shall have the right to purchase the Loan in accordance with the terms of the Note Purchase Agreement, and upon the consummation of such purchase, the Credit Support Event shall automatically be deemed to be an Event of Default under the Credit Agreement (as defined in the Note Purchase Agreement) giving rise to the remedies set forth therein in favor of the LLC, as successor in interest to the Bank; provided, however, that no Credit Support Event shall have occurred if prior to the expiration of the 45-day period after Harte Hanks’ receipt of the LLC Representative Vacancy Notice, the Bank releases its security interest in and to the Collateral and the LLC has no further obligation to pledge collateral as security for the Loan.

 

2.     Fees; Borrowing Base and Reimbursement of Expenses.

 

(a)     As consideration for the pledge of the Collateral, for so long the Collateral is pledged to and held by the Bank, Harte Hanks hereby agrees to pay to the LLC a quarterly fee (the “Quarterly Fee”) equal to 0.5% of the Collateral actually pledged (or if the Commitment has been reduced pursuant to Section 3.2(b) of the Credit Agreement or other agreement of Harte Hanks, then on such portion of the Collateral as is required by the Bank in respect of such Commitment) on the last day of the month prior to such Quarterly Fee’s due date. The Quarterly Fees due under this Agreement shall be due on the 17th day of January, April, July and October.

 

(b)     (i)     For and in consideration for the pledge of the Collateral, Harte Hanks agrees to limit its borrowings under the Loan so that at no time shall the outstanding principal balance of the Loan exceed a borrowing base (the “Borrowing Base”) equal to, as of any date of determination, eighty percent (80%) of the amount of Eligible Accounts Receivables as of such date. An "Eligible Accounts Receivable" means any Account (as defined in the Security Agreement) of Harte Hanks and its Subsidiaries except: (a) each such Account that is unpaid 90 days or more after billing date thereof; provided, however, that Harte Hanks and the LLC may from time to time agree in writing (including via email) that Accounts owing by certain customers of Harte Hanks shall not be excluded pursuant to this clause (a), (b) all Accounts owing by Account debtors for which there has been instituted a proceeding in bankruptcy or reorganization under applicable bankruptcy law or who has made an assignment for the benefit of creditors or fails to pay its debts as they become due, (c) all Accounts owing by any affiliates of Harte Hanks, (d) that portion of all Account balances owing by any Account debtor (“Foreign Debtor”) whose principal place of business is located outside of the United States which exceed 10% of the aggregate of all Accounts which are owing to Harte Hanks by all Account debtors, (e) that portion of all Account balances owing by any single Account debtor which exceed 25% of the aggregate of all Accounts which are owing to Harte Hanks by all Account debtors, (f) if more than 25% of the then balance

 

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owing by any single Account debtor, other than such customers which Harte Hanks and the LLC have agreed shall be excepted pursuant to the proviso to clause (a) above, has not been paid within 90 days of its billing date, all Accounts owing by such Account debtor. For purposes of calculating the Borrowing Base, the amount of each Account shall be adjusted for (i) the amount of all discounts, allowances, rebates, credits and adjustments to such Accounts, (ii) the amount of all contra accounts, setoffs, defenses or counterclaims asserted by or available to the Account debtors and (iii) any amount with respect to which Harte Hanks has furnished a payment and/or performance bond and that portion of any Account for or representing retainage, if any, until all prerequisites to the immediate payment of retainage have been satisfied.

 

(ii)     Harte Hanks shall deliver to the LLC on a monthly basis on the 20th day of each month a Borrowing Base report (a “Borrowing Base Report”) for the preceding month in form and content reasonably acceptable to the LLC in its sole discretion . If on the last day of any month, the outstanding principal of the Loan exceeds 80% of the Borrowing Base as evidenced by the Borrowing Base Report for such month, Harte Hanks shall within five (5) Business Days after delivery of such Borrowing Base Report pay to the LLC a fee in the amount of $35,000 unless the LLC agrees to waive such fee.

 

(c)     In addition to the Quarterly Fees due under this Agreement, Harte Hanks shall, within five days of receiving a request from the LLC, reimburse the LLC for all LLC costs and expenses incurred by the LLC in connection with this Agreement, the Loan, the Loan Documents, the Pledge Documents, and the pledge of the collateral (collectively, the “Reimbursed Expenses”). The Reimbursed Expenses shall include, but are not limited to, reasonable legal, accounting, custody and Bank fees, expenses, and costs incurred by the LLC in its formation, initial funding, and throughout the term of this Agreement (except to the extent related to LLC activities after the date hereof which are unrelated to this Agreement or the Loan Documents).

 

(d)     All payments made under this Agreement shall be paid by Harte Hanks in cash pursuant to a check or wire transfer made payable to the LLC.

 

3.     Obligations of Harte Hanks. The obligations of Harte Hanks under this Agreement shall be absolute, unconditional and irrevocable, shall apply to the fullest extent authorized or permitted by any applicable law, under and shall be paid and performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances:

 

(a)     Any lack of validity or enforceability of this Agreement;

 

(b)     the existence of any claim, set-off, defense or other rights which Harte Hanks may have at any time against the LLC or any other person or entity, whether or not in connection with this Agreement; or

 

(c)     Any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

 

4.     Representations and Warranties of Harte Hanks. Harte Hanks hereby represents and warrants to the LLC as follows:

 

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D6142\B24265\4813-6351-3788.v3

 

(a)     Organization and Standing. Harte Hanks is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business as now being conducted.

 

(b)     Authority; Enforceability. Harte Hanks has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

 

(c)     Execution of Agreement. This Agreement has been duly executed and delivered by Harte Hanks. The execution, delivery and performance of this Agreement will not cause any default, breach or violation of any provision of any material agreement to which Harte Hanks is a party or by which any of Harte Hanks’s assets are bound.

 

(d)     Validity of Agreement. This Agreement constitutes the legal, valid and binding obligation of Harte Hanks, enforceable in accordance with its terms.

 

(e)     Approvals. No approval, authorization, consent or other order or action of or filing with any governmental or administrative entity or any other person is required for the execution and delivery by Harte Hanks of this Agreement or such other agreements and instruments required hereunder or for the consummation by Harte Hanks of the transactions contemplated hereby or thereby.

 

(f)     Violation of Laws or Agreements. The making and performance of this Agreement and the other documents, agreements and actions required hereunder or thereunder will not violate any provisions of any law, federal, state or local rule or regulation, or any judgment, decree, award or order of any court or other governmental entity, agency or arbitrator to which Harte Hanks is subject.

 

5.     Termination. This Agreement shall remain in full force and effect and shall terminate on the later to occur of (i) the date that the Pledge Documents are terminated or (ii) the date that all obligations of Harte Hanks to the LLC, and all obligations of Harte Hanks hereunder have been paid in full and satisfied and; in each case, after the expiration of the period during which any payment by Harte Hanks is or may be subject to rescission, avoidance or refund under the United States Bankruptcy Code (or any similar state statute).

 

6.     Indemnification.

 

(a)     Harte Hanks hereby agrees to indemnify, protect, defend and hold harmless the LLC and its officers, managers, members, directors, employees, successors and assigns, (collectively, the “Indemnified Parties”), from and against any and all claims, damages, losses, liabilities, costs or expenses of any kind or nature and from any suits, claims or demands, including reasonable attorney’s fees incurred in investigating or defending such claim, suffered by any of them and caused by, relating to, arising out of, resulting from, or in any way connected with this Agreement or the transactions contemplated hereby (unless determined by a final judgment of a court of competent jurisdiction to have been caused solely by the gross negligence or willful misconduct of the Indemnified Parties) including without limitation:

 

 

(i)

by reason of any breach of any representation or warranty of Harte Hanks in this Agreement;

 

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D6142\B24265\4813-6351-3788.v3

 

 

(ii)

by reason of, in connection with, or as a consequence of any default by Harte Hanks, in the performance or observance of any term, condition, covenant, or undertaking contained in this Agreement or any other document to be observed or performed by Harte Hanks in connection with the Loan;

 

 

(iii)

by reason of or in connection with any litigation or other proceeding in any way restraining, enjoining, questioning or affecting performance or obligation hereunder; and

 

 

(iv)

by reason of or in connection with its obligations under the Loan Documents and its obligation to pay fees and reimburse expenses to the LLC pursuant to this Agreement.

 

(b)     In case any action shall be brought against the LLC or any other Indemnified Party in respect to which indemnity may be sought against Harte Hanks, the LLC or such other Indemnified Party shall promptly notify Harte Hanks and Harte Hanks shall assume the defense thereof, including the employment of counsel selected by Harte Hanks and satisfactory to the LLC, the payment of all costs and expenses, and the right to negotiate and consent to settlement. The failure of the LLC to so notify Harte Hanks shall not relieve Harte Hanks of any liability it may have under the foregoing indemnification provisions or from any liability which it may otherwise have to the LLC or any of the other Indemnified Parties. The LLC shall have the right, at its sole option, to employ separate counsel in any such action and to participate in the defense thereof and retain its own counsel, and the fees and expenses of such counsel shall be reimbursed to the LLC pursuant to Section 2(c) hereof. Harte Hanks shall not be liable for any settlement of any such action effected without its consent, which consent shall not be unreasonably withheld, delayed or conditioned, but if settled with Harte Hanks’s consent, or if there shall be a final judgment for the claimant in any such action, Harte Hanks agrees to indemnify and hold harmless the LLC from and against any loss or liability by reason of such settlement or judgment.

 

(c)     The provisions of this Section 6 shall survive the repayment or other satisfaction of the obligations of Harte Hanks hereunder.

 

7.     Information Reporting and Confidentiality. During the term of this Agreement, Harte Hanks agrees to provide all information required to be provided to the Bank pursuant to the Loan Documents, to the LLC, pursuant to the same reporting deadlines as set forth in the Loan Documents (collectively, the “Reporting Information”). The LLC hereby agrees to maintain all Reporting Information provided to the LLC hereunder in strict confidence, and to use the same degree of care in protecting the Reporting Information as the LLC uses to protect its own confidential information; provided, however, that the LLC’s confidentiality obligations hereunder shall not apply to any Reporting Information which, (a) at the time of disclosure by Harte Hanks to the LLC is in the public domain, as evidenced by printed publication or otherwise; (b) after disclosure by Harte Hanks to the LLC becomes part of the public domain, by publication or otherwise, through no fault of the LLC; or (c) the LLC can show by reasonably convincing evidence that the Reporting Information already was in the LLC’s possession at the time of disclosure by Harte Hanks to the LLC hereunder and was not previously acquired, directly or indirectly, from Harte Hanks by the LLC on a confidential basis.

 

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8.     Notices. All notices, requests, demands and other communications that this Agreement requires or permits shall be in writing and shall be sent by overnight courier providing delivery receipt, or by certified mail, return receipt requested, or by telecopy or hand delivery to the following addresses:

 

If to Harte Hanks:     Harte Hanks, Inc.

9601 McAllister Freeway, Suite 610

San Antonio, Texas 78216

Attention: Robert Munden, General Counsel

Telephone: 210-829-9135

Fax: 210-829-9139

 

If to the LLC:     HHS Guaranty, LLC

273 Walnut Street

Abilene, Texas 79601

Attention: David L. Copeland, Manager

Telephone: 325-676-7724

Fax: 325-676-9908

 

All notices, requests, demands and other communications provided in accordance with the provisions of this Agreement shall be effective: (i) if sent by overnight courier or facsimile, when received, (ii) if sent by certified mail, return receipt requested, the third day after sending, or (iii) if given by hand delivery, when delivered.

 

9.     Amendments. The provisions of this Agreement may be amended only by a written agreement signed by Harte Hanks and the LLC.

 

10.     Governing Law and Jurisdiction. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Texas, without regard to the conflicts of laws provisions.

 

11.     Continuing Obligation. This Agreement is a continuing obligation and shall (a) be binding upon Harte Hanks and its respective its successors and assigns, and (b) inure to the benefit of and be enforceable by the LLC against Harte Hanks (and its successors, transferees and assigns); provided, that Harte Hanks may not assign all or any part of its obligations hereunder without the prior written consent of the LLC.

 

12.     Savings Clause. Whenever possible, each provision of this Agreement shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

13.     Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity of any other provision of this Agreement, and such provision(s) shall be deemed modified to the extent necessary to make it enforceable.

 

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14.     Survival of Representations and Warranties. All representations and warranties contained or incorporated herein or made in writing in connection herewith shall survive the execution and delivery of this Agreement.

 

15.     Counterparts. This Agreement may be executed in more than one counterpart, including by facsimile signature, all of which, together, constitute one and the same instrument.

 

16.     No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto; there are no third-party beneficiaries of this Agreement other than the Indemnified Parties for purposes of indemnification hereunder.

 

17.     Entire Agreement. This Agreement embodies and reflects the entire agreement between the parties with respect to the matters set forth herein, and there are no other agreements, understandings, representations or warranties between the parties other than those set forth in this Agreement.

 

18.     Amendment and Restatement. This Agreement represents and amendment and restatement in its entirety of the Amended and Restated Fee, Reimbursement and Indemnity Agreement dated as of January 9, 2018. This Agreement shall not in any manner constitute or be construed as a novation, discharge, forgiveness, extinguishment or release of any obligation for amounts due under the Amended and Restated Fee, Reimbursement and Indemnity Agreement or the Reimbursement Agreement, which obligations are amended and restated by this Agreement and shall remain in full force and effect.

 

[Remainder of page left intentionally blank; signature page follows.]

 

 

 

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Wherein this Agreement is executed and effective as of the date set forth above.

 

 

 

LLC:

 

 


HHS GUARANTY, LLC, a Texas limited liability company

 

 

 

 

 

 

 

 

 

 

By:

 

D id L. opela, Sole Manager

 

 

 

 

 

HARTE HANKS:

 

HARTE HANKS, INC.,
a Delaware corporation

 

By:      

Name:      

 


Title:

 

 

 

 

 

 

9

 

D6142 '4324265 \ci18 I 3-6351-3788.v3

 

Wherein this Agreement is executed and effective as of the date set forth above.

 

LLC:

 

 


HHS GUARANTY, LLC,

 

a Texas limited liability company

 

By:      

David L. Copeland,

Sole Manager

 

HARTE HANKS:

 

HARTE HANKS, INC., a Delaware corporation

 

By: 

Name: Title:

 

FD 

 

 

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Exhibit 10.1(e)

 

DocuSign Envelope ID: 15CDFB0A-D89D-406F-99F5-8BCEC2BB01E7

 

PROMISSORY NOTE

 

Loan #

76416071-08

Effective Date

April 14, 2020

Loan Amount

$10,000,000.00

Interest Rate

A fixed rate equal to ONE PERCENT (1.00%) per annum

Maturity Date

April 14, 2022

Borrower

Harte Hanks, Inc.

Lender

Texas Capital Bank, N.A.

 

 

 

1.

PROMISE TO PAY. In return for the Loan, Borrower promises to pay to the order of Lender the amount of Ten Million and No/100 Dollars, plus interest on the unpaid principal balance, and all other amounts required by this Promissory Note.

 

2.     DEFINITIONS. Certain terms are defined within this Promissory Note. Additional defined terms are as follows:

 

“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act.

 

“Loan” means the loan evidenced by this Promissory Note.

 

“Loan Documents” means the documents related to this loan signed by Borrower.

 

“PPP” means the Paycheck Protection Program under the CARES Act.

 

“SBA” means the Small Business Administration, an Agency of the United States of America.

 

3. PAYMENT TERMS. Borrower must make all payments at the place Lender designates. The payment terms for this Promissory Note are as follows:

 

 

A.

SEVENTEEN (17) consecutive monthly payments of principal and interest in an amount sufficient to fully amortize the Loan over the remaining term thereof, commencing SIX (6) months after the Effective Date, and continuing on the SAME day of each calendar month thereafter (or if no corresponding date shall exist in any calendar month, on the LAST day of such calendar month); and

 

 

B.

ONE (1) final payment of the outstanding principal balance of this Promissory Note, including all accrued and unpaid interest, on the EARLIEST of (i) the acceleration of the Promissory Note pursuant to the terms hereof; or (ii) the Maturity Date.

 

4.     DEFAULT. Borrower is in default under this Promissory Note if any of the following occur:

 

 

A.

Borrower does not make a payment when due under this Promissory Note;

 

B.

Fails to do anything required by this Promissory Note and other Loan Documents;

 

C.

Defaults on any other loan with Lender;

 

D.

Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

 

E.

Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

 

F.

Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect Borrower’s ability to pay this Promissory Note;

 

G.

Fails to pay any taxes when due;

 

H.

Becomes the subject of a proceeding under any bankruptcy or insolvency law;

 

I.

Has a receiver or liquidator appointed for any part of their business or property;

 

J.

Makes an assignment for the benefit of creditors;

 

Paycheck Protection Program – Promissory Note     Page 1

 

DocuSign Envelope ID: 15CDFB0A-D89D-406F-99F5-8BCEC2BB01E7

 

 

K.

Has any adverse change in financial condition or business operation that Lender believes may materially affect Borrower’s ability to pay this Promissory Note;

 

L.

Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior written consent; or

 

M.

Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Promissory Note.

 

 

5.

LENDER’S RIGHTS IF THERE IS A DEFAULT. Upon the occurrence of a default, and without notice or demand and without giving up any of its rights, Lender may:

 

 

A.

Require immediate payment of all amounts owing under this Promissory Note;

 

B.

Collect all amounts owing from Borrower; or

 

C.

File suit and obtain judgment.

 

6.     LENDER’S GENERAL POWERS. Without notice and without Borrower’s consent, Lender may:

 

 

A.

Incur expenses to collect amounts due under this Promissory Note, enforce the terms of this Promissory Note or any other Loan Document. Among other things, the expenses may include reasonable attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance; or

 

B.

Release anyone obligated to pay this Promissory Note.

 

7. WHEN FEDERAL LAW APPLIES. When SBA is the holder, this Promissory Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Promissory Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

 

 

8.

SUCCESSORS AND ASSIGNS. Under this Promissory Note, Borrower includes the successors of each, and Lender includes its successors and assigns.

 

9. GENERAL PROVISIONS.

 

 

A.

All individuals and entities signing this Promissory Note are jointly and severally liable.

 

B.

Borrower waives all suretyship defenses.

 

C.

Borrower must sign all documents necessary at any time to comply with the Loan Documents.

 

D.

Lender may exercise any of its rights separately or together, as many times and in any order it chooses. Lender may delay or forgo enforcing any of its rights without giving up any of them.

 

E.

Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Promissory Note.

 

F.

If any part of this Promissory Note is unenforceable, all other parts remain in effect.

 

G.

To the extent allowed by law, Borrower waives all demands and notices in connection with this Promissory Note, including presentment, demand, protest, and notice of dishonor.

 

10. STATE-SPECIFIC PROVISIONS:

 

EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT MADE UNDER THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CHOICE OF LAW RULES, AND ACCEPTED BY LENDER IN SAID STATE, THE LOCATION OF LENDER’S PRINCIPAL PLACE OF RESIDENCE, AND ANY AND ALL CLAIMS, DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING ANY DISPUTE BETWEEN ANY OF THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT OR TORT, AT LAW, IN EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND/OR GOVERNED BY THE LAWS OF THE STATE OF TEXAS (EXCEPTING ITS CHOICE OF LAW RULES) AND THE LAWS OF THE UNITED STATES OF AMERICA. BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE LOAN DOCUMENTS, THE RELATIONSHIP CREATED THEREBY OR THE DEBT BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING SHALL BE DALLAS COUNTY, TEXAS;

 

Paycheck Protection Program – Promissory Note     Page 2

 

DocuSign Envelope ID: 15CDFB0A-D89D-406F-99F5-8BCEC2BB01E7

 

 

 

PROVIDED, HOWEVER, THAT LENDER MAY CHOOSE ANY VENUE IN ANY STATE WHICH IT DEEMS APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION.

 

11. PPP PROVISIONS.

 

 

A.

Borrower and Lender intend for the Loan to comply with all terms and requirements of the PPP. If this Promissory Note contains any term or provision that conflicts with the terms and requirements of the PPP, this Promissory Note is hereby amended and revised in order to comply with the PPP.

 

 

B.

Borrower understands and agrees that any loan forgiveness sought pursuant to the PPP with respect to the Loan will depend on the Borrower’s satisfaction of all terms and requirements of the PPP and on the SBA’s payment of funds to Lender to be applied to the Loan on behalf of the Borrower. Borrower understands and agrees that it is fully responsible to repay the Loan and that Lender cannot predict or guarantee whether or not any portion of the Loan will be forgiven under the PPP and makes no representation regarding any such prospective forgiveness.

 

12. BORROWER’S NAME(S) AND SIGNATURE(S). By signing below, each individual or entity becomes obligated under this Promissory Note as Borrower.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.

 

 

 

Paycheck Protection Program – Promissory Note     Page 3

 

DocuSign Envelope ID: 15CDFB0A-D89D-406F-99F5-8BCEC2BB01E7

 

 

 

IN WITNESS WHEREOF, this Promissory Note is executed by Borrower as of the Effective Date. BORROWER:

 

Harte Hanks, Inc.

 

 

a Delaware Corporation

 

By:     ________

Name:     Lauri Kearnes

Title:     CFO

 

 

 

Paycheck Protection Program – Promissory Note     Signature Page

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Andrew B. Benett, Executive Chairman and Chief Executive Officer of Harte Hanks, Inc. (the “Company”), hereby certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of the Company;

     

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     
 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

     
 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     
 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

May 14, 2020

 

/s/ Andrew B. Benett

Date

 

Andrew B. Benett

   

Executive Chairman and Chief Executive Officer

 

 

 

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Laurilee Kearnes, Vice President and Chief Financial Officer of Harte Hanks, Inc. (the “Company”), hereby certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of the Company;

     

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     
 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

     
 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     
 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

May 14, 2020

 

/s/ Laurilee Kearnes

Date

 

Laurilee Kearnes

   

Vice President and Chief Financial Officer

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Andrew B. Benett, Executive Chairman and Chief Executive Officer of Harte Hanks, Inc. (the “Company”), hereby certify that the accompanying report on Form 10-Q for the quarter ended March 31, 2020 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of those sections.

 

I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

May 14, 2020

 

/s/ Andrew B. Benett

Date

 

Andrew B. Benett

   

Executive Chairman and Chief Executive Officer

 

 

Note:  This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Laurilee Kearnes, Vice President and Chief Financial Officer of Harte Hanks, Inc. (the “Company”), hereby certify that the accompanying report on Form 10-Q for the quarter ended March 31, 2020 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of those sections.

 

I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

May 14, 2020

 

/s/ Laurilee Kearnes

Date

 

Laurilee Kearnes

   

Vice President and Chief Financial Officer

     

 

 

Note:  This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.