Deed of Trust, Security Agreement

FOR RECORDER'S USE ONLY


WHEN RECORDED MAIL TO:


Merrill Lynch Business Financial Services Inc. Attn: Jennifer Zabel 33 West Monroe Street 22nd Floor Chicago, Illinois 60603


DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS


FROM


CELEBRITY, INC.
GRANTOR


TO


THOMAS M. SMITH
TRUSTEE


FOR THE BENEFIT OF


MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
BENEFICIARY


[MERRILL LYNCH LOGO] Texas ================================================================================ 2


[MERRILL LYNCH LOGO] ================================================================================


DEED OF TRUST, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS


THIS DEED OF TRUST ("Deed of Trust") is made as of June 6, 1997 by CELEBRITY, INC., a corporation organized and existing under the laws of the State of having its principal office at 4520 Old Troup Highway, Tyler, TX ("Grantor") to Thomas M. Smith whose address is ____________________________________, as Trustee ("Trustee") for the benefit of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a Delaware corporation having its principal office at 33 West Monroe Street, 22nd Floor, Chicago, Illinois 60603 ("Beneficiary"), and pertains to the real property described on Exhibit "A" attached hereto and made a part hereof and the Other Property described herein.


I. DEFINITIONS


1.01 SPECIFIC TERMS. In addition to terms defined elsewhere in this Deed of Trust, when used herein the following terms shall have the following meanings:


(a)"Additional Agreements" shall have the meaning set forth in the Loan Agreement.


(b)"Business Day" shall mean any day other than a Saturday, Sunday, federal holiday or other day on which the New York Stock Exchange is regularly closed.


(c)"Documents" shall mean collectively the Loan Agreement, the Note, this Deed of Trust and the other Additional Agreements.


(d)"Interest Rate" shall have the meaning set forth in the Note and/or Loan Agreement (or if there shall be more than one Interest Rate, then "Interest Rate" shall mean the highest of such rates).


(e)"Loan Agreement" shall mean that certain TERM WCMA LOAN AGREEMENT NO. 9706340301 between Grantor and Beneficiary, as the same may from time to time be or have been amended, renewed, restated, extended or supplemented.


(f)"Note" shall mean that certain TERM WCMA NOTE in the original principal amount of $5,000,000.00 dated as of June 6, 1997, given by Grantor to Beneficiary, as the same may from time to time be amended, renewed, restated, extended or supplemented.


(g)"Obligations" shall mean all indebtedness, obligations and liabilities of Grantor to Beneficiary, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint and several, and, without limiting the foregoing, shall include all present and future liabilities, indebtedness and obligations of Customer under the Documents.


(h)"Other Property" shall have the meaning set forth in Section 2.01 hereof.


(i)"Property" shall mean the Real Property and the Other Property, collectively.


(j)"Real Property" shall mean the real property commonly known as 4520 Old Troup Highway, Tyler, Texas, and more fully described in Exhibit "A" attached hereto and made a part hereof, and all improvements thereon.


-1- 3
II. THE GRANT; ASSIGNMENT OF RENTS AND LEASES


2.01 GRANT. In order to induce Beneficiary to extend or continue to extend credit to Grantor under the Loan Agreement or otherwise, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to secure the payment and performance of the Obligations and the covenants and agreements herein contained, Grantor does hereby grant, bargain, sell, convey, mortgage and warrant to Trustee and its successors and assigns forever the Real Property, and all of Grantor's estate, right, title and interest therein, together with the following described property (the "Other Property"):


(a) All buildings and other improvements of every kind and description now or hereafter erected or placed on the Real Property, and all materials intended for construction, reconstruction, alteration and repair of such improvements now or hereafter erected thereon, all of which materials shall be deemed to be included as part of the Other Property immediately upon the delivery thereof to the Real Property;


(b) All right, title, and interest of Grantor, including any after-acquired title or reversion, in and to the rights-of-ways, streets, avenues, sidewalks, and alleys adjoining the Real Property;


(c) Each and all of the tenements, hereditaments, easements, appurtenances, passages, waters, water courses, riparian rights, other rights, liberties and privileges of the Real Property in any way now or hereafter appertaining thereto, including homestead and any other claim at law or in equity, as well as any after-acquired title, franchise or license and the reversions and remainders thereof;


(d) All rents, issues, deposits and profits accruing and to accrue from the Real Property and Other Property and the avails thereof;


(e) All of Grantor's rights and claims, in and to all accounts, accounts receivable, security deposits, insurance premium rebates, writings evidencing a monetary obligation, contract rights and other creditor's interests existing in favor of, owned or acquired by Grantor with respect to the Real Property; all contracts relating to the use, operation, occupation, maintenance, repair or construction of the Real Property; all permits, licenses, franchises benefiting the Real Property, together with the benefit of any deposits or payments now or hereafter made by Grantor or on its behalf in connection with the foregoing; and all books and records, including but not limited to all lease documents, relating to the Real Property and Other Property;


(f) All machinery, equipment, fittings, apparatus, appliances, fixtures (including, without limitation, all heating, air conditioning, ventilating, waste disposal, sprinkler and fire and theft protection equipment, and all plumbing, lighting, communications and elevator fixtures) and other property of every kind and description now or hereafter owned by Grantor and located upon or in, and used or useful in connection with, the operation, maintenance or occupancy of the Real Property or the Other Property, and all renewals or replacements thereof or articles in substitution therefor; and


(g) All judgments, awards of damages or settlements related to and all proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including but not limited to proceeds of insurance and/or condemnation, and all products, additions, accessions, attachments, parts, replacements and substitutes therefor.


TO HAVE AND TO HOLD the Property, together with all and singular the rights, hereditaments, and appurtenances in anywise appertaining or belonging thereto, unto Trustee and Trustee's successors or substitutes in this trust, and Trustee's successors and assigns, in trust and for the uses and purposes hereinafter set forth, forever.


2.02 SPECIAL TERMS CONCERNING THIS DEED OF TRUST. All of the Other Property is pledged hereunder primarily, on a parity with the Real Property, and not secondarily. This Deed of Trust is given as equal security


-2- 4 for all of the Obligations without preference or priority of any part of the Obligations for any reason whatsoever. The Note secured by this Deed of Trust contemplates a variable rate of interest.


This Deed of Trust is given in part to secure certain line of credit obligations, as evidenced and witnessed by the Note, and secures not only the indebtedness from Grantor existing on the date hereof, but all such future advances, whether such advances are obligatory or to be made at the option of Beneficiary, or otherwise as are made within 20 years from the date hereof, to the same extent as if such future advances were made on the date of the execution of this Deed of Trust, and although there may be no indebtedness outstanding at the time any advance is made. The lien of this Deed of Trust as to third persons without actual notice thereof shall be valid as to all indebtedness and future advances from the time this Deed of Trust is filed for record in the Office of the Recorder of Deeds of the County set forth on Exhibit A attached hereto. The total amount of revolving indebtedness that may be secured by this Deed of Trust may increase or decrease from time to time, but the total unpaid balance of the Note secured at any one time, shall not exceed the maximum principal amount of the Note plus interest thereon and any disbursements made by Beneficiary to protect and preserve the lien of this Deed of Trust (including, but not limited to, real estate taxes, water and sewer assessments, and insurance premiums), with interest on such disbursements.


2.03 OTHER PROPERTY. Grantor acknowledges and agrees that all of the Other Property now and hereafter owned by Grantor and placed by Grantor on the Real Property or used in connection with the operation or maintenance thereof shall, so far as permitted by law, be deemed for the purposes of this Deed of Trust to be part of the Real Property and covered by this Deed of Trust, and as to any of the Other Property which is not part of the Real Property or does not constitute a "fixture," as such term is defined in the Uniform Commercial Code (the "Code"), as enacted in the state in which the Real Property is located, this Deed of Trust shall be deemed to be, as well, a security agreement under the Code for the purpose of creating hereby a security interest in such property, which Grantor hereby grants to Beneficiary as "secured party," as such term is defined in the Code. All Other Property acquired by Borrower after the date hereof which is required or intended by the terms of this Deed of Trust to be subjected to the lien and security interest of this Deed of Trust shall, immediately upon the acquisition thereof by Borrower, and without any further deed of trust, conveyance, assignment or transfer, become subject to the lien and security interest of this Deed of Trust.


2.04 OTHER AMOUNTS SECURED. At all times, this Deed of Trust secures, in addition to the Note, all other Obligations; provided, however, that in no event shall the aggregate principal indebtedness secured by this Deed of Trust exceed an amount equal to 3 times the original principal amount of the Note, together with moneys advanced by Beneficiary to protect and preserve the lien of this Deed of Trust, as aforesaid.


2.05 ASSIGNMENTS OF RENTS AND LEASES. Grantor hereby assigns, transfers and sets over unto Beneficiary all the rents, fees or payments now or hereafter due, under or by virtue of any lease or other agreement, whether oral or written, for the use or occupancy of any part of the Property and to all amendments and guarantees thereof, whether heretofore, now or hereafter agreed to; together with the right to let and relet the Property or any part thereof, in Beneficiary's sole discretion, and to do anything with respect to the Property as Grantor might do. Any proceeds received hereunder may be applied by Beneficiary as otherwise provided in Section 4.11 of this Deed of Trust. Grantor hereby directs all tenants, lessees and occupants of the Property to pay all rental, payments or fees for use and occupancy of the Property in accordance herewith. Beneficiary agrees not to exercise its rights granted in this Section unless and until an Event of Default, as hereafter defined, shall have occurred and is continuing, provided that this assignment shall nevertheless be deemed a present assignment. Grantor shall execute, acknowledge, and deliver to Beneficiary, within 5 Business Days after any request by Beneficiary, such assignment of rent documents as may be required by Beneficiary, in form and substance satisfactory to Beneficiary. Grantor further agrees to pay to Beneficiary all reasonable costs and expenses incurred by Beneficiary in connection with the preparation, execution and recording of any such documents.


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III. GENERAL AGREEMENTS


3.01 PAYMENT OF OBLIGATIONS. Grantor shall pay or cause the payment on or before the applicable due date of each installment payable under the Note and all other Obligations, and Grantor shall timely perform or cause the performance of all of its other Obligations.


3.02 PROPERTY TAXES. Grantor shall pay on or before the applicable due date, all taxes, assessments and other charges that may be asserted against the Property or any part thereof or interest therein, except to the extent that any such failure to pay will not materially and adversely affect either any liens and security interests of Beneficiary hereunder, under the Loan Agreement or any Additional Agreements, the financial condition of Grantor or the continued operations of Grantor. Grantor shall furnish to Beneficiary duplicate receipts or other evidence of payment of such taxes, assessments and other charges within 30 days after payment thereof.


3.03 RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to timely do any act or thing which it has covenanted to do hereunder, Beneficiary may, in its sole discretion, after 5 Business Days written notice is sent to Grantor (or such lesser notice, including no notice, as is reasonable under the circumstances), do the same or cause it to be done, and may expend its funds for such purpose. Any and all reasonable amounts so expended by Beneficiary shall be payable to Beneficiary by Grantor on demand, with interest at the Interest Rate during the period from and including the date funds are so expended by Beneficiary to the date of repayment, and all such amounts shall be additional Obligations. The payment or performance by Beneficiary of any of Grantor's obligations hereunder shall not relieve Grantor of said obligations or of the consequences of having failed to pay or perform the same, and shall not waive or be deemed a cure of any Event of Default.


3.04 INSURANCE.


(a) HAZARD. Grantor shall keep the improvements now existing or hereafter erected on the Real Property insured under a replacement cost form of insurance policy against loss or damage resulting from such hazards as may be reasonably required by Beneficiary (including, but not limited to, flood insurance in an amount necessary to comply with applicable law), and shall pay promptly, when due, all premiums on such insurance. Without limiting the foregoing, during construction of any improvements on the Real Property, Grantor shall maintain "Builders Risk" insurance with extended coverage over fire and other casualties using completed values for the amount of the full insurable value for all such improvements under construction at any time on the Real Property, including equipment and materials delivered to the Real Property for incorporation into the Property. All such insurance shall be in form and with insurers approved in writing by Beneficiary and shall have attached thereto: (i) standard non- contributing deed of trust clauses entitling Beneficiary, as its interest may appear, to collect any and all proceeds payable under such insurance, and (ii) standard waiver of subrogation endorsements, so long as such subrogation endorsement can be obtained without material additional cost to Grantor.


In the event of any casualty loss, Grantor shall give immediate notice thereof to Beneficiary. Grantor hereby authorizes Beneficiary, at Beneficiary's option, to adjust and compromise any such losses under any of the aforesaid insurance and, after deducting any of Beneficiary's reasonable costs of collection, to use, apply, or disburse the balance of such insurance proceeds: (i) toward repairing, restoring and rebuilding the aforesaid improvements, provided such repair, restoration or rebuilding is economically feasible and the security of this Deed of Trust is not thereby impaired, in which event Beneficiary shall not be obliged to see to the proper application thereof nor shall the amount so released for such purposes be deemed a payment on the indebtedness secured thereby; or (ii) as a credit upon any portion of the indebtedness secured hereby, with the excess, if any, paid to Grantor; provided, however, that so long as no Event of Default shall then exist and no Event of Default shall exist at any time during the period of any repair, restoration and/or rebuilding of the aforesaid improvements, and subject to the provisions of the immediately following Section, upon Grantor's written request to Beneficiary made on or before the disbursement of such insurance proceeds to Beneficiary, such insurance proceeds shall be used to repair, restore and/or rebuild the aforesaid improvements. Unless Grantor and Beneficiary otherwise agree in writing, any such application of proceeds to the sums secured by


-4- 6 this Deed of Trust shall not extend or postpone the due date of any portion of the indebtedness secured hereby or change the amount of any installment due on such indebtedness.


To the extent any such insurance proceeds are used toward repairing, restoring and rebuilding such improvements, such proceeds shall be made available, from time to time, upon Beneficiary being furnished with satisfactory evidence of the estimated cost of such repairs, restoration and rebuilding and with such architect's certificates, waivers of lien, certificates, contractors' sworn statements and other evidence of the estimated cost thereof and of payments as Beneficiary may reasonably require and approve, and if the estimated cost of the work exceeds 5% of the original principal amount of the Note, with all plans and specifications for such plans, restoration and rebuilding as Beneficiary may reasonably require and approve. Payments made prior to the final completion of the work shall not exceed 90% of the value of the work performed, from time to time, and at all times the undisbursed balance of such proceeds remaining in the hands of Beneficiary shall be at least sufficient to pay for the cost of completion of the work, free and clear of any liens except the lien of this Deed of Trust. Beneficiary shall have the right to require that all funds shall be paid through a construction escrow with a title insurance company selected by Beneficiary. In the event of foreclosure of this Deed of Trust or other transfer of title to the Property in extinguishment of the Obligations, all right, title and interest of Grantor in and to any such insurance policies then in force, and any claims or proceeds thereunder, shall pass to Beneficiary or any purchaser or grantee therefrom.


(b) LIABILITY. Grantor shall carry and maintain such comprehensive public liability and worker's compensation insurance as may be reasonably required from time to time by Beneficiary; provided, however, that the amounts of liability coverage shall not be less than $2,000,000.00 single limit. Beneficiary shall be named as an additional party insured.


(c) PROOF OF INSURANCE. All insurance shall be in amount, form and content and with insurers approved in writing by Beneficiary. Grantor shall deliver to Beneficiary a copy or certificate of each policy or policies, with evidence of premiums prepaid, and, prior to any expiration or cancellation, each renewal or replacement thereof. Each policy shall contain provision for not less than 10 days' notice to Beneficiary prior to any cancellation thereof.


3.05 CONDEMNATION AND EMINENT DOMAIN. Any and all awards heretofore or hereafter made or to be made to the present, or any subsequent, owner of the Property, by any governmental or other lawful authority for the taking, by condemnation or eminent domain, of all or any part of the Property or any easement thereon or appurtenance thereof, are hereby assigned by Grantor to Trustee and Beneficiary, which awards Trustee and Beneficiary are hereby authorized to collect and receive from the condemnation authorities and give appropriate receipts therefor. Grantor shall give Trustee and Beneficiary immediate notice of the actual or threatened commencement of any condemnation or eminent domain proceedings affecting all or any part of the Real Property, or any easement thereon or appurtenance thereof (including severance of, consequential damage to, or change in grade of streets), and shall deliver to Trustee and Beneficiary copies of any and all papers served in connection with any such proceedings. Grantor further agrees to make, execute and deliver to Trustee and Beneficiary, at any time upon request, free, clear and discharged of any encumbrance of any kind whatsoever, any and all further assignments and other instruments deemed necessary by either Trustee or Beneficiary for the purpose of validly and sufficiently assigning all awards and other compensation heretofore and hereafter made to Grantor for any taking, either permanent or temporary, under any such proceeding. In the event of any damage or taking by eminent domain of less than substantially all of the Property, Beneficiary shall make available the proceeds of any award received in compensation for any such damage or taking, less Beneficiary's reasonable costs of collection, for the purpose of rebuilding and restoring the Property, subject to the same terms and conditions as set forth in Section 3.04 (a). If any of the foregoing conditions are not or cannot be satisfied, then Beneficiary may use or apply the award to the Obligations.


3.06 USE, MAINTENANCE AND REPAIR. (a) Grantor shall not desert or abandon the Property or, without the prior written consent of Beneficiary, cause or permit a material change in the use of the Property.


(b) Grantor shall at its expense maintain the Property in good, safe and insurable condition and repair, and in compliance with all applicable laws and other governmental requirements. Grantor further agrees not to permit,


-5- 7 commit or suffer any waste, impairment or deterioration of the Property or any part thereof; to effect such repairs as Beneficiary may reasonably require, and, from time to time, to make all necessary and proper replacements thereof and additions thereto so that all of the Property will, at all times, be in good condition and repair, and fit for the purposes for which originally erected or installed.


(c) Grantor shall not, without the prior written consent of Beneficiary, cause or permit the demolition, removal, construction, restoration, addition or material alteration to the Property or any portion thereof, except that without such consent: (i) Grantor may in the ordinary course of its business or operations replace any worn, broken, unfit or obsolete personal property or fixtures included in the Other Property with like property, or property which serves the same function, which is new or substantially new and free of all liens other than the lien of the Deed of Trust, and (ii) Grantor may make non- structural interior alterations having an aggregate cost in any calendar year of not in excess of $100,000.00.


3.07 LIENS AND TRANSFERS. Except upon the prior written consent of Beneficiary, Grantor shall not sell, transfer, convey, assign, hypothecate or otherwise transfer the title to or any beneficial interest in all or any portion of the Property, whether by operation of law, voluntarily, or otherwise, or contract to do any of the foregoing, or create, suffer or permit to be created or filed against the Property or any part thereof hereafter an ...