<PAGE> 1
FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended JULY 12, 1996
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: 0-28234
CASA OLE RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0493269
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1135 EDGEBROOK, HOUSTON, TEXAS 77034-1899
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 713/943-7574
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 X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 20, 1996: 3,597,705 SHARES OF COMMON STOCK, PAR
VALUE $.01.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASA OLE' RESTAURANTS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 12/29/95 7/12/96
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,003,585 $ 9,137,845
Royalties receivable 125,983 75,769
Receivables from affiliates 32,701 11,443
Other receivables 33,554 111,050
Notes receivable from related parties 38,964 28,964
Inventory 160,442 149,750
Prepaid expenses and other current assets 84,337 284,629
-------------- -----------------
Total current assets 1,479,566 9,799,450
-------------- -----------------
Property, plant and equipment 4,787,706 4,856,340
Less accumulated depreciation 3,408,945 3,365,742
-------------- -----------------
Net property, plant and equipment 1,378,761 1,490,598
-------------- -----------------
Other assets -- 20,929
-------------- -----------------
$ 2,858,327 $ 11,310,977
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 182,959 $ 135,575
Accounts payable 267,956 331,018
Accrued income taxes -- 347,382
Accrued sales and liquor taxes 116,474 161,917
Accrued payroll and taxes 127,951 144,055
Accrued expenses 166,261 136,176
-------------- -----------------
Total current liabilities 861,601 1,256,123
-------------- -----------------
Long-term debt 62,486 13,370
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- --
Capital stock 141,660 47,327
Additional paid-in capital 2,069,922 20,896,816
Retained earnings (deficit) (77,342) 447,341
Treasury stock, at cost (200,000) (11,350,000)
-------------- -----------------
Total stockholders' equity 1,934,240 10,041,484
-------------- -----------------
$ 2,858,327 $ 11,310,977
============== =================
</TABLE>
2
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CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
28-WEEK PERIODS ENDED 12-WEEK PERIODS ENDED
7/14/95 7/12/96 7/14/95 7/12/96
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 8,982,468 $ 9,090,282 $ 3,837,322 $ 3,976,742
Franchise fees 418,252 472,008 212,756 239,820
Other 23,624 47,257 10,055 27,585
-------------- -------------- ------------- --------------
9,424,344 9,609,547 4,060,133 4,244,147
-------------- -------------- ------------- --------------
Costs and expenses:
Cost of sales 2,235,386 2,283,755 953,481 1,000,769
Restaurant operating expenses 5,343,382 5,014,812 2,265,730 2,224,958
General and administrative 1,068,617 1,097,997 462,008 375,743
Depreciation and amortization 146,921 93,894 60,577 39,459
-------------- -------------- ------------- --------------
8,794,306 8,490,458 3,741,796 3,640,929
-------------- -------------- ------------- --------------
Operating income 630,038 1,119,089 318,337 603,218
Other income (expense)
Interest (25,070) 65,678 (10,985) 79,506
Other, net 55,476 140,690 13,823 39,334
-------------- -------------- ------------- --------------
30,406 206,368 2,838 118,840
Income before income tax expense 660,444 1,325,457 321,175 722,058
Income tax expense 39,957 347,382 17,214 274,717
-------------- -------------- ------------- --------------
Net income $ 620,487 $ 978,075 $ 303,961 $ 447,341
============== ============== ============= ==============
Pro forma income statement data:
Net income as reported $ 620,487 $ 978,075 $ 303,961 $ 447,341
Pro forma adjustments:
Compensation and related party
expense arrangements 441,539 161,700 189,231 --
Provision for income taxes (367,776) (210,422) (171,636) --
-------------- -------------- ------------- --------------
Pro forma net income $ 694,250 $ 929,353 $ 321,556 $ 447,341
============== ============== ============= ==============
Pro forma net income per share $0.25 $0.30 $0.12 $0.12
===== ===== ===== =====
Pro forma weighted average
number of shares 2,793,116 3,137,284 2,793,116 3,676,722
============== ============== ============= ==============
</TABLE>
3
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CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
28-WEEK PERIODS ENDED
7/14/95 7/12/96
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 620,487 $ 978,075
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 146,921 93,894
Loss on sale of fixed assets 690 28,003
Changes in assets and liabilities:
Royalties receivable -- 50,214
Receivable from affiliates 35,399 21,258
Other receivables (102,646) (77,496)
Inventory (5,438) 10,692
Prepaids and other current assets (17,523) (200,292)
Accounts payable (100,851) 63,062
Accrued expenses and other liabilities 78,241 378,844
Other assets (29,143) (20,929)
------------ ---------------
Total adjustments 5,650 347,250
------------ ---------------
Net cash provided by operating activities 626,137 1,325,325
------------ ---------------
Cash flows from investing activities:
Collection (issuance) of notes receivable (70,000) 10,000
Purchase of property, plant and equipment (43,857) (293,731)
Proceeds from sale of property, plant
and equipment -- 6,100
------------ ---------------
Net cash used in investing activities (113,857) (277,631)
------------ ---------------
Cash flows from financing activities:
Payment of dividends and distributions (275,000) (1,313,417)
Proceeds from sale of common stock 19,792,586
Purchase of treasury stock (11,350,000)
Payments of notes payable (106,606) (42,603)
------------ ---------------
Net cash provided by (used in)
financing activities (381,606) 7,086,566
------------ ---------------
Increase in cash and cash equivalents 130,674 8,134,260
Cash and cash equivalents at beginning of period 947,497 1,003,585
------------ ---------------
Cash and cash equivalents at end of period $ 1,078,171 $ 9,137,845
============ ===============
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 38,370 $ 17,348
Income taxes $ -- $ --
Non-cash transactions during the period:
Equipment disposed for note payable $ -- $ 53,897
</TABLE>
4
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CASA OLE RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Casa Ole Restaurants, Inc. (the "Company"),
the accompanying combined financial statements contain all adjustments
(consisting only of normal recurring accruals and adjustments)
necessary for a fair presentation of the combined financial position
as of July 12, 1996, and the combined statements of income and cash
flows for the 28-week and 12-week periods ended July 12, 1996 and July
14, 1995. The combined statements of income for the 28-week and
12-week periods ended July 12, 1996, are not necessarily indicative of
the results to be expected for the full year.
2. ACCOUNTING POLICIES
During the interim periods the Company follows the accounting
policies set forth in its combined financial statements in its
Prospectus dated April 25, 1996. Reference should be made to such
financial statements for information on such accounting policies and
further financial details.
3. PRO FORMA DATA
The pro forma income statement data reflects adjustments to
compensation and related party expense arrangements, and reflects an
adjustment to the provision for income taxes to reflect a 37%
effective tax rate, as if the Company had been taxed as a C
corporation prior to the effective date of the Company's initial
public offering.
Pro forma weighted average shares for the 28-week and 12-week
periods ended July 14, 1995, and the 16- week period ended April 19,
1996, represent the number of shares (2,732,705) issued pursuant to
the contribution agreement for the predecessor companies (effective
April 24, 1996) and 60,411 shares assumed to be issued to fund certain
S corporation distributions. Pro forma weighted average shares for
the 12-week period ended July 12, 1996, represent the number of shares
(2,732,705) issued pursuant to the contribution agreement for the
predecessor companies, reduced by redeemed shares and increased by
shares issued in the Company's initial public offering, along with
common equivalent shares (stock options and warrants) determined using
the treasury stock method.
5
<PAGE> 6
CASA OLE RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
4. INITIAL PUBLIC OFFERING
The Company announced its initial public offering of 2,000,000
shares of Common Stock at a price of $11.00 per share on April 25,
1996. On May 1, 1996, the Company redeemed 1,135,000 shares of Common
Stock for $10.00 per share from a principal of the Company.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues. The Company's revenues for the second quarter of fiscal
1996 of $4.2 million were up 4.5% over revenues of $4.1 million for the same
quarter a year ago. Restaurant sales for the second quarter of 1996 were up
$139,000 over the same quarter a year ago, to $4.0 million. Sales at
restaurants operating in both fiscal quarters ("same-stores") were up 6.7% over
last year's same quarter. This increase was principally the result of
increased volume for the operating restaurants.
Revenues for the 28 weeks ended July 12, 1996, increased $185,000, or
2.0%, to $9.6 million from $9.4 for the same period a year ago. Of the
increase, $108,000 was in restaurant sales. Same-store sales for the 28 weeks
ended July 12, 1996 were up 5.2% over the same period last year.
During the first and second quarters of 1995, the Company operated two
restaurants that did not conform to the Company's current operating model. One
of those restaurants was closed during the first quarter of 1995, and the other
restaurant was closed at the end of the second quarter of 1995. During the
first and second quarters of 1995, sales of approximately $294,000 and
$110,000, respectively, were generated by these restaurants.
Costs and Expenses. Cost of sales as a percentage of restaurant sales
during the current quarter increased to 25.2% from 24.8% in the same quarter
last year. This increase was attributed to modest fluctuations in ingredient
costs.
For the 28 weeks ended July 12, 1996, cost of sales as a percentage of
restaurant sales was 25.1% compared to 24.9% during the same period last year.
Restaurant operating expenses decreased $41,000, or 1.8%, in the
second quarter of 1996, as compared with the second quarter of 1995. As a
percentage of restaurant sales, restaurant operating expenses decreased to
55.9% in the current quarter, as compared to 59.0% in the same quarter last
year. This decrease was attributed to two items. First, the restaurant
operating expenses in the store that was closed at the end of the second
quarter of 1995 were significantly greater than those in ongoing restaurants.
Second, the 1995 restaurant operating expenses included approximately $68,000
of related party salary expense that is not a component of the current quarter
expenses. After giving effect to these two components, restaurant operating
expenses as a percentage of restaurant sales would have been 56.0% for the
second quarter of 1995.
For the 28-week period ended July 12, 1996, restaurant operating
expenses decreased 6.1%, or $329,000, as compared with the same period last
year. As a
7
<PAGE> 8
percentage of restaurant sales, restaurant operating expenses decreased to
55.2% from 59.5% in the same period last year. This decrease was attributed to
the two items discussed above related to the current quarter. Giving effect to
these, restaurant operating expenses as a percentage of restaurant sales would
have been 55.7% for the 28-week period ended July 14, 1995.
General and administrative expenses (G&A) decreased $86,000, or 18.7%,
in the current quarter as compared with the prior year's same quarter. As a
percentage of total revenues, G&A decreased to 8.9% in the second quarter of
1996, from 11.4% in the second quarter of 1995. This decrease is related
primarily to two components. First, during the current quarter, a $50,000
royalty reserve was reversed when payment was received. Second, included in
1995 G&A was approximately $121,000 of related party expense that is not a
component of the current quarter expenses. After giving effect to this, G&A as
a percentage of total revenues would have been 8.4% for the quarter ended July
14, 1995. The decrease in G&A as a percentage of total revenues was partially
offset by an increase in several G&A categories for expenses that relate to
being publicly traded and to the Company's preparation for growth, including
directors and officers liability insurance, directors' fees, legal expenses and
travel.
For the 28 weeks ended July 12, 1996, G&A increased $29,000, or 2.7%,
over the same period a year ago. As a percentage of total revenues, G&A was
11.4%, up slightly from 11.3% for the same period last year. Removing the
effect of various related party pro forma expenses that occurred prior to the
initial public offering, G&A as a percentage of total revenues would have been
9.7% for the 28-week period ended July 12, 1996, as compared to 8.3% for the
same period last year. This increase is attributed to the factors discussed
above related to the current quarter.
Depreciation and amortization expense as a percentage of total
revenues decreased from 1.5% in the second quarter of 1995 to 0.9% in the
second quarter of 1996. For the 28 weeks ended July 12, 1996, D&A as a
percentage of total revenues was 1.0%, as compared to 1.6% for the same period
last year. These decreases as a percentage of total revenues were the result
of using accelerated methods of depreciation on equipment in the early years of
equipment life, combined with the relatively small amount of equipment
additions made by the Company during the current quarter and year-to-date. As
the Company opens new restaurants, depreciation expense as a percentage of
total revenues is expected to increase.
Other Income (Expense). Net other income as a percentage of total
revenues increased from 0.1% in the second quarter of 1995 to 2.8% in the
second quarter of 1996. This increase was due to a $90,000 increase in net
interest income related to the investment of the initial public offering
proceeds and approximately $25,000 in other income related to various vendor
rebates.
For the 28-week period ended July 12, 1996, net other income as a
percentage of total revenues was 2.1%, compared to 0.3% for the same period a
year ago. This increase
8
<PAGE> 9
was due to the aforementioned items, along with a refund during the first
quarter of 1996 of approximately $60,000 related to the overpayment of rent
that occurred over the past four years.
Income Tax Expense. Prior to the Company's initial public offering,
substantially all of the predecessor corporations elected to be taxed as S
corporations under the provisions of Subchapter S of the Internal Revenue Code.
As a result of such election, federal income taxes on the net income of these
corporations were payable personally by the shareholders. The provision for
income taxes reflected in the financial statements prior to the effective date
of the initial public offering is for state franchise taxes on all restaurants
and for federal income taxes on the predecessor corporations that were taxable
as C corporations. The effective tax rates on those corporations were less
than the expected rates due to applicable graduated tax rates. The provision
for income taxes reflected in the financial statements subsequent to the
effective date of the initial public offering reflects an estimated 37%
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,325,000 for the 28
weeks ended July 12, 1996, compared to $626,000 for the same period last year.
This increase is attributed to an increase in net income combined with changes
in certain components of working capital.
Capital expenditures were approximately $294,000 for the first 28
weeks of 1996 compared to approximately $44,000 for the same period of 1995.
During the current quarter the Company purchased real estate for its restaurant
in Copperas Cove, Texas. Additionally, the Company upgraded its communication
systems at the corporate office and replaced equipment in various restaurants.
Pursuant to the terms of the reorganization of the Company,
distributions of approximately $1.3 million that related to undistributed
income through the date of the initial public offering were made during the
second quarter to shareholders of all but one of the predecessor corporations.
Due to pending issues, the distribution related to one of the predecessor
companies has not been made. Management anticipates the distribution will be
made during the third quarter.
In late April 1996, the Company received the proceeds from its initial
public offering of 2,000,000 shares of Common Stock at $11.00 per share. On
May 1, the Company used $11.35 million of the proceeds to redeem 1,135,000
shares of Common Stock owned by Michael D. Domec. The remainder of the
proceeds, net of offering expenses, will be used to finance the development or
acquisition of additional restaurants, remodel existing restaurants, install
point of sale systems and fund general corporate expenses.
9
<PAGE> 10
In July, the Company entered into a $10 million unsecured credit
agreement with NationsBank of Texas, N.A. The facility is divided into a $4
million Revolving Line of Credit (the "Revolver) and a $6 million Advised
Guidance Loan Commitment (the "Guidance Loan"). The Revolver is to be used for
general corporate purposes, including the construction or acquisition of new
restaurants, and can be drawn on, with interest only payments, through May 31,
1998, at which time the balance will be placed in a four-year term note. The
Guidance Loan can be used at any time through May 31, 1998, to acquire certain
operations of a specified franchisee. Any draws will be placed in a five-year
term note from the date of funding. The interest rate on both components of
the agreement is either the prime rate or LIBOR plus a stipulated percentage.
The Company will incur a non-use fee of 0.25% on the unused portion of the
Revolver from the date of the agreement. At the time of funding of the
Guidance Loan, there will be a one time fee of 0.25%. Within the terms of the
agreement, the Company must meet certain financial covenants. As of August 20,
1996, the Company had not made any draws on the Revolver or the Guidance Loan.
Construction is currently under way on two new restaurant sites. The
first, in Copperas Cove, Texas, has a targeted opening date of September 30.
The second, which will be on a land lease in Bellmead (Waco), Texas, has an
anticipated opening date in November. The Company also has real estate under
contract in two other communities in Texas. Management has targeted December
1996 for one of the restaurant openings and early 1997 for the other opening.
In addition to the construction of new restaurants, the Company will be
remodeling several of its older locations and installing a point of sale
system. Expenditures over the next 12 months for planned capital improvements
are currently anticipated to approximate $5.7 million exclusive of any
potential franchisee acquisitions. Cash flow from operations and the proceeds
from the initial public offering, combined with the availability under the $10
million credit facility, are anticipated to be sufficient to fund these planned
capital expenditures.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number: Document Description
------- --------------------
<S> <C>
10.1 $10 Million Credit Agreement with NationsBank of Texas, N.A. dated July 10,
1996
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASA OLE RESTAURANTS, INC.
Dated: August 20, 1996
--------------- By: /s/ Louis P. Neeb
----------------------
Louis P. Neeb
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: August 20, 1996
---------------
By: /s/ Stacy M. Riffe
-----------------------
Stacy M. Riffe
Vice President, Chief Financial Officer,
Secretary & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
12
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Document Description
------- --------------------
<S> <C>
10.1 $10 Million Credit Agreement with NationsBank of Texas, N.A. dated July 10,
1996
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
[Execution version]
CREDIT AGREEMENT
Between
CASA OLE RESTAURANTS, INC.
as the Borrower
and
NATIONSBANK OF TEXAS, N.A.
as the Bank
$10,000,000
July 10, 1996
<PAGE> 2
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TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3 Accounting Terms; Preparation of Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.4 Type and Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1 Autoborrow Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2 Revolving Loan Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Letter of Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Guidance Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.7 Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.8 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.9 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.10 Market Failure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.11 Payment Procedures and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1 Conditions Precedent to Initial Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 Conditions Precedent to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Absence of Conflicts and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5 Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6 Public Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.7 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
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<TABLE>
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Page
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4.8 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.11 Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.12 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.15 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.4 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.5 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.6 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.9 Corporate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.10 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.11 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.13 Investments; Acquisitions; Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.14 Lines of Business; Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.15 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.17 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.18 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 6. DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Termination of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3 Acceleration of Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4 Cash Collateralization of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.5 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.6 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.7 Actions Under Credit Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.8 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 7. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.3 Modifications, Waivers, and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.4 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 No Further Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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<PAGE> 5
EXHIBITS
Exhibit A - Form of Borrowing Request
Exhibit B - Form of Continuation/Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Guidance Loan Note
Exhibit E - Closing Documents List
Exhibit F - Form of Joinder Agreement
SCHEDULES
Schedule I - Subsidiaries
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<PAGE> 6
CREDIT AGREEMENT
This Credit Agreement dated as of July 10, 1996, is between Casa Ole
Restaurants, Inc., a Texas corporation ("Borrower"), and NationsBank of Texas,
N.A. ("Bank").
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.
1.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Acquisition Expenditures" means any payment of cash or other
consideration, including payments of stock and assumption of Debt, made by a
Person in connection with the direct or indirect acquisition, whether in one
or more related transactions, of all or substantially all of the assets,
liabilities, or Voting Securities of a Person, a division or business unit of a
Person, or any related group of the foregoing.
"Advance" means any Autoborrow Loan Advance, Revolving Loan Advance,
or Guidance Loan.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person or any Subsidiary of such Person.
The term "control" (including the terms "controlled by" or "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership, by contract, or otherwise.
"Agreement" means this Credit Agreement.
<PAGE> 7
"Applicable Interest Margin" means, for any LIBOR Tranche or Prime
Rate Tranche and as of any date of its determination, a per annum rate equal to
the percentage amount set forth in the table below opposite the applicable
ratio of (a) the daily average consolidated Funded Debt of the Borrower for the
fiscal quarter then most recently ended to (b) the consolidated EBITDA of the
Borrower for the four fiscal quarters then most recently ended:
<TABLE>
<CAPTION>
Funded Debt to
-------------- Applicable Interest Margin Applicable Interest Margin
EBITDA LIBOR Tranches Prime Rate Tranches
------ -------------- -------------------
<S> <C> <C>
less than or equal to 1.00 1.75% 0.00%
greater than 1.00 but less than or equal to 2.00 2.00% 0.00%
greater than 2.00 2.25% 0.00%
</TABLE>
Provided, however, that such ratio shall be deemed to be less than 1.00 for the
period beginning on the date of this Agreement until the first recalculation of
such ratio as set forth below (and therefore the Applicable Interest Margin for
LIBOR Tranches shall begin at 1.75%). The Bank shall determine the Applicable
Interest Margin based upon the most recent financial statements dated as of the
end of a fiscal quarter delivered to the Bank pursuant to Section 5.2(b). If
such statements are delivered when required hereunder, any adjustment to the
Applicable Interest Margin shall become effective on the 45th day following the
last day of the applicable fiscal quarter, provided that the Borrower shall
request in writing, simultaneously with its submission of such financial
statements, any decrease in the Applicable Margin which is justified by a
change in the foregoing ratio. The Bank shall provide the Borrower with prompt
written notice of any increase in the Applicable Margin resulting from a change
in the foregoing ratio; provided that if the Bank fails to provide such notice,
any increase in the Applicable Margin shall not be affected by such failure.
If such financial statements are not delivered when required hereunder, the
Applicable Interest Margin shall increase to the maximum percentage amount set
forth in the table above from such 45th day until three days after such
financial statements are received by the Bank.
"Applicable Lending Office" means, with respect to the Bank and for
any particular type of transaction, the office of the Bank at 700 Louisiana,
Houston, Texas, or such other office of the Bank as the Bank may from time to
time specify in writing to the Borrower for such particular type of
transaction.
"Autoborrow Loan" means the aggregate outstanding principal amount of
the Autoborrow Loan Advances.
"Autoborrow Loan Account" means an operating account of the Borrower
with the Bank which is designated as the "Autoborrower Loan Account" in writing
by the Borrower.
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<PAGE> 8
"Autoborrow Loan Activation Date" means any Business Day on or before
the Autoborrow Loan Commitment Termination Date specified by the Borrower to
the Bank in writing to be the Autoborrow Loan Activation Date.
"Autoborrow Loan Advance" means any principal advanced pursuant to any
Borrowing Request under the Autoborrow Loan facility created in Section 2.1.
"Autoborrow Loan Borrowing Multiple" means $10,000.
"Autoborrow Loan Borrowing Target Amount" means $50,000 as such amount
may be adjusted in writing by the Borrower and the Bank from time to time.
"Autoborrow Loan Commitment" means $0.00 before the Autoborrow Loan
Activation Date and $500,000 thereafter.
"Autoborrow Loan Commitment Termination Date" means May 31, 1998.
"Autoborrow Loan Maturity Date" means May 31, 1998.
"Autoborrow Loan Note" means the $500,000 Promissory Note (Revolving
Credit) dated as of July 10, 1996, made by the Borrower payable to the order of
the Bank evidencing the indebtedness of the Borrower to the Bank resulting from
Autoborrow Loan Advances made by the Bank to the Borrower.
"Autoborrow Loan Prepayment Target Amount" means $50,000 as such
amount may be adjusted in writing by the Borrower and the Bank from time to
time.
"Bank" means NationsBank of Texas, N.A.
"Beaumont Harken Acquisitions" means the Beaumont Harken Acquisition A
and the Beaumont Harken Acquisition B.
"Beaumont Harken Acquisition A" means the acquisition by the Borrower
of the assets of two Casa Ole Restaurant franchises located near Beaumont,
Texas, as disclosed to the Bank in writing prior to the date of this Agreement.
"Beaumont Harken Acquisition B" means the acquisition by the Borrower
of the assets of four to six Casa Ole Restaurant franchises located near
Beaumont, Texas, as disclosed to the Bank in writing prior to the date of this
Agreement.
"Borrower" means Casa Ole Restaurants, Inc., a Texas corporation.
-3-
<PAGE> 9
"Borrower Account" means the principal operating account of Borrower
with the Bank or any other account of Borrower with the Bank which is
designated as the "Borrower Account" in writing by the Borrower.
"Borrowing Base" means, at any date of its determination, an amount
equal to the product of (a) 2.25 and (b) the consolidated EBITDA of the
Borrower for the four fiscal quarters then most recently ended less $300,000;
provided, however, that the Borrowing Base shall be deemed to be $4,000,000 for
the period beginning on the date of this Agreement until the first
recalculation of the Borrowing Base as set forth below and provided further
that following Beaumont Harken Acquisition B, for the purposes of determining
the Borrowing Base, the EBITDA of the Borrower shall be calculated by the Bank
to include, on a proforma basis, the combined results of the Borrower and the
assets purchased in connection with Beaumont Harken Acquisition B for such
period. The Bank shall determine the Borrowing Base based upon the most
recent financial statements dated as of the end of a fiscal quarter delivered
to the Bank pursuant to Section 5.2(b). If such statements are delivered when
required hereunder, any adjustment to the Borrowing Base shall become effective
on the 45th day following the last day of the applicable fiscal quarter. If
such financial statements are not delivered when required hereunder, the
Borrowing Base shall be set by the Bank at any level from such 45th day until
three days after such financial statements are received by the Bank.
"Borrowing Request" means a Borrowing Request executed by a
Responsible Officer of the Borrower and delivered to the Bank in substantially
the form of Exhibit A.
"Business Day" means any Monday through Friday during which commercial
banks are open for business in Houston, Texas, and, if the applicable Business
Day relates to any LIBOR Tranche, on which dealings are carried on in the
London interbank market.
"Capital Expenditures" means, for any Person and period of its
determination, the aggregate of all expenditures and costs (whether paid in
cash or accrued as liabilities during that period and including that portion of
Capital Leases which is capitalized on the balance sheet of such Person) of
such Person during such period that, in conformity with generally accepted
accounting principles, are required to be included in or reflected by the
property, plant, or equipment, or any similar fixed asset or long term
capitalized asset accounts reflected in the balance sheet of such Person.
"Capital Leases" means, for any Person, any lease of any property by
such Person which would, in accordance with generally accepted accounting
principles, be required to be classified and accounted for as a capital lease
on the balance sheet of such Person.
"Cash Flow" means, for any Person and period of its determination, the
consolidated net income of such Person exclusive of extraordinary items during
such period, plus the
-4-
<PAGE> 10
consolidated tax expense, interest expense, and lease expense of such Person
during such period, plus the consolidated depreciation and amortization of such
Person during such period.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Compliance Certificate" means a certificate executed by a Responsible
Officer of the Borrower in substantially the form of Exhibit C.
"Continuation/Conversion Request" means a Continuation/Conversion
Request executed by a Responsible Officer of the Borrower and delivered to the
Bank in substantially the form of Exhibit B.
"Credit Documents" means this Agreement, the Notes, the Letter of
Credit Documents, the Guaranty and each other agreement, instrument, or
document executed at any time in connection with this Agreement.
"Credit Obligations" means all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Borrower to the Bank under the Credit Documents and any increases,
extensions, and rearrangements of those obligations under any amendments,
supplements, and other modifications of the documents and agreements creating
those obligations.
"Credit Parties" means the Borrower and the Guarantors.
"Debt" means, with respect to any Person and as of any date of its
determination, without duplication, (a) indebtedness of such Person for
borrowed money, (b) obligations of such Person evidenced by notes, bonds,
debentures, or other similar instruments, (c) obligations of such Person as
lessee under Capital Leases, (d) obligations of such Person to pay the deferred
purchase price of property or services (other than trade debt and current
operating liabilities incurred in the ordinary course of business), (e)
obligations of such Person under or relating to letters of credit, guaranties,
note purchase agreements, investment agreements, and other obligations of such
Person which support the repayment of the types of indebtedness and obligations
of others referred to in parts (a) through (d) of this definition, and (f)
nonrecourse indebtedness or obligations of others of the kinds referred to in
parts (a) through (e) of this definition secured by any Lien on or in respect
of any property of such Person. For the purposes of determining the amount of
any Debt, the amount of any Debt described in clause (e) of the definition of
Debt shall be valued at the full amount of the contingent liability thereunder
and the amount of any Debt described in clause (f) shall be valued at the
lesser of the amount of the Debt secured or the value of the property securing
such Debt.
-5-
<PAGE> 11
"Debt Service" means, for any Person and period of its determination,
the sum of (a) the consolidated interest expense of such Person during such
period, plus (b) the greater of the consolidated operating lease expense of
such Person during such period or the estimated consolidated operating lease
expense of such Person for the four fiscal quarters immediately succeeding such
period, plus (c) the quotient of (i) the consolidated current maturities of
long-term debt of such Person as of the end of such period (excluding the
Revolving Loan to the extent applicable), including the consolidated current
maturities of long-term debt related to the Capital Leases of such Person, plus
25% of the daily average outstanding amount of the Revolving Loan for the
fiscal quarter ending as of the end of such period divided by (ii) the greater
of (A) an amount equal to the difference of 1.00 minus the highest marginal
federal income tax rate applicable to such Person during such period or (B) an
amount equal to the difference of 1.00 minus the highest estimated marginal
federal income tax rate applicable to such Person during the four fiscal
quarters immediately succeeding such period. All estimates used in the
calculation of Debt Service shall be determined by the Bank.
"Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time would, unless cured or waived, become an
Event of Default.
"Default Rate" means, with respect to any amount due hereunder, a per
annum interest rate equal to (a) if such amount is either outstanding principal
accruing interest based upon a rate established elsewhere in this Agreement or
accrued but unpaid interest thereon, the sum of (i) the interest rate
established elsewhere in this Agreement from time to time for such principal
amount, including any applicable margin, plus (ii) 3.00% per annum or (b) in
all other cases, the Prime Rate in effect from time to time plus the Applicable
Interest Margin for Prime Rate Tranches in effect from time to time plus 3.00%
per annum.
"Derivatives" means any swap, hedge, cap, collar, or similar
arrangement providing for the exchange of risks related to price changes in any
commodity, including money.
"Dollars or $" means lawful money of the United States of America.
"EBITDA" means, with respect to any Person and for any period of its
determination, the consolidated net income of such Person for such period, plus
the consolidated interest expense, income taxes, and depreciation and
amortization of such Person for such period.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Environmental Law" means all federal, state, and local laws, rules,
regulations, ordinances, orders, decisions, agreements, and other requirements
now or hereafter in effect relating to the pollution, destruction, loss, or
injury of the environment, the presence of any contaminant in the environment,
the protection, cleanup, remediation, or restoration of the
-6-
<PAGE> 12
environment, the creation, handling, transportation, use, or disposal of any
waste product in the environment, exposure of persons to any contaminant,
waste, or hazardous substance in the environment, and the health and safety of
employees in relation to their environment.
"Event of Default" has the meaning specified in Section 6.1.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.
"Financial Statements" means the audited financial statements of the
Borrower referred to in Section 4.7(a).
"Funded Debt" means, with respect to any Person and as of any date of
its determination, without duplication, (a) indebtedness of such Person for
borrowed money, (b) obligations of such Person evidenced by notes, bonds,
debentures, or other similar instruments, (c) obligations of such Person as
lessee under Capital Leases, and (d) obligations of such Person to pay the
deferred purchase price of property or services (other than trade debt and
current operating liabilities incurred in the ordinary course of business).
"Guaranty" means the Guaranty dated as of July 10, 1996, made by
certain Subsidiaries of the Borrower in favor of the Bank guaranteeing the
Credit Obligations.
"Guarantors" means (a) the Subsidiaries of the Borrower listed in
Schedule I that have executed the Guaranty and (b) any future Subsidiaries of
the Borrower that have executed the Guaranty pursuant to Section 5.19.
"Guidance Loan" means any principal advanced pursuant to any Borrowing
Request under the guidance loan facility created in Section 2.4.
"Guidance Loan Advance" means any Guidance Loan.
"Guidance Loan Commitment" means $6,000,000. The use of the term
"Commitment" in the definition of the term Guidance Loan Commitment shall not
be construed to imply any commitment to lend other than as agreed upon by the
Bank under Section 2.4.
"Guidance Loan Commitment Termination Date" means May 31, 1998.
"Guidance Loan Maturity Date" means, with respect to each Guidance
Loan, five years from the date of funding such Advance, as set forth in the
Guidance Loan Note executed in connection with such Guidance Loan.
-7-
<PAGE> 13
"Guidance Loan Minimum Borrowing Amount" means $200,000.
"Guidance Loan Note" means a promissory note of the Borrower payable
to the order of the Bank, in substantially the form as the attached Exhibit D,
evidencing the indebtedness of the Borrower to the Bank resulting from the
Guidance Loan made by the Bank to the Borrower in connection with any Guidance
Loan and the terms of the repayment thereof.
"Hazardous Materials" means any substance or material identified as a
hazardous substance pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended and as now or hereafter in
effect; any substance or material regulated as a hazardous waste pursuant to
the Resource Conservation and Recovery Act of 1976, as amended and as now or
hereafter in effect; and any substance or material designated as a hazardous
substance or hazardous waste pursuant to any Environmental Law.
"Highest Lawful Rate" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to the Bank which are presently in effect
or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow. The maximum lawful rate under this
Agreement shall be the weekly indicated rate ceiling under Article 5069-1.04 of
the Texas Revised Civil Statutes, unless any other lawful rate ceiling exceeds
the rate ceiling so determined, and then the higher rate ceiling shall apply.
"Intangible Assets" means, with respect to any Person and as of any
date of its determination, the goodwill, patents, trade names, trade marks,
copyrights, franchises, experimental expense, organization expense, unamortized
debt discount and expense, deferred assets (other than prepaid insurance and
prepaid taxes), the excess of cost of shares acquired over book value of
related assets, and such other assets of such Person as are properly classified
as "intangible assets" in accordance with generally accepted accounting
principles.
"Interest Period" means, with respect to each LIBOR Tranche, the
period commencing on the date of such LIBOR Tranche and ending on the last day
of the period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three, or six months,
in each case as the Borrower may select in the applicable Borrowing Request or
Continuation/Conversion Request (unless there shall exist any Default or Event
of Default, in which case the Borrower may only select one month Interest
Periods); provided, however, that:
(a) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on
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<PAGE> 14
the next succeeding Business Day; provided that if such extension would cause
the last day of such Interest Period to occur in the next following calendar
month, the last day of such Interest Period shall occur on the next preceding
Business Day;
(b) any Interest Period which begins on the last Business Day of
the calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month in which it would have ended if there
were a numerically corresponding day in such calendar month; and
(c) the Borrower may not select an Interest Period for any LIBOR
Tranche which ends after the applicable Maturity Date.
"Interim Financial Statements" means the financial statements of the
Borrower referred to in Section 4.7(b).
"LIBOR" means, with respect to any LIBOR Tranche, the per annum
interest rate quoted to the Bank by the funding affiliate of the Bank in
London, England, at which deposits in an amount substantially equal to the
amount of the LIBOR Advance of the Bank comprising part of such Tranche, and
for a duration substantially equal to the Interest Period for such Tranche, are
offered to the principal office of such funding affiliate of the Bank in
London, England, by such funding affiliate's correspondent banks in the London
interbank market three Business Days before the date of such Tranche.
"LIBOR Tranche" shall mean any Tranche which bears interest based upon
the LIBOR, as determined in accordance with Section 2.6.
"Letter of Credit" means any commercial or standby letter of credit
issued by the Bank for the account of the Borrower pursuant to the terms of
this Agreement.
"Letter of Credit Application" means the Bank's standard form letter
of credit application for a standby letter of credit, which has been executed
by the Borrower and accepted by the Bank in connection with the issuance of a
Letter of Credit.
"Letter of Credit Application Amendment" means the Bank's standard
form application to amend a letter of credit for a standby letter of credit,
which has been executed by the Borrower and accepted by the Bank in connection
with the increase or extension of a Letter of Credit.
"Letter of Credit Collateral Account" means a special cash collateral
account pledged to the Bank containing cash deposited pursuant to Section 6.4
to be maintained with the Bank in accordance with Section 2.3(g).
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<PAGE> 15
"Letter of Credit Documents" means all Letters of Credit, Letter of
Credit Applications, Letter of Credit Application Amendments, and agreements,
documents, and instruments entered into in connection with or relating thereto.
"Letter of Credit Exposure" means, as of any date of its
determination, the aggregate outstanding undrawn amount of Letters of Credit
plus the aggregate of the unpaid reimbursement obligations of the Borrower
under the Letter of Credit Applications and this Agreement resulting from draws
under Letters of Credit.
"Letter of Credit Sublimit" means $300,000.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, encumbrance, or other type of preferential arrangement to
secure or provide for the payment of any obligation of any Person, whether
arising by contract, operation of law, or otherwise (including any title
retention for such purposes under any conditional sale agreement, any Capital
Lease, or any other title transfer or retention agreement).
"Loan" means the Revolving Loan or the Guidance Loan.
"Material Adverse Change" means any material adverse change in the
business, operations, or financial condition of the Borrower since the date of
the Financial Statements, Interim Financial Statements, or this Agreement,
including any change which results in or could reasonably be expected to result
in any damages, liabilities, costs, or expenses of $500,000 or greater.
"Maturity Date" means the Autoborrow Loan Maturity Date, the Revolving
Loan Maturity Date, or the applicable Guidance Loan Maturity Date, in each case
as applicable.
"Minimum LIBOR Tranche Amount" means $200,000.
"Minimum LIBOR Tranche Multiple" means $100,000.
"Net Worth" means, with respect to any Person and as of any date of
its determination, the excess of the consolidated assets of such Person over
the sum of the consolidated liabilities of such Person and the consolidated
minority interests of such Person.
"Notes" means the Revolving Loan Note and the Guidance Loan Note.
"PBGC" means Pension Benefit Guaranty Corporation or its successor.
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"Permitted Debt" means all of the following Debt:
(a) Debt in the form of the Credit Obligations;
(b) Debt in the form of purchase money indebtedness in an
aggregate outstanding amount not to exceed $300,000; provided,
however, that the Borrower may not incur such purchase money
indebtedness if a Default or Event of Default is continuing or if
entering into such purchase money indebtedness would cause a Default
or Event of Default; and
(c) Debt in the form of Subordinated Debt approved by the
Bank in writing.
"Permitted Derivatives" means any Derivative used by a Person in such
Person's business operations in aggregate notional quantities not to exceed the
reasonably anticipated consumption of such Person of the underlying commodity
for the relevant period, but no Derivatives which are speculative in nature.
"Permitted Investments" means all of the following investments:
(a) investments in wholly owned Subsidiaries of the
Borrower holding all material assets in the United States;
(b) investments in the form of loans, guaranties, open
accounts, and other extensions of trade credit in the ordinary course
of business;
(c) investments in direct obligations of the United
States, or investments in any Person which investments are guaranteed
by the full faith and credit of the United States, in either case
maturing in twelve months or less from the date of acquisition thereof
and repurchase agreements having a term of less than one year and
fully collateralized by such obligations which are entered into with
banks or trust companies described in clause (e) below;
(d) investments in commercial paper and bankers'
acceptances maturing in twelve months or less from the date of
issuance and which, at the time of acquisition are rated A-2 or better
by Standard & Poor's Corporation and P-2 or better by Moody's
Investors Services, Inc;
(e) investments in time deposits or certificates of
deposit maturing within one year from the date such investment is
made, issued by a bank or trust company organized under the laws of
the United States or any state thereof having capital, surplus, and
undivided profits aggregating at least $250,000,000 or a foreign
branch
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thereof and whose long-term certificates of deposit are, at the time
of acquisition thereof, rated A-2 by Standard & Poor's Corporation or
P-2 by Moody's Investors Services, Inc.;
(f) investments in money market funds which invest solely
in the types of investments described in paragraphs (c) through (e)
above;
(g) loans and advances to directors, officers, and
employees of the Borrower made in the ordinary course of business in
an aggregate outstanding amount not to exceed $300,000.
In valuing any investments for the purpose of applying the limitations
set forth in this Agreement, such investments shall be taken at the original
cost thereof (but without reduction for any subsequent appreciation or
depreciation thereof) less any amount actually repaid or recovered on account
of capital or principal (but without reduction for any offsetting investments
made by the investee in the investor). For purposes of this Agreement, at any
time when a corporation becomes a Subsidiary of the Borrower, all investments
of such corporation at such time shall be deemed to have been made by such
corporation at such time.
"Permitted Liens" means all of the following Liens:
(a) Liens securing the Credit Obligations;
(b) Liens securing purchase money debt or Capital Leases
permitted under clause (b) of the definition of Permitted Debt,
provided that each such Lien secures only the purchase money debt or
Capital Lease incurred in connection with the acquisition of the
assets purchased or leased in connection with the incurrence of such
purchase money debt or Capital Lease and each such Lien encumbers only
the assets purchased or leased in connection with the incurrence of
such purchase money debt; and
(c) Liens arising in the ordinary course of business which are
not incurred in connection with the borrowing of money or the
obtaining of advances or credit and which do not materially detract
from the value of the Credit Parties' assets or materially interfere
with the Credit Parties' business, including (i) Liens for taxes,
assessments, or other governmental charges or levies which are not yet
due and payable or which are being contested in accordance with the
terms of this Agreement; (ii) Liens in connection with worker's
compensation, unemployment insurance, or other social security, old
age pension, or public liability obligations; (iii) Liens in the form
of legal or equitable encumbrances deemed to exist by reason of
negative pledge covenants and other covenants or undertakings of like
nature; (iv) Liens in the
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form of vendors', carriers', warehousemen's, repairmen's, mechanics',
workmen's, materialmen's, construction, or other like Liens arising by
operation of law in the ordinary course of business or incident to the
construction or improvement of any property in respect of obligations
which are not yet due and payable or which are being contested in
accordance with this Agreement; and (v) Liens in the form of zoning
restrictions, easements, licenses, and other restrictions on the use
of real property or minor irregularities in title thereto which do not
materially impair the use of such property in the operation of the
business of the Credit Parties or the value of such property.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, or other entity, or a government or any political subdivision or
agency thereof, or any trustee, receiver, custodian, or similar official.
"Plan" means any (a) employee medical benefit plan under Section 3(1)
of ERISA, (b) defined benefit plan under Section 3(35) of ERISA, (c)
multiemployer plan under Section 4001(a)(3) of ERISA, or (d) account benefit
plan defined in Section 3(34) of ERISA.
"Prime Rate" means a fluctuating per annum interest rate in effect
from time to time equal to the rate of interest publicly announced by the Bank
as its prime rate, whether or not the Borrower has notice thereof.
"Prime Rate Tranche" shall mean any Tranche which bears interest based
upon the Prime Rate, as determined in accordance with Section 2.6.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Related Parties" means, with respect to any Person, such Person's
stockholders, directors, officers, employees, agents, Affiliates, successors,
and assigns, and their respective stockholders, directors, officers, employees,
and agents, and, with respect to any Person that is an individual, such
Person's family relations and heirs.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Responsible Officer" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, Vice Presidents,
Secretary, and Treasurer.
"Revolving Loan" means the aggregate outstanding principal amount of
the Revolving Loan Advances.
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"Revolving Loan Advance" means any principal advanced pursuant to any
Borrowing Request under the revolving loan facility created in Section 2.2.
"Revolving Loan Commitment" means $4,000,000 prior to the Autoborrow
Loan Activation Date and $3,500,000 thereafter.
"Revolving Loan Commitment Termination Date" means May 31, 1998.
"Revolving Loan Maturity Date" means May 31, 2002.
"Revolving Loan Minimum Borrowing Amount" means $200,000.
"Revolving Loan Note" means the $4,000,000 Promissory Note (Revolving
Credit) dated as of July 10, 1996, made by the Borrower payable to the order of
the Bank evidencing the indebtedness of the Borrower to the Bank resulting from
Revolving Loan Advances made by the Bank to the Borrower.
"Subordinated Debt" means, with respect to the Borrower and as of any
date of its determination, any indebtedness for money borrowed for which the
Borrower is directly and primarily obligated that arises after the date of this
Agreement, does not have any stated maturity before the latest maturity of any
of the Credit Obligations, and is subordinated, upon terms satisfactory to the
Bank, to the payment and collection of the Credit Obligations.
"Subsidiary" means, with respect to any Person, any other Person 50%
or more of whose outstanding Voting Securities (other than directors'
qualifying shares) shall at any time be owned by such Person or one or more
Subsidiaries of such Person.
"Tangible Assets" means, with respect to any Person and as of any date
of its determination, the assets of such Person less the Intangible Assets of
such Person.
"Tangible Net Worth" means, for any Person and as of any date of its
determination, the Net Worth of such Person less the Intangible Assets of such
Person.
"Tranche" means any tranche of principal outstanding accruing interest
on the same basis whether created in connection with new advances of principal
pursuant to Section 2.6(a)(i) or by the continuation or conversion of existing
tranches of principal pursuant to Section 2.6(a)(ii) and shall include any
Prime Rate Tranche or LIBOR Tranche.
"Type" has the meaning set forth in Section 1.4.
"Voting Securities" means (a) with respect to any corporation, any
capital stock of the corporation having general voting power under ordinary
circumstances to elect directors
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of such corporation, (b) with respect to any partnership, any partnership
interest having general voting power under ordinary circumstances to elect the
general partner or other management of the partnership, and (c) with respect to
any other Person, such ownership interests in such Person having general voting
power under ordinary circumstances to elect the management of such Person, in
each case irrespective of whether at the time any other class of stock,
partnership interests, or other ownership interest might have special voting
power or rights by reason of the happening of any contingency.
1.2 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding."
1.3 Accounting Terms; Preparation of Financials. All accounting
terms, definitions, ratios, and other tests described herein shall be construed
in accordance with United States generally accepted accounting principles
applied on a consistent basis with those applied in the preparation of the
financial statements of the Credit Parties, except as expressly set forth in
this Agreement. The Credit Parties shall prepare their respective financial
statements in accordance with United States generally accepted accounting
principles applied on a consistent basis with those applied in the preparation
of the Financial Statements, unless required to conform to changes in United
States generally accepted accounting principles or approved by the Bank in
writing.
1.4 Type and Class. The "Type" of a Tranche refers to the
determination whether such tranche is a LIBOR Tranche or a Prime Rate Tranche.
The "Class" of an Advance refers to the determination whether such Advance is
an Autoborrow Loan Advance, Revolving Loan Advance, or Guidance Loan.
1.5 Interpretation. Article, Section, Schedule, and Exhibit
references are to this Agreement, unless otherwise specified. All references
to instruments, documents, contracts, and agreements are references to such
instruments, documents, contracts, and agreements as the same may be amended,
supplemented, and otherwise modified from time to time, unless otherwise
specified. The word "including" shall mean "including but not limited to."
The word "or" shall mean "and/or" wherever necessary to prevent interpretation
of any provision against the Bank. Whenever the Borrower has an obligation
under this Agreement and the Credit Documents the expense of complying with
that obligation shall be an expense of the Borrower unless otherwise specified.
Whenever any determination is to be made by the Bank, such determination shall
be in the Bank's sole discretion unless otherwise specified in this Agreement.
If any provision in this Agreement and the Credit Documents is held to be
illegal, invalid, not binding, or unenforceable, such provision shall be fully
severable and this Agreement and the Credit Documents shall be construed and
enforced as if such illegal, invalid, not binding, or unenforceable provision
had never comprised a part of this Agreement and the Credit Documents, and the
remaining provisions shall remain in full force
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and effect. This Agreement and the Credit Documents have been reviewed and
negotiated by sophisticated parties with access to legal counsel and shall not
be construed against the drafter. In the event of a conflict between this
Agreement and the Credit Documents, this Agreement shall control.
ARTICLE 2. CREDIT FACILITIES.
2.1 Autoborrow Loan Facility.
(a) Commitment. The Bank agrees, on the terms and
conditions set forth in this Agreement and for the purposes set forth in
Section 5.4, to make Autoborrow Loan Advances to the Borrower from time to time
on any Business Day during the period from the Autoborrow Loan Activation Date
until the Autoborrow Loan Commitment Termination Date provided that (i) the
amount of the Autoborrow Loan shall not exceed the Autoborrow Loan Commitment
and (ii) the amount of the Autoborrow Loan plus the amount of the Revolving
Loan plus the Letter of Credit Exposure shall not exceed the lesser of (A) the
sum of the Autoborrow Loan Commitment plus the Revolving Loan Commitment or (B)
the Borrowing Base. Within the limits expressed in this Agreement and in
accordance with the autoborrowing provisions set forth in this Section 2.1,
Autoborrow Loan Advances shall from time to time be borrowed, prepaid, and
reborrowed. The indebtedness of the Borrower to the Bank resulting from the
Autoborrow Loan Advances made by the Bank shall be evidenced by the Autoborrow
Loan Note.
(b) Method of Advancing. If at the close of business on
any Business Day the balance of the Autoborrow Loan Account is less than the
Autoborrow Loan Borrowing Target Amount, and provided that all conditions
precedent to the making of an Advance hereunder are satisfied, the Bank shall
make an Autoborrow Loan Advance in a multiple of the Autoborrow Loan Borrowing
Multiple to the Borrower in the smallest amount such that following such
Autoborrow Loan Advance the balance of the Autoborrow Loan Account is equal to
or greater than the Autoborrow Loan Borrowing Target Amount unless such an
Autoborrow Loan Advance would violate the limitations set forth in paragraph
(a) above, in which case such Autoborrow Loan Advance shall be limited to and
made in the greatest amount available that would not violate such limitations.
Subject to such terms, the Bank shall make such Autoborrow Loan Advance to the
Borrower as of the close of business on such date in immediately available
funds at the Autoborrow Loan Account.
(c) Prepayment. If at the close of business on any
Business Day the balance of the Autoborrow Loan Account is greater than the
Autoborrow Loan Prepayment Target Amount by an amount equal to or greater than
the Autoborrow Loan Borrowing Multiple, the Bank shall apply funds from the
Autoborrow Loan Account in excess of the Autoborrow Loan Prepayment Target
Amount in multiples of the Autoborrow Loan Borrowing Multiple to the prepayment
of the Autoborrow Loan, provided that if the amount
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of the Autoborrow Loan is less than the Autoborrow Loan Borrowing Multiple, the
amount of such prepayment shall be limited to and made in the amount of the
Autoborrow Loan. The Bank shall make such application as of the close of
business on such date.
(d) Repayment. The Borrower shall pay to the Bank the
outstanding amount of the Autoborrow Loan on the Autoborrow Loan Maturity Date.
2.2 Revolving Loan Facility.
(a) Commitment. The Bank agrees, on the terms and
conditions set forth in this Agreement and for the purposes set forth in
Section 5.4, to make Revolving Loan Advances to the Borrower as requested by
the Borrower from time to time on any Business Day during the period from the
date of this Agreement until the Revolving Loan Commitment Termination Date
provided that (i) the amount of the Revolving Loan shall not exceed the
Revolving Loan Commitment and (ii) the amount of the Autoborrow Loan plus the
amount of the Revolving Loan plus the Letter of Credit Exposure shall not
exceed the lesser of (A) the sum of the Autoborrow Loan Commitment plus the
Revolving Loan Commitment or (B) the Borrowing Base. Within the limits
expressed in this Agreement, the Borrower may from time to time borrow, prepay,
and reborrow Revolving Loan Advances. The indebtedness of the Borrower to the
Bank resulting from the Revolving Loan Advances made by the Bank shall be
evidenced by the Revolving Loan Note.
(b) Method of Advancing. Each Revolving Loan Advance
shall be made pursuant to a Borrowing Request given by the Borrower to the Bank
in writing or by telecopy not later than the time required pursuant to Section
2.6(a)(i) to select the interest rate basis for the Revolving Loan Advance.
Revolving Loan Advances must be made in an amount equal to or greater than the
Revolving Loan Minimum Borrowing Amount or made in the amount of the remaining
available amount of the Revolving Loan. Each Borrowing Request shall be fully
completed and shall specify the information required therein, and shall be
irrevocable and binding on the Borrower unless such Borrowing Request is
rejected by the Bank as incomplete or improper. Subject to the satisfaction of
all applicable conditions precedent, the Bank shall before close of business on
the date requested for such Revolving Loan Advance make such Revolving Loan
Advance available to the Borrower in immediately available funds at the
Borrower Account.
(c) Prepayment.
(i) The Borrower may prepay the outstanding
principal amount of the Revolving Loan pursuant to written notice given by the
Borrower to the Bank in writing or by telecopy by 2:00 pm (Houston, Texas,
time) on the same Business Day of the proposed prepayment or earlier as
required by Section 2.6(b). Each such notice shall specify the principal
amount and the Tranches of the Revolving Loan which shall be prepaid and the
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date of the prepayment, and shall be irrevocable and binding on the Borrower.
Partial prepayments of the Revolving Loan must be made in an amount equal to or
greater than the Revolving Loan Minimum Borrowing Amount. For each such notice
given by the Borrower, the Borrower shall prepay the Revolving Loan in the
specified amount on the specified date as set forth in such notice. The
Borrower shall have no right to prepay any principal amount of the Revolving
Loan except as provided in this Section 2.2(c)(i).
(ii) If the sum of the amount of the Autoborrow
Loan plus the amount of the Revolving Loan plus the Letter of Credit Exposure
ever exceeds the lesser of (A) the Borrowing Base or (B) the sum of the
Autoborrow Loan Commitment plus the Revolving Loan Commitment, the Borrower
shall, upon receipt of written notice of such condition from the Bank and to
the extent of such excess, first prepay to the Bank outstanding principal of
the Revolving Loan, second prepay to the Bank the outstanding principal of the
Autoborrow Loan, and third, if the Revolving Loan and the Autoborrow Loan have
been repaid in full, make deposits into the Letter of Credit Collateral Account
to provide cash collateral for the Letter of Credit Exposure, such that such
excess is eliminated.
(iii) Each prepayment of principal under the
Revolving Loan pursuant to this Section 2.2(c) must be made in accordance with
the requirements of Section 2.6(b) and shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid in accordance with
Section 2.6(c) and (d) and all amounts due under Section 2.7.
(iv) Following the Revolving Loan Commitment
Termination Date, all prepayments of the Revolving Loan shall be applied to the
required payments of principal in the inverse order of maturity.
(d) Repayment. The Borrower shall pay to the Bank the
outstanding principal amount of the Revolving Loan which is outstanding on the
Revolving Loan Commitment Termination Date in equal monthly installments of
1/48th of the outstanding principal amount of the Revolving Loan. The first
such equal monthly installment shall be due and payable on the last day of the
first calendar month ending after the Revolving Loan Commitment Termination
Date, with subsequent equal monthly installments due and payable on the last
day of each calendar month thereafter until the Revolving Loan Maturity Date.
The Borrower shall pay to the Bank the remaining amount of the Revolving Loan
on the Revolving Loan Maturity Date.
2.3 Letter of Credit Facility.
(a) Commitment for Letters of Credit. The Bank shall, on
the terms and conditions set forth in this Agreement and for the purposes set
forth in Section 5.4, issue, increase, and extend Letters of Credit at the
request of the Borrower from time to time on any
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Business Day during the period from the date of this Agreement until the
Revolving Loan Commitment Termination Date provided that (i) the Letter of
Credit Exposure shall not exceed the Letter of Credit Sublimit and (ii) the
amount of the Autoborrow Loan plus the amount of the Revolving Loan plus the
Letter of Credit Exposure shall not exceed the lesser of (A) the sum of the
Autoborrow Loan Commitment plus the Revolving Loan Commitment or (B) the
Borrowing Base. No Letter of Credit may have an expiration date later than 12
months after its issuance date, and each Letter of Credit which is
self-extending beyond its expiration date must be cancelable upon at least 30
days notice given by the Bank to the beneficiary of such Letter of Credit. No
Letter of Credit may have an expiration date later than 12 months after the
Revolving Loan Commitment Termination Date unless approved by the Bank. Each
Letter of Credit must be in form and substance acceptable to the Bank. The
indebtedness of the Borrower to the Bank resulting from Letters of Credit
requested by the Borrower shall be evidenced by the Letter of Credit
Applications made by the Borrower.
(b) Requesting Letters of Credit. Each Letter of Credit
shall be issued, increased, or extended pursuant to a Letter of Credit
Application or Letter of Credit Application Amendment, as applicable, given by
the Borrower to the Bank in writing or by telecopy promptly confirmed in
writing, such Letter of Credit Application or Letter of Credit Application
Amendment being given not later than 2:00 p.m. (Houston, Texas, time) on the
third Business Day before the date of the proposed issuance, increase, or
extension of the Letter of Credit. Each Letter of Credit Application or Letter
of Credit Application Amendment shall be fully completed and shall specify the
information required therein (including the proposed form of the Letter of
Credit or change thereto), and shall be irrevocable and binding on the Borrower
unless such Letter of Credit Application or Letter of Credit Application
Amendment is rejected by the Bank as incomplete or improper. Subject to the
satisfaction of all applicable conditions precedent, the Bank shall before
close of business on the date requested by the Borrower for the issuance,
increase, or extension of such Letter of Credit issue, increase, or extend such
Letter of Credit to the specified beneficiary.
(c) Prepayments of Letters of Credit. In the event that
any Letters of Credit shall be outstanding according to their terms after the
Revolving Credit Facility Commitment Termination Date, upon request of the Bank
the Borrower shall pay to the Bank an amount equal to the Letter of Credit
Exposure allocable to such Letters of Credit to be held in the Letter of Credit
Collateral Account and applied in accordance with paragraph (g) below.
(d) Reimbursements for Letters of Credit. With respect
to any Letter of Credit and in accordance with the related Letter of Credit
Application, the Borrower agrees to pay to the Bank on demand of the Bank any
amount due to the Bank under such Letter of Credit Application. If the
Borrower does not pay upon demand of the Bank any amount due to the Bank under
any Letter of Credit Application, in addition to any rights the Bank may
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have under such Letter of Credit Application, the Bank may request the
satisfaction of such obligation by the making of a Revolving Loan Advance.
Upon such request, the Borrower shall be deemed to have requested the making of
a Revolving Loan Advance in the amount of such obligation and the transfer of
the proceeds thereof to the Bank. Such Revolving Loan Advance shall be
comprised of a Prime Rate Tranche. The Bank shall promptly forward notice of
such Revolving Loan Advance to the Borrower. The Borrower hereby
unconditionally and irrevocably authorizes, empowers, and directs the Bank to
make such requests for Revolving Loan Advances on behalf of the Borrower in
satisfaction of such obligations. The Bank may record and otherwise treat the
making of such Revolving Loan Advances as the making of a Revolving Loan
Advance to the Borrower under this Agreement as if requested by the Borrower.
Nothing herein is intended to release the Borrower's obligations under any
Letter of Credit Application, but only to provide an additional method of
payment therefor. The making of any Advance under this Section 2.3(d) shall
not constitute a cure or waiver of any Default or Event of Default caused by
the Borrower's failure to comply with the provisions of this Agreement or any
Letter of Credit Application.
(e) Obligations Unconditional. The obligations of the
Borrower under this Agreement and the Letter of Credit Applications to
reimburse the Bank for draws under Letters of Credit and to make other payments
due in respect of Letters of Credit shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this Agreement and the
Letter of Credit Applications under all circumstances, including: (i) any lack
of validity or enforceability of any Letter of Credit Document; (ii) any
amendment, waiver, or consent to departure from any Letter of Credit Document;
(iii) the existence of any claim, offset, defense, or other right which the
Borrower or the Bank may have at any time against any beneficiary or transferee
of any Letter of Credit (or any Persons for whom any such beneficiary or any
such transferee may be acting), the Bank, or any other Person or entity,
whether in connection with the transactions contemplated in this Agreement or
any unrelated transaction; (iv) any statement or any other document presented
under such Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect; or (v) payment by the Bank under any Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit; provided, however, that nothing contained in this
paragraph (e) shall be deemed to constitute a waiver of any remedies of the
Borrower or the Bank in connection with the Letters of Credit or the Borrower's
or the Bank's rights under paragraph (f) below.
(f) Liability of Bank. The Bank shall not be liable or
responsible for: (i) the use which may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith;
(ii) the validity, sufficiency, or genuineness of documents related to Letters
of Credit, or of any endorsement thereon, even if such documents should prove
to be in any or all respects invalid, insufficient, fraudulent, or
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forged; (iii) payment by the Bank against presentation of documents which do
not strictly comply with the terms of a Letter of Credit, including failure of
any documents to bear any reference or adequate reference to the relevant
Letter of Credit; or (iv) any other circumstances whatsoever in making or
failing to make payment under any Letter of Credit (INCLUDING THE BANK'S OWN
NEGLIGENCE); except that the Bank shall be liable to the Borrower to the extent
of any direct, as opposed to consequential, damages suffered by the Borrower
which the Borrower proves were caused by the Bank's gross negligence or
willful misconduct in determining whether documents presented under a Letter of
Credit comply with the terms of such Letter of Credit.
(g) Letter of Credit Collateral Account.
(i) If the Borrower is required to deposit funds
in the Letter of Credit Collateral Account pursuant to paragraph (e) above or
Section 6.4, then the Borrower and the Bank shall establish the Letter of
Credit Collateral Account and the Borrower shall execute any documents and
agreements, including the Bank's standard form assignment of deposit accounts,
that the Bank requests in connection therewith to establish the Letter of
Credit Collateral Account and grant the Bank a first priority security interest
in such account and the funds therein. The Borrower hereby pledges to the Bank
and grants the Bank a security interest in the Letter of Credit Collateral
Account, whenever established, all funds held in the Letter of Credit
Collateral Account from time to time, and all proceeds thereof as security for
the payment of the Credit Obligations.
(ii) Funds held in the Letter of Credit Collateral
Account shall be held as cash collateral for obligations with respect to
Letters of Credit and promptly applied by the Bank to any reimbursement or
other obligations under Letters of Credit that exist or occur. To the extent
that any surplus funds are held in the Letter of Credit Collateral Account
above the Letter of Credit Exposure, (A) if an Event of Default exists the Bank
may hold such surplus funds in the Letter of Credit Collateral Account as cash
collateral for the Credit Obligations or apply such surplus funds to any Credit
Obligations in accordance with Section 6.9 or (B) if no Event of Default
exists, the Bank shall release to the Borrower at the Borrower's written
request such surplus funds.
(iii) Funds held in the Letter of Credit Collateral
Account shall be invested in money market funds of the Bank or in another
investment if mutually agreed upon by the Borrower and the Bank, but the Bank
shall have no other obligation to make any other investment of the funds
therein. The Bank shall exercise reasonable care in the custody and
preservation of any funds held in the Letter of Credit Collateral Account and
shall be deemed to have exercised such care if such funds are accorded
treatment substantially equivalent to that which the Bank accords its own
property, it being understood that the Bank shall not have any responsibility
for taking any necessary steps to preserve rights against any parties with
respect to any such funds.
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2.4 Guidance Loan.
(a) Nonbinding Option to Advance. The Bank may, on the
terms and conditions set forth in this Agreement and for the purposes set forth
in Section 5.4, make Guidance Loans to the Borrower as requested by the
Borrower from time to time on any Business Day during the period from the date
of this Agreement until the Guidance Loan Commitment Termination Date provided
that (i) the aggregate outstanding principal amount of Guidance Loans shall not
exceed the Guidance Loan Commitment and (ii) the Bank shall have approved, in
its sole discretion, the amount and terms of each Guidance Loan. Until the
Bank shall have approved any requested Guidance Loan in writing, the Bank shall
have no commitment to fund such Guidance Loan. Within the limits expressed in
this Agreement, the Borrower may from time to time borrow, prepay, and reborrow
Guidance Loans. The indebtedness of the Borrower to the Bank resulting from
each Guidance Loan shall be evidenced by the Guidance Loan Note made by the
Borrower in connection with such Guidance Loan.
(b) Method of Advancing. In all circumstances where the
Borrower desires a Guidance Loan, the Borrower shall provide the Bank with
information regarding the circumstances related to the proposed Guidance Loan,
obtain the written approval of the Bank as to the terms and conditions for such
Guidance Loan, and execute an appropriate Guidance Loan Note made payable to
the Bank in connection with such proposed Guidance Loan to document the terms
and conditions for the Guidance Loan. If such approval is obtained by the
Borrower, an appropriate Guidance Loan Note has been executed and delivered by
the Borrower, and all terms and conditions have been satisfied, the approved
Guidance Loan shall be made pursuant to a request given by the Borrower to the
Bank in writing or by telecopy not later than the time required pursuant to
Section 2.6(a)(i) to select the interest rate basis for the Guidance Loan.
Each Borrowing Request shall be fully completed and shall specify the
information required therein, and shall be irrevocable and binding on the
Borrower unless such Borrowing Request is rejected by the Bank as incomplete or
improper. Subject to the satisfaction of all applicable conditions precedent,
the Bank shall before close of business on the date requested for such Guidance
Loan make such Guidance Loan available to the Borrower in immediately available
funds at the Borrower Account.
(c) Prepayment.
(i) The Borrower may prepay the outstanding
principal amount of any Guidance Loan pursuant to written notice given by the
Borrower to the Bank in writing or by telecopy by 2:00 pm (Houston, Texas,
time) on the same Business Day of the proposed prepayment or earlier as
required by Section 2.6(b). Each such notice shall specify the principal
amount and the Tranches of the Guidance Loan which shall be prepaid and the
date of the prepayment, and shall be irrevocable and binding on the Borrower.
Partial
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prepayments of Guidance Loans must be made in an amount equal to or greater
than the Guidance Loan Minimum Borrowing Amount. For each such notice given by
the Borrower, the Borrower shall prepay the Guidance Loan in the specified
amount on the specified date as set forth in such notice. The Borrower shall
have no right to prepay any principal amount of Guidance Loans except as
provided in this Section 2.4(c)(i).
(ii) Each prepayment of principal under any
Guidance Loan pursuant to this Section 2.4(c) must be made in accordance with
the requirements of Section 2.6(b) and shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid in accordance with
Section 2.6(c) and (d) and all amounts due under Section 2.7.
(iii) Prepayments of Guidance Loans shall be
applied in accordance with the terms of the applicable Guidance Loan Note.
(d) Repayment. The Borrower shall pay to the Bank the
outstanding principal amount of each Guidance Loan in equal monthly
installments of 1/60th of the outstanding principal amount of such Guidance
Loan. The first such equal monthly installment shall be due and payable on the
last day of the first calendar month ending after the funding of such Guidance
Loan, with subsequent equal monthly installments due and payable on the last
day of each calendar month thereafter until the applicable Guidance Loan
Maturity Date. The Borrower shall pay to the Bank the remaining outstanding
principal amount of such Guidance Loan on the applicable Guidance Loan
Maturity Date.
2.5 Fees.
(a) Commitment Fee. The Borrower shall pay to the Bank a
commitment fee equal to 0.25% per annum on the average daily amount by which
(i) the Autoborrow Loan Commitment plus the Revolving Loan Commitment exceeds
(ii) the sum of the amount of the Autoborrow Loan plus the Revolving Loan plus
the Letter of Credit Exposure. The commitment fee shall be due and payable
quarterly in arrears on the last day of each calendar quarter, on the
Autoborrow Loan Commitment Termination Date, and on the Revolving Loan
Commitment Termination Date.
(b) Upfront Fee. The Borrower shall pay to the Bank an
upfront fee equal to 0.25% of each Guidance Loan made pursuant to this
Agreement. For each such Guidance Loan, such fee shall be due and payable on
the day such Guidance Loan is made.
(c) Fees for Letters of Credit. For each Letter of
Credit issued by the Bank, the Borrower shall pay to the Bank a letter of
credit fee equal to 1.50% per annum on the face amount of such Letter of Credit
for the stated term of such Letter of Credit, with a minimum fee of $750. The
Borrower shall pay such letter of credit fees for such Letter of
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Credit, including any increased amount due in respect of any increase or
extension of such Letter of Credit, on the date of the issuance, increase, or
extension of such Letter of Credit. All such fees shall be deemed to be earned
upon the issuance, increase, or extension of such Letter of Credit, and shall
not be subject to refund in the event of the early termination of such Letter
of Credit.
2.6 Interest.
(a) Election of Interest Rate Basis. The Borrower may
select the interest rate basis for the outstanding principal amount of each
Loan in accordance with the terms of this Section 2.6(a):
(i) The Autoborrow Loan may be comprised only of
Prime Rate Tranches. With respect to the other Loans, under the Borrowing
Request provided to the Bank in connection with the making of each Advance
under such Loans, the Borrower shall select the amount and the Type of the
Tranches, and for each LIBOR Tranche selected, any permitted Interest Period
for such LIBOR Tranche, which will comprise such Advance, provided that (A) at
no time shall there be more than five separate LIBOR Tranches outstanding
under any Loan and (B) each Tranche must be in a principal amount equal to or
greater than the Minimum LIBOR Tranche Amount and be made in multiples of the
Minimum LIBOR Tranche Multiple. If the Borrower selects any LIBOR Tranche,
such interest rate elections must be provided to the Bank in writing or by
telecopy not later than 2:00 p.m. (Houston, Texas, time) on the third Business
Day before the date of any proposed Advance. In the case of any Advance
including any LIBOR Tranche, upon determination by the Bank, the Bank shall
promptly notify the Borrower of the applicable interest rate to such Tranche.
(ii) With respect to any Tranche under any Loan
other than the Autoborrow Loan, the Borrower may continue or convert any
portion of any LIBOR Tranche or Prime Rate Tranche to form new LIBOR Tranches
or Prime Rate Tranches under the same Loan in accordance with this paragraph.
Each such continuation or conversion shall be made pursuant to a
Continuation/Conversion Request given by the Borrower to the Bank in writing or
by telecopy not later than 2:00 p.m. (Houston, Texas, time) on the third
Business Day before the date of the proposed continuation or conversion. Each
Continuation/Conversion Request shall be fully completed and shall specify the
information required therein, and shall be irrevocable and binding on the
Borrower. In the case of any continuation or conversion into LIBOR Tranches,
upon determination by the Bank, the Bank shall notify the Borrower of the
applicable interest rate. Continuations and conversions involving LIBOR
Tranches shall be made in integral multiples of the Minimum LIBOR Tranche
Multiple. No continuation or conversion shall be permitted if such
continuation or conversion would cause the outstanding principal amount of any
LIBOR Tranche which would remain outstanding under the Loan to be less than the
Minimum LIBOR Tranche
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Amount. At no time shall there be more than five separate LIBOR Tranches
outstanding under any Loan. Any conversion of an existing LIBOR Tranche is
subject to Section 2.7. Subject to the satisfaction of all applicable
conditions precedent, the Bank shall before close of business on the date
requested by the Borrower for the continuation or conversion, make such
continuation or conversion.
(iii) At the end of the Interest Period for any
LIBOR Tranche if the Borrower has not continued or converted such LIBOR Tranche
into new Tranches as provided for in paragraph (ii) above, the Borrower shall
be deemed to have continued such LIBOR Tranche as a Prime Rate Tranche under
the same Loan. Each Prime Rate Tranche shall continue as a Prime Rate Tranche
under the same Loan unless the Borrower converts such Prime Rate Tranche as
provided for in paragraph (ii) above.
(b) Payments on LIBOR Tranches. With respect to
payments made on the outstanding principal of any Loan, subject to the other
requirements in this Agreement, the Borrower may allocate the payments among
the Tranches comprising such Loan. Unless required by mandatory payments,
partial prepayments involving LIBOR Tranches must be made in multiples of the
Minimum LIBOR Tranche Multiple and no partial prepayment may be made if the
prepayment would cause the outstanding principal amount of any LIBOR Tranche
under any Loan to be less than the Minimum LIBOR Tranche Amount. No voluntary
prepayment of any LIBOR Tranche may be made unless the required notice is
provided by 2:00 p.m. (Houston, Texas, time) on the third Business Day before
the date of the proposed prepayment.
(c) Interest on LIBOR Tranches. Each LIBOR Tranche shall
bear interest during its Interest Period at a per annum interest rate equal to
the sum of the LIBOR for such LIBOR Tranche plus the Applicable Interest Margin
for LIBOR Tranches in effect from time to time. The Borrower shall pay to the
Bank all accrued but unpaid interest on each LIBOR Tranche on the last day of
the applicable Interest Period for such LIBOR Tranche (and with respect to
LIBOR Tranches with Interest Periods of greater than three months, on the date
which is three months after the first date of the Interest Period for such
LIBOR Tranche), on any date when any portion of such LIBOR Tranche is
converted, prepaid, or repaid (but only on the amount so converted, prepaid, or
repaid), and on the applicable Maturity Date for such LIBOR Tranche.
(d) Interest on Prime Rate Tranches. Each Prime Rate
Tranche shall bear interest at a per annum interest rate equal to the Prime
Rate in effect from time to time plus the Applicable Interest Margin for Prime
Rate Tranches in effect from time to time. The Borrower shall pay to the Bank
all accrued but unpaid interest on outstanding Prime Rate Tranches under any
Loan on the last day of each month, on any date all Prime Rate Tranches under
such Loan are prepaid or repaid in full, and on the applicable Maturity Date
for such Prime Rate Tranches.
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(e) Prevention of Usury.
(i) If the effective rate of interest contracted
for by the Bank with the Borrower under the Credit Documents, including the
stated rates of interest contracted for hereunder and any other amounts
contracted for under the Credit Documents which are deemed to be interest, at
any time exceeds the Highest Lawful Rate, then the outstanding principal amount
of the loans made by the Bank to the Borrower hereunder shall bear interest at
a rate which would make the effective rate of interest on the loans made by the
Bank to the Borrower under the Credit Documents equal the Highest Lawful Rate
until the difference between the amounts which would have been due by the
Borrower to the Bank at the stated rates and the amounts which were due by the
Borrower to the Bank at the Highest Lawful Rate (such difference being the
"Lost Interest") has been recaptured by the Bank. If, when the loans made
hereunder are repaid in full, the Lost Interest has not been fully recaptured
by the Bank pursuant to the preceding sentence, then, to the extent permitted
by law, the interest rates charged by the Bank to the Borrower under Sections
2.6 and 6.5 hereunder shall be retroactively increased such that the effective
rate of interest on the loans made by the Bank to the Borrower under the Credit
Documents was at the Highest Lawful Rate since the effectiveness of this
Agreement to the extent necessary to recapture the Lost Interest not recaptured
pursuant to the preceding sentence and, to the extent allowed by law, the
Borrower shall pay to the Bank the amount of the Lost Interest remaining to be
recaptured by the Bank.
(ii) In calculating all sums paid or agreed to be
paid to the Bank by the Borrower for the use, forbearance, or detention of
money under the Credit Documents, such amounts shall, to the extent permitted
by applicable law, be amortized, prorated, allocated, and spread in equal parts
throughout the term of the Credit Documents.
(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER
TERM IN THIS AGREEMENT AND THE CREDIT DOCUMENTS TO THE CONTRARY, it is the
intention of the Bank and the Borrower to conform strictly to any applicable
usury laws. Accordingly, if the Bank contracts for, charges, or receives any
consideration from the Borrower which constitutes interest in excess of the
Highest Lawful Rate, then any such excess shall be canceled automatically and,
if previously paid, shall at the Bank's option be applied to the outstanding
amount of the loans made hereunder by the Bank to the Borrower or be refunded
to the Borrower.
2.7 Breakage Costs. If (i) any payment of principal on or any
conversion of any LIBOR Tranche is made on any date other than the last day of
the Interest Period for such LIBOR Tranche, whether as a result of any
voluntary or mandatory prepayment, any acceleration of maturity, or any other
cause, (ii) any payment of principal on any LIBOR Tranche is not made when due,
or (iii) any LIBOR Tranche is not borrowed, converted, or prepaid in accordance
with the respective notice thereof provided by the Borrower to the
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Bank, whether as a result of any failure to meet any applicable conditions
precedent for borrowing, conversion, or prepayment, the cancellation of any
request for borrowing, conversion, or prepayment, the failure of the Borrower
to provide the respective notice of borrowing, conversion, or prepayment, or
any other cause not specified above which is created by the Borrower, then the
Borrower shall pay to the Bank upon demand any amounts required to compensate
the Bank for any losses, costs, or expenses, including lost profits and
administrative expenses, which are allocable to such action, including losses,
costs, and expenses related to the liquidation or reinvestment of funds
acquired or designated by the Bank to fund or maintain such LIBOR Tranche or
related to the reacquisition or redesignation of funds by the Bank to fund or
maintain such LIBOR Tranche following any liquidation or reinvestment of such
funds caused by such action. A certificate as to the amount of such loss,
cost, or expense detailing the calculation thereof submitted by the Bank to the
Borrower shall be conclusive and binding for all purposes, absent manifest
error.
2.8 Increased Costs.
(a) Cost of Funds. If, due to either (i) any
introduction of, change in, or change in the interpretation of any law or
regulation after the date of this Agreement or (ii) compliance with any
guideline or request from any central bank or other governmental authority
having appropriate jurisdiction (whether or not having the force of law) given
after the date of this Agreement, there shall be any increase in the costs of
the Bank allocable to (x) committing to make any Advance or obtaining funds for
the making, funding, or maintaining of any Advance in the relevant interbank
market or (y) committing to make Letters of Credit or issuing, funding, or
maintaining Letters of Credit, including in each case any increase in any
applicable reserve requirement specified by the Federal Reserve Board whether
for emergency, marginal, supplemental, or other reserves, then the Borrower
shall pay to the Bank upon demand any amounts required to compensate the Bank
for such increased costs, such amounts being due and payable upon demand by the
Bank. A certificate as to the cause and amount of such increased cost detailing
the calculation of such cost submitted by the Bank to the Borrower shall be
conclusive and binding for all purposes, absent manifest error.
(b) Capital Adequacy. If, due to either (i) any
introduction of, change in, or change in the interpretation of any law or
regulation after the date of this Agreement or (ii) compliance with any
guideline or request from any central bank or other governmental authority
having appropriate jurisdiction (whether or not having the force of law) given
after the date of this Agreement, there shall be any increase in the capital
requirements of the Bank or its parent or holding company allocable to (x)
committing to make Advances or making, funding, or maintaining Advances or (y)
committing to make Letters of Credit or issuing, funding, or maintaining
Letters of Credit, as such capital requirements are allocated by the Bank, then
the Borrower shall pay to the Bank upon demand any amounts required to
compensate the Bank or its parent or holding company for such increase in costs
(including
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an amount equal to any reduction in the rate of return on assets or equity of
the Bank or its parent or holding company), such amounts being due and payable
upon demand by the Bank. A certificate as to the cause and amounts detailing
the calculation of such amounts submitted by the Bank to the Borrower shall be
conclusive and binding for all purposes, absent manifest error.
2.9 Illegality. Notwithstanding any other provision in this
Agreement, if it becomes unlawful for the Bank to obtain deposits or other
funds for making or funding any LIBOR Tranche in the relevant interbank market,
the Bank shall so notify the Borrower and the Bank's commitment to create LIBOR
Tranches shall be suspended until such condition has passed, all LIBOR Tranches
applicable to the Bank shall be converted to Prime Rate Tranches as of the end
of each applicable Interest Period or earlier if necessary, and all subsequent
requests for LIBOR Tranches shall be deemed to be requests for Prime Rate
Tranches.
2.10 Market Failure. Notwithstanding any other provision in this
Agreement, if the Bank determines that: (a) quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR" are not being
provided in the relevant amounts, or maturities for purposes of determining the
rate of interest referred to in the definition of "LIBOR" or (b) the relevant
rates of interest referred to in the definition of "LIBOR" which are used as
the basis to determine the rate of interest for LIBOR Tranches are not likely
to adequately cover the cost to the Bank of making or maintaining any LIBOR
Tranche, then if the Bank so notifies the Borrower, the commitment of the Bank
to create LIBOR Tranches shall be suspended until such condition has passed,
all LIBOR Tranches shall be converted to Prime Rate Tranches as of the end of
each applicable Interest Period, and all subsequent requests for LIBOR Tranches
shall be deemed to be requests for Prime Rate Tranches.
2.11 Payment Procedures and Computations.
(a) Payment Procedures. Time is of the essence in this
Agreement and the Credit Documents. All payment hereunder shall be made in
Dollars. The Borrower shall make each payment under this Agreement and under
the Notes not later than 2:00 pm (local time at the Applicable Lending Office)
on the day when due to the Bank at its Applicable Lending Office in immediately
available funds. All payments by the Borrower hereunder shall be made without
any offset, abatement, withholding, or reduction.
(b) Authority to Charge Accounts. The Bank, if and to
the extent payment owed to the Bank is not made when due, may charge from time
to time against any account of the Borrower with the Bank any amount so due.
The Bank agrees promptly to notify the Borrower after any such charge and
application made by the Bank provided that the failure to give such notice
shall not affect the validity of such charge and application.
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(c) Interest and Fees. Unless expressly provided for in
this Agreement, (i) all computations of interest based on the Prime Rate shall
be made on the basis of a 365/366 day year, as the case may be, (ii) all
computations of interest based upon the LIBOR shall be made on the basis of a
360 day year, and (iii) all computations of fees shall be made on the basis of
a 360 day year, in each case for the actual number of days (including the first
day, but excluding the last day) occurring in the period for which such
interest or fees are payable. Each determination by the Bank of an interest
rate or fee shall be conclusive and binding for all purposes, absent manifest
error.
(d) Payment Dates. Whenever any payment shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be.
If the time for payment for an amount payable is not specified in this
Agreement or in any other Credit Document, the payment shall be due and payable
on demand by the Bank.
2.12 Taxes. The Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made or from the execution, delivery, or
registration of, or otherwise with respect to, this Agreement or the other
Credit Documents.
ARTICLE 3. CONDITIONS PRECEDENT.
3.1 Conditions Precedent to Initial Extensions of Credit. The
obligation of the Bank to make the initial extension of credit under this
Agreement, including the making of any Advances and the issuance of any Letters
of Credit, shall be subject to the condition precedent that the Borrower shall
have delivered or shall have caused to be delivered the documents and other
items listed on Exhibit E, together with any other documents requested by the
Bank to document the agreements and intent of the Credit Documents, each in
form and with substance satisfactory to the Bank.
3.2 Conditions Precedent to Each Extension of Credit. The
obligation of the Bank to make any extension of credit under this Agreement,
including the making of any Advances and the issuance, increase, or extension
of any Letters of Credit, shall be subject to the further conditions precedent
that:
(a) Representations and Warranties. As of the date of
the making of any extension of credit hereunder, the representations and
warranties contained in each Credit Document shall be true and correct in all
material respects as of such date (and the Borrower's request for the making of
any extension of credit hereunder shall be deemed to be a restatement,
representation, and additional warranty of the representations and warranties
contained in each Credit Document as of such date);
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(b) Default. As of the date of the making of any
extension of credit hereunder, there shall exist no Default or Event of
Default, and the making of the extension of credit would not cause or be
reasonably expected to cause a Default or Event of Default;
(c) Material Adverse Change. There shall not have
occurred any Material Adverse Change; and
(d) Additional Guidance Facility Items. With respect to
the extension of any Guidance Loan Advance, the Borrower shall have delivered
or shall have caused to be delivered the documents and other items required by
the Bank as conditions precedent to such Guidance Loan Advance and the Borrower
shall have satisfied each other condition precedent required by the Bank for
such Guidance Loan Advance in a manner satisfactory to the Bank.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Bank, and with each request for any extension of credit
hereunder, including the making of any Advances and the issuance, increase, or
extension of any Letters of Credit, again represents and warrants to the Bank,
as follows:
4.1 Organization. As of the date of this Agreement, each Credit
Party is duly organized, validly existing, and in good standing under the laws
of such Person's respective jurisdiction of organization and is duly licensed,
qualified to do business, and in good standing in each jurisdiction in which
such Person owns property or conducts operations and which requires such
licensing or qualification and where failure to be so licensed, qualified, or
in good standing could reasonably be expected to cause a Material Adverse
Change.
4.2 Authorization. The execution, delivery, and performance by
each Credit Party of the Credit Documents to which it is a party and the
consummation of the transactions contemplated thereby (a) do not contravene the
organizational documents of such Credit Party, (b) have been duly authorized by
all necessary corporate action of such Credit Party, and (c) are within such
Credit Party's corporate powers.
4.3 Enforceability. Each Credit Document to which any Credit
Party is a Party has been duly executed and delivered by such Credit Party and
constitutes the legal, valid, and binding obligation of such Credit Party,
enforceable against such Credit Party in accordance with such Credit Document's
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws at the time in effect affecting the rights of
creditors generally and subject to the availability of equitable remedies.
4.4 Absence of Conflicts and Approvals. The execution, delivery,
and performance by each Credit Party of the Credit Documents to which it is a
party and the
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consummation of the transactions contemplated thereby to the knowledge of
Borrower (a) do not result in any violation or breach of any provisions of, or
constitute a default under, any note, indenture, credit agreement, security
agreement, credit support agreement, or other similar agreement to which such
Credit Party is a party or any other material contract or agreement to which
such Credit Party is a party, (b) do not violate any law or regulation binding
on or affecting such Credit Party, (c) do not require any authorization,
approval, or other action by, or any notice to or filing with, any governmental
authority, and (d) do not result in or require the creation or imposition of
any Lien prohibited by this Agreement.
4.5 Investment Companies. No Credit Party nor any Affiliate
thereof is an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.6 Public Utilities. No Credit Party nor any Affiliate thereof
is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended. No Credit Party nor any Affiliate thereof is a regulated public
utility.
4.7 Financial Condition.
(a) The Borrower has delivered to the Bank the annual
audited consolidated financial statements of the Borrower dated as of December
29, 1995, including therein the balance sheet of the Borrower as of such date
and the statements of income, stockholders' equity, and cash flows for the
Borrower for the fiscal year ending on such date. These financial statements
are accurate and complete in all material respects and present fairly the
financial condition of the Borrower and as of such date in accordance with
generally accepted accounting principles.
(b) The Borrower has delivered to the Bank the
consolidated financial statements of the Borrower dated as of April 19, 1996,
including therein the balance sheet of the Borrower as of such date and the
statements of income, stockholders' equity, and cash flows for the Borrower for
the period ending on such date. These financial statements are accurate and
complete in all material respects and present fairly the financial condition of
the Borrower and as of such date in accordance with generally accepted
accounting principles.
(c) As of the respective dates of the Financial
Statements and the Interim Financial Statements, there were no material
contingent obligations, liabilities for taxes, unusual forward or long-term
commitments, or unrealized or anticipated losses of the Borrower or any of the
Borrower's Subsidiaries, except as disclosed in the Financial Statements or the
Interim Financial Statements, and adequate reserves for such items have
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been made in accordance with generally accepted accounting principles. No
Material Adverse Change has occurred. No Default exists.
4.8 Condition of Assets. To the knowledge of Borrower, each
Credit Party has good and indefeasible title to all of its owned property and
valid leasehold rights in all of its leased property, as reflected in the
financial statements most recently provided to the Bank, free and clear of all
Liens except Permitted Liens. To the knowledge of Borrower, each Credit Party
possesses all permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade names rights, and copyrights which are
useful in the conduct of its business and which the failure to possess could
reasonably be expected to cause a Material Adverse Change. The material
properties used or to be used in the continuing operations of each Credit Party
are in good repair, working order, and condition, normal wear and tear
excepted. The properties of each Credit Party have not been adversely affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
property or cancellation of contracts, permits, or concessions by a
governmental authority, riot, activities of armed forces, or acts of God or of
any public enemy in any manner which could reasonably be expected to cause a
Material Adverse Change.
4.9 Litigation. There are no actions, suits, or proceedings
pending or, to the knowledge of any Credit Party, threatened against any Credit
Party at law, in equity, or in admiralty, or by or before any governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, or any arbitrator which could reasonably be expected to cause a
Material Adverse Change.
4.10 Subsidiaries. As of the date of this Agreement, the Borrower
has no Subsidiaries except as disclosed in Schedule I. The Borrower has no
Subsidiaries which have not been disclosed in writing to the Bank.
4.11 Laws and Regulations. Each Credit Party has been and is in
compliance with all federal, state, and local laws and regulations which are
applicable to the operations and property of such Person and which the failure
to comply with could reasonably be expected to cause a Material Adverse Change.
4.12 Environmental Compliance. To the knowledge of Borrower, each
Credit Party (a) has been and is in compliance with all Environmental Laws and
has obtained and is in compliance with all related permits necessary for the
ownership and operation of its properties unless the failure to be in
compliance could not reasonably be expected to cause a Material Adverse Change,
(b) has never received notice of and has never been investigated for any
violation or alleged violation of any Environmental Law in connection with its
presently or previously owned properties which threaten action or suggest
liabilities which could reasonably be expected to cause a Material Adverse
Change, (c) does not and has not
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created, handled, transported, used, or disposed of any Hazardous Materials on
or about its properties (nor have the its properties been used for those
purposes) except in compliance with all Environmental Laws and related permits,
(d) has never been responsible for the release of any Hazardous Materials into
the environment in connection with the its operations, has not contaminated any
properties with Hazardous Materials, and does not and has not owned any
properties contaminated by any Hazardous Materials in any manner which could
reasonably be expected to cause a Material Adverse Change.
4.13 ERISA. Each Credit Party is in compliance in all material
respects with all provisions of ERISA. No Credit Party participates in nor
during the past five years has participated in any defined benefit Plan under
3(35) of ERISA or any multiemployer plan under Section 4001(a)(3) of ERISA.
With respect to the Plans of each Credit Party, neither a Reportable Event nor
a Prohibited Transaction has occurred and exists.
4.14 Taxes. Each Credit Party has filed all United States federal,
state, and local income tax returns and all other domestic and foreign tax
returns which are required to be filed by such Credit Party and has paid, or
provided for the payment before the same became delinquent of, all taxes due
pursuant to such returns or pursuant to any assessment received by such Credit
Party. The charges, accruals, and reserves on the books of each Credit Party
in respect of taxes are adequate in accordance with generally accepted
accounting principles.
4.15 True and Complete Disclosure. All factual information
furnished by or on behalf of any Credit Party in writing to the Bank in
connection with the Credit Documents and the transactions contemplated thereby
is true and accurate in all material respects on the date as of which such
information was dated or certified and does not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements contained therein not misleading. All projections, estimates, and
pro forma financial information furnished by any Credit Party were prepared on
the basis of assumptions, data, information, tests, or conditions believed to
be reasonable at the time such projections, estimates, and pro forma financial
information were furnished.
ARTICLE 5. COVENANTS. Until the Bank receives irrevocable payment of the
Credit Obligations and the commitments of the Bank under this Agreement and
each other Credit Document have been terminated, the Borrower shall comply with
and cause compliance with the following covenants:
5.1 Organization. Except as a result of corporate transactions
permitted by Section 5.9 hereof, the Borrower shall and shall cause each Credit
Party to maintain itself as an entity duly organized and validly existing under
the laws of each such Person's respective jurisdiction of organization and be
duly licensed, qualified to do business, and in good standing in each
jurisdiction in which such Person is organized, owns property, or conducts
operations and which requires such licensing or qualification and where failure
to be so
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licensed, qualified, or in good standing could reasonably be expected to cause
a Material Adverse Change.
5.2 Reporting. The Borrower shall furnish to the Bank all of the
following:
(a) Annual Financial Reports. As soon as available and
in any event not later than 120 days after the end of each fiscal year of the
Borrower, (i) a copy of the annual audit report for such fiscal year for the
Borrower, including therein the consolidated balance sheets of the Borrower as
of the end of such fiscal year and the consolidated statements of income,
stockholders' equity, and cash flows for the Borrower for such fiscal year,
setting forth the consolidated financial position and results of the Borrower
for such fiscal year and certified, without any qualification or limit of the
scope of the examination of matters relevant to the financial statements, by a
nationally recognized certified public accounting firm; and (ii) a completed
Compliance Certificate duly certified by a Responsible Officer of the Borrower;
(b) Quarterly Financial Reports. As soon as available
and in any event not later than 45 days after the end of each fiscal quarter,
(i) a copy of the internally prepared consolidated financial statements of the
Borrower for such fiscal quarter and for the fiscal year to date period ending
on the last day of such fiscal quarter, including therein the consolidated
balance sheets of the Borrower as of the end of such fiscal quarter and the
consolidated statements of income, and cash flows for such fiscal quarter and
for such fiscal year to date period, setting forth the consolidated financial
position and results of the Borrower for such fiscal quarter and fiscal year to
date period, all in reasonable detail and duly certified by a Responsible
Officer of the Borrower as having been prepared in accordance with generally
accepted accounting principles, and (ii) a completed Compliance Certificate
duly certified by a Responsible Officer of the Borrower;
(c) Borrowing Base Calculation. As soon as available and
in any event not later than 45 days after the end of each fiscal quarter, a
calculation of the Borrowing Base, in reasonable detail and duly certified by a
Responsible Officer of the Borrower;
(d) Operating Reports.
(i) As soon as available and in any event not
later than 45 days after the end of each fiscal quarter, a report setting forth
in reasonable detail sales volume, gross profit, and pre-tax operating profit
(before and after occupancy expenses) for such fiscal quarter for (A)
restaurants in operation for more than 48 months and (B) for restaurants in
operation for less than 48 months, including the number of restaurants in each
of categories (A) and (B); and
(ii) As soon as available and in any event not
later than 120 days
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after the end of each fiscal year, a report setting forth in reasonable detail
the number of restaurants operated by the Credit Parties as of at the end of
such fiscal year, the number of new restaurants placed in operation by the
Credit Parties during such fiscal year, the number of restaurants closed or
otherwise removed from operation by the Credit Parties during such fiscal year,
and the amount of capital expenditures expended by the Credit Parties on each
new restaurant placed in operation by the Credit Parties during such fiscal
year;
(e) Defaults. Promptly, but in any event within five
Business Days after the discovery thereof, a notice of any facts known to any
Credit Party which constitute a Default, together with a statement of a
Responsible Officer of the Borrower setting forth the details of such facts and
the actions which the Borrower has taken and proposes to take with respect
thereto;
(f) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting any Credit Party which, if determined adversely, could
reasonably be expected to cause a Material Adverse Change;
(g) Material Liabilities. Promptly after acquiring
knowledge thereof, notice of the incurrence of any actual or contingent
liabilities that could reasonably be expected to cause a Material Adverse
Change;
(h) Material Debt Defaults. Promptly after obtaining
knowledge thereof, notice of any breach by any Credit Party of any agreement
or instrument related to Debt of such Credit Party if the aggregate amount of
the Debt of such Credit Party so in breach exceeds $100,000;
(i) Material Agreement Defaults. Promptly after
obtaining knowledge thereof, notice of any breach by any Credit Parties of
any contract or agreement which breach could reasonably be expected to cause a
Material Adverse Change;
(j) Material Changes. Promptly after obtaining knowledge
thereof, notice of any condition or event not described above of which any
Credit Party has knowledge, which condition or event could reasonably be
expected to cause a Material Adverse Change; and
(k) Other Information. Promptly upon request, such other
information respecting the business operations or property of any Credit Party,
financial or otherwise, as the Bank may from time to time reasonably request.
5.3 Inspection. The Borrower shall and shall cause each Credit
Party to permit
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the Bank to visit and inspect any of the properties of such Person, to examine
all of such Person's books of account, records, reports, and other papers
(provided that the Bank may inspect such financial materials only if an Event
of Default has occurred), to make copies and extracts therefrom, and to discuss
such Person's affairs, finances, and accounts with the such Person's officers,
employees, and independent public accountants all at such reasonable times and
as often as may be reasonably requested provided that the Borrower is given at
least one Business Day advance notice thereof and reasonable opportunity to be
present when independent public accounts or other third parties are contacted.
5.4 Use of Proceeds. The proceeds of the Autoborrow Loan Advances
and the Revolving Loan Advances shall be used by the Credit Parties only for
general corporate and working capital purposes, including without limitation
the opening of new restaurants owned by the Borrower and the Beaumont Harken
Acquisitions. The proceeds of the Guidance Loan Advances shall be used by the
Borrower only for the financing of the Beaumont Harken Acquisition B. The
Borrower shall not, directly or indirectly, use any part of such proceeds for
any purpose which violates, or is inconsistent with, Regulations G, T, U, or X
of the Board of Governors of the Federal Reserve System.
5.5 Financial Covenants.
(a) Leverage Ratio. As of the last day of each fiscal
quarter, the Borrower shall not permit the ratio of (i) the consolidated total
liabilities of the Borrower less the Subordinated Debt of the Borrower to (ii)
the consolidated Tangible Net Worth of the Borrower plus the Subordinated Debt
of the Borrower, to be greater than 1.50 to 1.00.
(b) Fixed Charge Coverage. As of the last day of each
fiscal quarter, the Borrower shall not permit the ratio of (a) the
consolidated Cash Flow of the Borrower for the preceding four fiscal quarters
then most recently ended to (b) the consolidated Debt Service of the Borrower
for the preceding four fiscal quarters then most recently ended, to be less
than 1.25 to 1.00.
5.6 Debt. The Borrower shall not and shall not permit any other
Credit Party to create, assume, incur, suffer to exist, or in any manner become
liable, directly, indirectly, or contingently in respect of, any Debt other
than Permitted Debt.
5.7 Liens. The Borrower shall not and shall not permit any other
Credit Party to create, assume, incur, or suffer to exist any Lien on any of
such Person's real or personal property whether now owned or hereafter
acquired, or assign any right to receive its income, except for Permitted
Liens.
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5.8 Other Obligations.
(a) The Borrower shall not and shall not permit any other
Credit Party to create, incur, assume, or suffer to exist trade payables or
other current operating liabilities more than 90 days past due unless the same
are being contested in good faith by appropriate proceedings and adequate
reserves therefor have been established and reflected in the financial
statements of such Credit Party in accordance with generally accepted
accounting principles.
(b) The Borrower shall not and shall not permit any other
Credit Party to create, incur, assume, or suffer to exist any obligations with
respect to unfunded vested benefits under any Plan or deferred compensation
agreement.
(c) The Borrower shall not and shall not permit any other
Credit Party to create, incur, assume, or suffer to exist any obligations with
respect to Derivatives other than Permitted Derivatives.
(d) The Borrower shall not and shall not permit any other
Credit Party to create, incur, assume, or suffer to exist any obligations with
respect to guaranties or like assurances of payment or performance other than
those incurred in the ordinary course of business and those described in clause
(e) of the definition of Debt.
5.9 Corporate Transactions. The Borrower shall not and shall not
permit any other Credit Party to (1) merge or consolidate with or be a party to
a merger or consolidation with any other Person, or (2) assign, sell, lease,
dispose of, or otherwise transfer any assets outside of the ordinary course of
business, provided however that:
(a) any wholly-owned Subsidiary of the Borrower may be merged
or consolidated with the Borrower or any other wholly-owned Subsidiary of the
Borrower organized under a jurisdiction of the United States provided that, in
any such merger or consolidation to which the Borrower is a party, the
Borrower shall be the continuing or surviving corporation; and
(b) any wholly-owned Subsidiary of the Borrower organized
under a jurisdiction of the United States may sell, lease, assign, transfer, or
otherwise dispose of any or all of its assets (i) to the Borrower or (ii) to
any other wholly-owned Subsidiary of the Borrower organized under a
jurisdiction of the United States.
5.10 Distributions. The Borrower shall not (a) declare or pay any
dividends; (b) purchase, redeem, retire, or otherwise acquire for value any of
such Person's capital stock now or hereafter outstanding in an aggregate amount
in excess of $500,000; or make any distribution of assets to such Person's
stockholders as such, whether in cash, assets, or in
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obligations of such Person; (c) allocate or otherwise set apart any sum for the
payment of any dividend or distribution on, or for the purchase, redemption, or
retirement of, any shares of such Person's capital stock; or (d) make any other
distribution by reduction of capital or otherwise in respect of any shares of
such Person's capital stock.
5.11 Transactions with Affiliates. The Borrower shall not and
shall not permit any other Credit Party to enter into any transaction directly
or indirectly with or for the benefit of an Affiliate except transactions with
an Affiliate for the leasing of property, the rendering or receipt of services,
or the purchase or sale of inventory or other assets in the ordinary course of
business if the monetary or business consideration arising from such a
transaction would be substantially as advantageous to such Credit Party as the
monetary or business consideration which such Credit Party would obtain in a
comparable arm's length transaction.
5.12 Insurance. The Borrower shall and shall cause each other
Credit Party to maintain insurance with responsible and reputable insurance
companies or associations reasonably acceptable to the Bank in such amounts and
covering such risks as are usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which
such Persons operate. Without limiting the foregoing, no Credit Party shall
terminate any type of insurance coverage now in force without establishing
contingency plans or self insurance plans acceptable to the Bank. The Borrower
shall deliver to the Bank certificates evidencing such policies or copies of
such policies at the Bank's request.
5.13 Investments; Acquisitions; Capital Expenditures.
(a) The Borrower shall not and shall not permit any
other Credit Party to make or hold any direct or indirect investment in any
Person, including capital contributions to the Person, investments in the debt
or equity securities of the Person, and loans, guaranties, trade credit, or
other extensions of credit to the Person, except for Permitted Investments.
(b) Without the prior written consent of the Bank, the
Borrower shall not and shall not permit any other Credit Party to make any
Capital Expenditure or Acquisition Expenditures that would cause the sum of the
Capital Expenditures and the Acquisition Expenditures of the Credit Parties
during any fiscal year of the Borrower to exceed the amounts set forth below
for such fiscal year:
(i) for fiscal year 1996, $8,000,000, provided
that Capital Expenditures and Acquisition Expenditures related to Beaumont
Harken Acquisition A shall not exceed $4,000,000, and other Capital
Expenditures and Acquisition Expenditures, not related to Beaumont Harken
Acquisition A, shall not exceed $4,700,000;
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(ii) for fiscal year 1997, $4,000,000, provided
that Capital Expenditures and Acquisition Expenditures related to Beaumont
Harken Acquisition B shall be excluded from the foregoing limitation to the
extent agreed by the Bank; and
(iii) for fiscal year 1998 and thereafter,
$5,000,000 or such greater amount as may be agreed to by the Bank.
5.14 Lines of Business; Distribution. The Borrower shall not and
shall not permit any other Credit Party to change the character of the business
of such Credit Party as conducted on the date of this Agreement, or engage in
any type of business not reasonably related to such business as presently and
normally conducted. Without limiting the foregoing, the Credit Parties shall
not establish restaurants other than Casa Ole restaurants.
5.15 Compliance with Laws. The Borrower shall and shall cause each
other Credit Party to comply with all federal, state, and local laws and
regulations which are applicable to the operations and property of such Credit
Party unless the noncompliance could not reasonably be expected to cause a
Material Adverse Change.
5.16 Environmental Compliance. The Borrower shall and shall cause
each other Credit Party to (a) comply with all Environmental Laws and obtain
and comply with all related permits necessary for the ownership and operation
of its properties unless the same could not reasonably be expected to cause a
Material Adverse Change, (b) promptly disclose to the Bank any notice to or
investigation of itself for any violation or alleged violation of any
Environmental Law in connection with its presently or previously owned
properties, (c) not create, handle, transport, use, or dispose of any Hazardous
Materials on or about its properties except in compliance with all
Environmental Laws and related permits, and (d) not release any Hazardous
Materials into the environment, contaminate any properties with Hazardous
Materials, or own properties contaminated by any Hazardous Materials if the
same could reasonably be expected to cause a Material Adverse Change.
5.17 ERISA Compliance. The Borrower shall and shall cause each
other Credit Party to comply in all material respects with all applicable
provisions of ERISA, prevent the occurrence of any Reportable Event or
Prohibited Transaction with respect to, or the termination of, any of its
Plans, and not create or participate in any employee pension benefit plan
covered by Section 3(35) of ERISA or any multiemployer plan under Section
4001(a)(3) of ERISA without the prior written consent of the Bank.
5.18 Payment of Taxes and Claims. The Borrower shall and shall
cause each Credit Party to pay and discharge, before the same shall become
delinquent, (a) all taxes, assessments, levies, and like charges imposed upon
any such Person or upon any such Person's income, profits, or property by
authorities having competent jurisdiction prior to the
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date on which penalties attach thereto and (b) all lawful claims which, if
unpaid, would by law become a Lien upon any such Person's property.
5.19 Subsidiaries. Upon the formation or acquisition of any new
Subsidiary, the Borrower shall cause such Subsidiary to promptly execute and
deliver to the Bank a Joinder Agreement in substantially the form of Exhibit F
with such modifications thereto as the Bank may reasonably request for the
purpose of joining such Subsidiary as a party to the Guaranty and providing to
the Bank the rights of the Bank intended to be provided thereunder. In
connection therewith, the Borrower shall provide corporate documentation and,
if requested by the Bank, opinion letters reasonably satisfactory to the Bank
reflecting the corporate status of such new Subsidiary of the Borrower and the
enforceability of such agreements.
ARTICLE 6. DEFAULT AND REMEDIES.
6.1 Events of Default. The occurrence of any of the following
shall be an "Event of Default" for the purposes of this Agreement and the
Credit Documents:
(a) Payment Failure. The Borrower fails to pay when due
any principal, interest, fees, reimbursements, indemnifications, or other
amounts due under this Agreement or any other Credit Document and such failure
is not cured within 10 days;
(b) False Representation. Any written representation or
warranty made by any Credit Party or any Responsible Officer thereof in this
Agreement or in any other Credit Document proves to have been materially false
or erroneous at the time it was made or deemed made;
(c) Breach of Covenant. (i) Any breach by the Borrower
of any of the covenants contained in Section 5.1, 5.11, 5.12, 5.14, 5.15, 5.16,
5.17, or 5.19 of this Agreement, and such breach is not cured within 30 days of
the earlier of knowledge of such breach by the Borrower or the receipt of
written notice thereof from the Bank, or (ii) any breach by the Borrower of any
of the other covenant contained in this Agreement or any other Credit Document;
(d) Material Debt Default. (i) Any principal, interest,
fees, or other amounts due on any Debt of any Credit Party is not paid when
due, whether by scheduled maturity, required prepayment, acceleration, demand,
or otherwise, and such failure is not cured within the applicable grace period,
if any, and the aggregate amount of all Debt of the Credit Parties so in
default exceeds $250,000; (ii) any other event shall occur or condition shall
exist under any agreement or instrument relating to any Debt of any Credit
Party the effect of which is to accelerate or to permit the acceleration of the
maturity of any such Debt, whether or not any such Debt is actually
accelerated, and the aggregate amount of all Debt of the Credit Parties so in
default exceeds $250,000; or (iii) any Debt of any Credit Party
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shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled prepayment) prior to the stated maturity thereof, and
the aggregate amount of all Debt of the Credit Parties so accelerated exceeds
$250,000;
(e) Material Agreement Default. There shall occur any
breach by any Credit Party of any contract or agreement which breach could
reasonably be expected to cause a Material Adverse Change and such breach is
not cured within the applicable grace period, if any;
(f) Adverse Judgment. The aggregate outstanding amount
of unpaid, final judgments against the Credit Parties not discharged or stayed
pending appeal or other court action within 30 days following entry is greater
than $250,000;
(g) Bankruptcy and Insolvency. (i) there shall have been
filed against any Credit Party or any of such Person's properties, without such
Person's consent, any petition or other request for relief seeking an
arrangement, receivership, reorganization, liquidation, or similar relief under
bankruptcy or other laws for the relief of debtors and such request for relief
(A) remains in effect for 60 or more days, whether or not consecutive, or (B)
is approved by a final nonappealable order, or (ii) any Credit Party consents
to or files any petition or other request for relief of the type described in
clause (i) above seeking relief from creditors, makes any assignment for the
benefit of creditors or other arrangement with creditors, or admits in writing
the inability to pay debts as they become due (the occurrence of any of the
foregoing in clause (i) or clause (ii) being a "Bankruptcy Event of Default);
or
(h) Guaranty. (i) the Guaranty shall at any time and for
any reason cease to be in full force and effect or shall be contested by any
Guarantor, or any Guarantor shall deny it has any further liability or
obligation thereunder, (ii) any breach by any Guarantor of any of the covenants
contained in Sections 1.1 or 1.2 of the Guaranty, or (iii) or any breach by any
Guarantor of any other covenants contained in the Guaranty or any other Credit
Document and such breach is not cured within 30 days following the earlier of
knowledge of such breach by such Guarantor or the receipt of written notice
thereof from the Bank.
6.2 Termination of Commitments. Upon the occurrence of any
Bankruptcy Event of Default, all of the commitments of the Bank hereunder shall
terminate. During the existence of any Event of Default, the Bank may declare
by written notice to the Borrower all of the commitments of the Bank hereunder
terminated, whereupon the same shall immediately terminate.
6.3 Acceleration of Credit Obligations. Upon the occurrence of
any Bankruptcy Event of Default, the aggregate outstanding principal amount of
all loans made hereunder, all accrued interest thereon, and all other Credit
Obligations shall immediately and
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automatically become due and payable. During the existence of any Event of
Default, the Bank may declare by written notice to the Borrower the aggregate
outstanding principal amount of all loans made hereunder, all accrued interest
thereon, and all other Credit Obligations to be immediately due and payable.
In connection with the foregoing, except for the notice provided for above, the
Borrower waives notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices.
6.4 Cash Collateralization of Letters of Credit. Upon the
occurrence of any Bankruptcy Event of Default, the Borrower shall pay to the
Bank an amount equal to the Letter of Credit Exposure to be held in the Letter
of Credit Collateral Account for disposition in accordance with Section 2.3(g).
During the existence of any Event of Default, the Bank may require by written
notice to the Borrower that the Borrower pay to the Bank an amount equal to the
Letter of Credit Exposure to be held in the Letter of Credit Collateral Account
for disposition in accordance with Section 2.3(g).
6.5 Default Interest. If any Event of Default exists, the Bank
may declare by written notice to the Borrower that the Credit Obligations
specified in such notice shall bear interest beginning on the date specified in
such notice until paid in full at the applicable Default Rate for such Credit
Obligations, and the Borrower shall pay such interest to the Bank upon demand.
6.6 Right of Setoff. During the existence of an Event of Default,
the Bank is hereby authorized at any time, to the fullest extent permitted by
law, to set off and apply any indebtedness owed by the Bank to the Borrower
against any and all of the obligations of the Borrower under this Agreement and
the Credit Documents, irrespective of whether or not the Bank shall have made
any demand under this Agreement or the Credit Documents and although such
obligations may be contingent and unmatured. The Bank agrees promptly to
notify the Borrower after any such setoff and application made by the Bank
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
6.7 Actions Under Credit Documents. Following an Event of
Default, the Bank may take any and all actions permitted under the other Credit
Documents.
6.8 Remedies Cumulative. No right, power, or remedy conferred to
the Bank in this Agreement and the Credit Documents, or now or hereafter
existing at law, in equity, by statute, or otherwise, shall be exclusive, and
each such right, power, or remedy shall to the full extent permitted by law be
cumulative and in addition to every other such right, power, or remedy. No
course of dealing and no delay in exercising any right, power, or remedy
conferred to the Bank in this Agreement and the Credit Documents, or now or
hereafter existing at law, in equity, by statute, or otherwise, shall operate
as a waiver of or otherwise
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prejudice any such right, power, or remedy. No notice to or demand upon the
Borrower shall entitle the Borrower to similar notices or demands in the
future.
6.9 Application of Payments. Prior to an Event of Default, all
payments made hereunder shall be applied to the Credit Obligations as directed
by the Borrower, subject to the rules regarding the application of payments to
certain Credit Obligations provided for hereunder and in the Credit Documents.
During the existence of an Event of Default, all payments and collections shall
be applied to the Credit Obligations in the order determined by the Bank.
ARTICLE 7. MISCELLANEOUS.
7.1 Expenses. The Borrower shall pay on demand (a) all reasonable
costs and expenses of the Bank in connection with the preparation, execution,
delivery, administration, modification, and amendment of this Agreement and the
other Credit Documents and (b) all costs and expenses of the Bank in connection
with the preservation or enforcement of its respective rights under this
Agreement and the other Credit Documents, whether through negotiations, legal
proceedings, or otherwise, including in each case fees and expenses of counsel
for the Bank. The provisions of this paragraph shall survive the repayment and
termination of the credit provided for under this Agreement and any purported
termination of this Agreement which does not expressly refer to this paragraph.
7.2 Indemnification. The Borrower agrees to protect, defend,
indemnify, and hold harmless the Bank and its Related Parties (for the purposes
of this Section 7.2, collectively, the "Indemnified Parties") from and against
all demands, claims, actions, suits, damages, judgments, fines, penalties,
liabilities, and costs and expenses, including costs of attorneys and related
costs of experts such as accountants (collectively, the "Indemnified
Liabilities"), actually incurred by any Indemnified Party which are related to
this Agreement, the Credit Documents, or the transactions contemplated
thereunder, INCLUDING ANY INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED
PARTY'S OWN NEGLIGENCE, but not Indemnified Liabilities which are a result of
any Indemnified Party's gross negligence or willful misconduct. The provisions
of this paragraph shall survive the repayment and termination of the credit
provided for under this Agreement and any purported termination of this
Agreement which does not expressly refer to this paragraph.
7.3 Modifications, Waivers, and Consents. No modification or
waiver of any provision of this Agreement or the Notes, nor any consent
required under this Agreement or the Notes, shall be effective unless the same
shall be in writing and signed by the party against whom enforcement is sought,
and then such modification, waiver, or consent shall be effective only in the
specific instance and for the specific purpose for which given.
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7.4 Survival of Agreements. All representations, warranties, and
covenants of the Borrower in this Agreement and the Notes shall survive the
execution of this Agreement and the Notes and any other document or agreement.
7.5 Successors and Assigns. This Agreement and the Credit
Documents shall bind and inure to the benefit of the Borrower and its
respective successors and assigns and the Bank and its respective successors
and assigns. The Borrower may not assign its rights or delegate its duties
under this Agreement or any Note. The Bank may assign its rights and delegate
its duties under this Agreement or any Note.
7.6 Notice. Unless otherwise specified, all notices and other
communications provided for in this Agreement and the Notes shall be in
writing, including telecopy, and delivered or transmitted to the addresses set
forth below, or to such other address as shall be designated by the Borrower or
the Bank in written notice to the other party. Notice sent by telecopy shall
be deemed to be given and received when receipt of such transmission is
acknowledged, and delivered notice shall be deemed to be given and received
when receipted for by, or actually received by, an authorized officer of the
Borrower or the Bank, as the case may be.
If to the Borrower:
Casa Ole Restaurants, Inc.
Attn: Ms. Stacy M. Riffe
1135 Edgebrook
Houston, Texas 77034
telephone: 713-943-7574
telecopier: 713-943-9554
If to the Bank:
NationsBank of Texas, N.A.
Attn: Mr. Mark W. Montgomery
700 Louisiana, 7th Floor
Houston, Texas 77002
telephone: 713-247-7155
telecopier: 713-247-7748
7.7 Choice of Law. This Agreement and the Notes have been
prepared, are being executed and delivered, and are intended to be performed in
the State of Texas, and the substantive laws of the State of Texas and the
applicable federal laws of the United States shall govern the validity,
construction, enforcement, and interpretation of this Agreement and
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the Notes; provided however, Chapter 15 of the Texas Credit Code does not apply
to this Agreement or the Notes.
7.8 Arbitration.
(a) Any controversy or claim between or among the parties
hereto, including those arising out of or relating to this Agreement or the
Credit Documents, including any claim based on or arising from an alleged tort,
shall be determined by binding arbitration in accordance with the Federal
Arbitration Act (or if not applicable, the applicable state law), the rules of
practice and procedure for the arbitration of commercial disputes of Judicial
Arbitration and Mediation Services, Inc. ("JAMS"), and the "special rules" set
forth in paragraph (b) below. In the event of any inconsistency, the special
rules shall control. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Any party to this Agreement may bring an action,
including a summary or expedited proceeding, to compel arbitration of any
controversy or claim to which this Agreement or any of the Credit Documents
applies in any court having jurisdiction over such action.
(b) The arbitration shall be conducted in Houston, Texas,
and administered by JAMS, who shall appoint an arbitrator; if JAMS is unable or
legally precluded from administering the arbitration, then the American
Arbitration Association shall serve. All arbitration hearings shall be
commenced within 90 days of the demand for arbitration; further, the arbitrator
shall only be permitted to extend the commencement of such hearing for up to an
additional 60 days and only after showing cause. The payment of costs and
fees associated with the arbitration shall be allocated between the parties by
the arbitrator.
(c) Nothing in this Agreement shall be deemed to (i)
limit the applicability of any otherwise applicable statutes of limitation or
repose and any waivers contained in this Agreement or the Credit Documents; or
(ii) be a waiver by the Bank of the protection afforded to it by 12 U.S.C. Sec.
91 or any substantially equivalent state law; or (iii) limit the right of the
Bank hereto (A) to exercise self help remedies such as setoff, or (B) to take
action to enforce rights under any security or support for the Credit
Obligations, including foreclosing on collateral and making claims under
guaranties, or (C) to obtain from a court provisional or ancillary remedies
such as injunctive relief, writ of possession, or the appointment of a
receiver. The Bank may exercise such self help rights, enforce rights related
to security or support, or obtain such provisional or ancillary remedies
before, during, or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. Neither this exercise of self help remedies nor
the institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
-45-
<PAGE> 51
7.9 Counterparts. This Agreement may be executed in multiple
counterparts which together shall constitute one and the same instrument.
7.10 No Further Agreements. THIS WRITTEN AGREEMENT AND THE CREDIT
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.
EXECUTED as of the date first above written.
BORROWER:
CASA OLE RESTAURANTS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BANK:
NATIONSBANK OF TEXAS, N.A.
By:
--------------------------------
Mark W. Montgomery
Vice President
-46-
<PAGE> 1
EXHIBIT 11.1
CASA OLE' RESTAURANTS, INC.
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
28-WEEK PERIODS ENDED 12-WEEK PERIODS ENDED
7/14/95 7/12/96 7/14/95 7/12/96
------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Income (or pro forma income) applicable
to common stock $ 694,250 $ 929,353 $ 321,556 $ 447,341
============= ============ ============== ===============
Computation of weighted average
common shares:
Shares issued pursuant to
contribution agreement 2,732,705 2,732,705 2,732,705 2,732,705
Shares assumed issued to
fund certain distributions 60,411 -- 60,411 --
Shares issued in initial public offering -- 2,000,000 -- 2,000,000
Shares redeemed -- (1,135,000) -- (1,135,000)
Effect of days outstanding on
weighted average calculation -- (516,352) -- (51,488)
Assumed net common share
equivalents of options and warrants
using the treasury stock method -- 55,931 -- 130,505
------------- ------------ -------------- ---------------
2,793,116 3,137,284 2,793,116 3,676,722
============= ============ ============== ===============
Pro forma net income per share $0.25 $0.30 $0.12 $0.12
===== ===== ===== =====
</TABLE>
65
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> JUL-12-1996
<CASH> 9,137,845
<SECURITIES> 0
<RECEIVABLES> 227,226
<ALLOWANCES> 0
<INVENTORY> 149,750
<CURRENT-ASSETS> 9,799,450
<PP&E> 4,856,340
<DEPRECIATION> 3,365,742
<TOTAL-ASSETS> 11,310,977
<CURRENT-LIABILITIES> 1,256,123
<BONDS> 0
<COMMON> 47,327
0
0
<OTHER-SE> 9,994,157
<TOTAL-LIABILITY-AND-EQUITY> 11,310,977
<SALES> 9,090,282
<TOTAL-REVENUES> 9,609,547
<CGS> 2,283,755
<TOTAL-COSTS> 7,298,567
<OTHER-EXPENSES> 1,191,891
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (65,678)
<INCOME-PRETAX> 1,325,457
<INCOME-TAX> 347,382
<INCOME-CONTINUING> 978,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978,075
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
