<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997.
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 0-12490
ACR GROUP, INC
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-2008473
- --------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3200 Wilcrest Drive, Smite 440, Houston, Texas 77042
- ---------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(713) 780-8532
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Shares of Common Stock outstanding at September 30, 1997 - 10,379,992.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
August 31, February 28,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 496,992 $ 412,699
Accounts receivable, net 13,334,359 8,914,933
Inventory 14,437,228 13,667,019
Prepaid expenses and other 172,740 130,142
Deferred income taxes 347,000 347,000
------------ ------------
Total current assets 28,788,319 23,471,793
------------ ------------
Property and equipment, net of accumulated
depreciation 3,655,773 3,435,406
Deferred income taxes 693,000 693,000
Goodwill, net of accumulated amortization 2,760,486 2,657,500
Other assets 463,199 299,911
------------ ------------
$ 36,360,777 $ 30,557,610
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,418,642 $ 1,457,600
Accounts payable 14,261,340 9,925,146
Accrued expenses and other liabilities 1,398,280 1,008,972
------------ ------------
Total current liabilities 17,078,262 12,391,718
Long-term debt, less current maturities 11,326,020 11,159,892
------------ ------------
Total liabilities 28,404,282 23,551,610
------------ ------------
Shareholders' equity:
Common stock 103,800 103,716
Additional paid-in capital 41,621,740 41,620,770
Accumulated deficit (33,769,045) (34,718,486)
------------ ------------
Total shareholders' equity 7,956,495 7,006,000
------------ ------------
$ 36,360,777 $ 30,557,610
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
-1-
<PAGE> 3
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
August 31, August 31,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 48,223,439 $ 44,029,682 $ 27,626,657 $ 25,148,294
Cost of sales 38,772,525 35,540,071 22,300,664 20,250,455
------------ ------------ ------------ ------------
Gross profit 9,450,914 8,489,611 5,325,993 4,897,839
Selling, general and
administrative expenses (8,037,034) (7,261,992) (4,233,504) (3,981,208)
Other operating income 184,475 257,159 46,521 91,869
------------ ------------ ------------ ------------
Operating income 1,598,355 1,484,778 1,139,010 1,008,500
Interest expense (688,310) (440,060) (377,930) (246,682)
Other non-operating income 81,206 72,037 39,443 38,365
------------ ------------ ------------ ------------
Income before taxes 991,251 1,116,755 800,523 800,183
Provision for income taxes (41,810) (31,840) (31,500) (22,605)
------------ ------------ ------------ ------------
Net income 949,441 $ 1,084,915 $ 769,023 777,578
============ ============ ============ ============
Average outstanding common
and equivalent shares 11,671,144 10,600,841 11,608,338 10,713,751
============ ============ ============ ============
Earnings per share $ .08 $ .10 $ .07 $ .07
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
-2-
<PAGE> 4
ACR GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
August 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 949,441 $ 1,084,915
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 429,677 331,756
Stock issued as compensation -- 125,000
Changes in operating assets and liabilities:
Accounts receivable (4,229,785) (3,142,638)
Inventory (568,948) (1,996,297)
Prepaid expense and other assets (255,314) (181,248)
Accounts payable 4,025,174 1,327,394
Accrued expenses and other liabilities 370,552 588,621
----------- -----------
Net cash provided by (used in) operating activities 720,797 (1,862,497)
----------- -----------
Investing activities:
Acquisition of property and equipment, net (324,048) (386,078)
Acquisition of businesses, net of cash acquired (90,956) --
----------- -----------
Net cash used in investing activities (415,004) (386,078)
----------- -----------
Financing activities:
Proceeds from long-term debt 525,478 2,571,862
Payment of long-term debt (748,032) (452,982)
Exercise of stock options 1,054 --
----------- -----------
Net cash provided by (used in) financing
activities (221,500) 2,118,880
----------- -----------
Net increase (decrease) in cash 84,293 (129,695)
Cash at beginning of year 412,699 348,162
----------- -----------
Cash at end of period $ 496,992 $ 228,467
=========== ===========
Schedule of non-cash investing and
financing activities:
Acquisition of subsidiaries:
Fair value of assets acquired 430,776
Fair value of liabilities acquired 447,381
Goodwill 112,836
Purchase of equipment under capital
leases (net of cash paid) 190,239 331,349
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
-3-
<PAGE> 5
ACR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The interim financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normally
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of operations
for the three-month and six-month periods ended August 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
Substantially all inventories represent finished goods held for sale.
2 - Acquisitions
In January 1997, the Company acquired all of the issued and outstanding
capital stock of Lifetime Filter, Inc. ("LFI"), a Texas corporation, and
contemporaneously therewith, LFI acquired all of the assets, and assumed all of
the liabilities, of the O'Leary Family Partnership, Ltd. ("OFP"), a Texas
limited partnership. Both LFI and the general partner of OFP had common
ownership. LFI is a manufacturer and distributor of electrostatic air filters
and sells its products directly to HVACR contractors. Unaudited pro forma
results of the Company's operations, as if the acquisitions of LFI and OFP had
occurred as of March 1, 1996, are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
August 31, 1996 August 31, 1996
---------------- ------------------
<S> <C> <C>
Sales $45,405,288 $25,940,656
Net income 1,349,028 980,486
Earnings per share .13 .09
</TABLE>
These pro forma results are presented for comparative purposes only and
include certain adjustments to give effect to interest expense on acquisition
debt, amortization of goodwill and additional depreciation expense as a result
of a step-up in the basis of fixed assets, together with related income tax
effects. They do not purport to be indicative of the results of operations
which actually would have resulted had the combination occurred on March 1,
1996, or of future results of the consolidated entities.
In April 1997, the Company acquired for approximately $70,000 the assets
and liabilities of ACH Supply, Inc. ("ACH"), a wholesale distributor of HVACR
products with two branches in the Los Angeles area. Pro forma results of
operations relating to this acquisition are not presented because the effects
of the acquisition would not be material.
-4-
<PAGE> 6
ACR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2 - Acquisitions (continued)
On September 9, 1997, the Company, through a wholly-owned subsidiary,
acquired certain of the assets, and assumed certain of the liabilities, of
Contractors Heating and Supply Company ("CHS"). CHS was paid $4,626,315 cash at
closing, and received a promissory note ("Note") for $1,200,000. The
liabilities assumed by the Company's subsidiary included $1,200,000 owed by CHS
to certain of its shareholders, and was paid in full at closing by the
Company's subsidiary. The Note bears interest at 8 1/2% per annum. The Note is
to be repaid in three annual principal installments of $400,000 each, plus
accrued interest, beginning September 1, 1998, and is secured by a first lien
on machinery and equipment purchased from CHS that is used to fabricate sheet
metal products. The Note is subordinated to the Company's indebtedness to its
senior secured lender (Note 3). The acquisition will be accounted for using the
purchase method of accounting. The Company will file audited financial
statements of CHS as of December 31, 1996 and 1995, and for the years then
ended, and pro forma financial statements of the Company as of August 31, 1997,
with the Securities and Exchange Commission on Form 8-K/A no later than
November 24, 1997.
3 - Debt
On August 27, 1997, the Company closed a revolving credit facility ("New
Facility") with its bank lender ("Bank"). The New Facility has a capacity of
$18 million, and borrowings are limited to 85% of eligible accounts receivable
and 50% of eligible inventory amounts. The Company has the option of paying
interest on the New Facility at either the Bank's prime rate plus 1/2% or LIBOR
plus 3%. The New Facility was funded by the Bank on September 8, 1997, and $7.4
million was used to repay outstanding borrowings under the Company's former
line of credit with the Bank. Subsequently, the Company has also borrowed $5.7
million to acquire the business of CHS and approximately $1 million for
additional working capital. The New Facility matures on August 31, 2000.
4 - Contingent Liabilities
The Company has an arrangement with an HVACR equipment manufacturer and a
field warehouse agent whereby HVACR equipment is held for sale in bonded
warehouses located at the premises of the Company's operations in Georgia, Las
Vegas and Memphis, with payment due only when products are sold. Such inventory
is accounted for as consigned merchandise and is not recorded on the Company's
balance sheet. As of August 31, 1997, the cost of such inventory held in the
bonded warehouses was $10,698,250.
-5-
<PAGE> 7
ACR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4 - Contingent Liabilities (continued)
The terms of the consignment agreement with the supplier further provide
that merchandise not sold within a specified period of time must be purchased
by the Company. As of August 31, 1997, the Company owed approximately $220,000
for unsold cooling equipment. Management believes that such equipment will be
sold in the ordinary course of business at prices equal to or in excess of the
Company's cost.
5 - Income Taxes
The provision for income taxes consists principally of current state
income taxes. The Company has net operating loss and tax credit carryforwards
which offset substantially all of its federal taxable income.
6 - Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted by the
Company in the fourth quarter of fiscal 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements, primary earnings per
share will be renamed basic earnings per share and will exclude the dilutive
effect of stock options, warrants and convertible securities. The Company has
determined that the impact of Statement No. 128 on the calculation of earnings
per share for the six-month and three-month periods ended August 31, 1997 and
1996 would not be material.
In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, which is required to be
adopted by the Company in fiscal 1999. At that time, the Company will be
required to present financial and descriptive information about its operating
segments under the "management approach" versus the "industry segment
approach". The Company is currently evaluating the impact of the new statement
on the financial disclosure of the Company.
-6-
<PAGE> 8
ACR GROUP, INC. AND SUBSIDIARIES
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Results of Operations for the Six-Month and Three-Month Periods
Ended August 31, 1997 and August 31, 1996
Six Months Ended August 31, 1997 Compared to 1996
Net income declined 12% to $949,441 for the six months ended August 31,
1997 (fiscal 1998), compared to $1,084,915 for the six months ended August 31,
1996 (fiscal 1997). This decline was generally attributable to higher interest
expense and to weather conditions in three of the Company's largest markets,
Texas, Georgia and Tennessee, where below average temperatures and above
average rainfall from March through June 1997 reduced demand for air
conditioning products.
Consolidated sales increased 10% from fiscal 1997 to 1998, with the
increase attributable to sales at locations opened or acquired after the
beginning of fiscal 1997. Sales at 21 branches that had been open more than a
year at the beginning of fiscal 1997 declined 1% in the first six months of
fiscal 1998, compared to fiscal 1997, Growth in sales was strongest at stores
in the Houston area and in south Georgia, with stores in the Atlanta area and
central Texas experiencing the sharpest declines. After increases in excess of
20% in each of the past three years, sales at Heating and Cooling Supply in Las
Vegas were unchanged from fiscal 1997 to 1998.
The Company's gross margin percentage on sales was 19.6% for the six-month
period ended August 31, 1997, compared to 19.3% in 1996. The higher gross
margin percentage in 1997 is a result of the gross margin attained at the
Company's operations that have been added since 1996. The Company's
distribution operations in both Florida and California sell less HVACR
equipment as a percentage of total sales than most of the Company's other
operations and, accordingly, attain a higher gross margin percentage on
aggregate sales. Lifetime Filter, Inc. ("LFI") is a manufacturing business and
realizes a higher gross margin percentage than the Company's distribution
operations. The higher gross margin percentages realized at the newer
operations have been partially offset in fiscal 1998 by a decline in gross
margin in Texas and Tennessee in response to unusually competitive market
conditions resulting from slower overall sales in those areas.
Selling, general and administrative ("SG&A") expenses have increased 11%
from fiscal 1997 to 1998, because of the costs associated with the added
operations described above. Expressed as a percentage of sales, SG&A expenses
increased from 16.5% in fiscal 1997 to 16.7% in fiscal 1998.
-7-
<PAGE> 9
Other operating income consists of both energy services income and
commission income received from a supplier to the Company for providing
warehousing and shipping services to another distributor of the supplier.
Commission income has declined 45% from fiscal 1997 to fiscal 1998 because of
both a reduction in the commission rate paid by the supplier and a reduction in
orders from the other distributor. Energy services income from the Company's
sole customer has increased 7% from fiscal 1997 to 1998. The Company provides
energy management services on a month-to-month basis to the customer, and
management cannot estimate how long such an informal arrangement may continue.
However, the customer is partially dependent on the Company for the proper
operation of its HVACR systems.
Interest expense increased 56% from fiscal 1997 to fiscal 1998 as a result
of the Company's increased borrowings, principally for acquisition
indebtedness. Interest expense in fiscal 1998 also includes $69,000 paid to an
equipment supplier for extended payment terms compared to $14,000 paid in
fiscal 1997.
The provision for income taxes consists principally of state income taxes.
As a result of the Company's substantial tax loss carryforwards, the Company
has minimal liability for Federal income taxes. See Liquidity and Capital
Resources, below.
Three Months Ended August 31, 1997 Compared to 1996
Much of the preceding analysis with respect to the six-month periods ended
August 31, 1997 and 1996 is applicable to the three-month periods then ended.
Net income decreased 1%, from $777,578 in 1996 to $769,023 In 1997. After
extraordinarily temperate weather conditions prevailed through June 1997, as
described above, normal summer weather conditions existed from the middle of
July through August. With its sales consisting principally of air conditioning
products because of its geographic concentration in the Sun Belt, the Company's
sales and results of operations are subject to significant seasonal
fluctuations. In the Company's fiscal year, the second quarter, ending August
31, is the most profitable and has the greatest sales volume.
Consolidated sales increased 10% from 1996 to 1997, with sales increasing
in all market areas except the Atlanta area. As for the Company's recently
acquired operations, sales at ACH exceeded the Company's expectations as
unusually hot weather prevailed in southern California, while sales at LFI were
less than the Company's expectations because of a lower volume of orders from
LFI's largest customer.
Gross margin percentage in the quarter ended August 31, 1997 was 19.3%,
compared to 19.5% in 1996. The decline in gross margin percentage was
attributable to highly competitive pricing that was necessary to retain market
share and to special pricing considerations given to certain large customers in
Texas.
SG&A expenses as a percentage of sales decreased from 15.8% in 1996 to
15.3% in 1997. In the quarter ended August 31, 1996, the Company recorded a
non-recurring compensation charge of $125,000. Interest expense increased from
1996 to 1997 for the reasons stated above, including $65,000 paid to a vendor
in 1997 for extended payment terms, compared to $13,000 paid in 1996.
-8-
<PAGE> 10
Liquidity and Capital Resources
Working capital increased from $11,080,075 at February 28, 1997 to
$11,710,057 at August 31, 1997. Current assets increased 23%, principally in
accounts receivable and inventory, reflecting expected seasonal trends. Gross
receivables represented 48 days of sales at August 31, 1997, compared to 57
days at February 28, also reflecting the usual seasonal adjustment.
On August 27, 1997, the Company closed a revolving credit facility ("New
Facility") with its bank lender ("Bank"). The New Facility has a capacity of $18
million, and borrowings are limited to 85% of eligible accounts receivable and
50% of eligible inventory amounts. The Company has the option of paying
interest on the New Facility at either the Bank's prime rate plus 1/2% or LIBOR
plus 3%. The New Facility was funded by the Bank on September 8, 1997, and $7.4
million was used to repay outstanding borrowings under the Company's former
line of credit with the Bank. Subsequently, the Company has also borrowed $5.7
million to acquire the business of Contractors Heating and Supply Company
("CHS") and approximately $1 million for additional working capital. Management
believes that availability under the New Facility will be adequate to finance
the Company's working capital requirements for both growth in existing business
and expansion of branch operations for the foreseeable future. The New Facility
matures on August 31, 2000.
On September 9, 1997, the Company, through a wholly-owned subsidiary,
acquired certain of the assets, and assumed certain of the liabilities, of CHS.
CHS was paid $4,626,315 cash at closing, and received a promissory note
("Note") for $1,200,000. The liabilities assumed by the Company's subsidiary
included $1,200,000 owed by CHS to certain of its shareholders, and was paid in
full at closing by the Company's subsidiary. The Note bears interest at 8 1/2%
per annum. The Note is to be repaid in three annual principal installments of
$400,000 each, plus accrued interest, beginning September 1, 1998, and is
secured by a first lien on machinery and equipment purchased from CHS that is
used to fabricate sheet metal products. The Note is subordinated to the New
Facility.
The Company is actively considering additional financing alternatives in
order to continue its plan of acquiring other HVACR distribution companies.
Such financing may be in the form of subordinated debt, equity or some
combination of debt and equity. Although management has engaged in discussions
with several potential lenders or investors, the Company has no commitment for
additional financing and cannot predict whether or when any such additional
financing may materialize. Management is also reviewing. the suitability of
several acquisition opportunities, but has not entered into letters of intent
to acquire any companies. The Company's ability to consummate a significant
acquisition would be dependent upon obtaining additional financing.
The Company has approximately $33 million in tax loss carryforwards and
$1.1 million in tax credit carryforwards. Such operating loss and tax credit
carryforwards will substantially limit the Company's federal income tax
liabilities in the near future.
-9-
<PAGE> 11
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted by the
Company in the fourth quarter of fiscal 1998. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements, primary earnings per
share will be renamed basic earnings per share and will exclude the dilutive
effect of stock options, warrants and convertible securities. The Company has
determined that the impact of Statement No. 128 on the calculation of earnings
per share for the six-month periods ended August 31, 1997 and 1996 would not be
material.
In June 1997, the FASB issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information, which is required to be
adopted by the Company in fiscal 1999. At that time, the Company will be
required to present financial and descriptive information about its operating
segments under the "management approach" versus the "industry segment
approach". The Company is currently evaluating the impact of the new statement
on the financial disclosure of the Company.
-10-
<PAGE> 12
PART II - OTHER INFORMATION
Item 4. - Results of Votes of Security Holders
At the Annual Meeting of Shareholders on August 21, 1997, the shareholders
of the Company voted on and approved the following issue:
Election of Directors for a term of one year expiring at the next Annual
Meeting of Shareholders:
<TABLE>
<CAPTION>
Shares Shares
For Withheld
--------- --------
<S> <C> <C>
Anthony R. Maresca 6,363,912 1,550
Ronald T. Nixon 6,363,912 1,550
Alex Trevino, Jr. 6,363,712 1,750
A. Stephen Trevino 6,363,912 1,550
</TABLE>
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 Loan and Security Agreement between ACR Group, Inc. and NationsBank
of Texas, N.A. dated as of August 27, 1997.
10.2 First Amendment to Loan and Security Agreement between ACR Group,
Inc. and NationsBank of Texas, N.A. dated as of September 9, 1997.
27.1 Financial Data Schedule.
(b) No report on Form 8-K was filed during the quarter ended August 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACR GROUP, INC.
October 15, l997 /s/ Anthony R. Maresca
- --------------------------- ----------------------------------
Date Anthony R. Maresca
Senior Vice-President and
Chief Financial Officer
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<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.1 Loan and Security Agreement between ACR Group, Inc. and
NationsBank of Texas, N.A. dated as of August 27, 1997.
10.2 First Amendment to Loan and Security Agreement between
ACR Group, Inc. and NationsBank of Texas, N.A. dated as
of September 9, 1997.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
NATIONSBANK
NationsBank of Texas, N.A
LOAN AND SECURITY AGREEMENT
Dated as of August 27, 1997
ACR Group, Inc, a Texas corporation (the "BORROWER"), and NATIONSBANK OF
TEXAS, N.A., a national banking association (the "LENDER"), agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 DEFINITIONS. For the purposes of this Agreement:
"Account Debtor" means a Person who is obligated on a Receivable.
"Acquire" or "Acquisition", as applied to any Business Unit or Investment,
means the acquisition of such Business Unit or Investment by purchase,
exchange, issuance of stock or other securities, or by merger, reorganization
or any other method.
"Adjusted Libor Rate" means an interest rate per annum equal to the
quotient of (i) the London Interbank Offered Rate, divided by (ii) a percentage
equal to 100.0% less than the Eurodollar Reserve Percentage.
"Adjusted Net Income" means, as applied to any Person, the Net Income or
Net Loss of such Person for the period in question after deducting any federal
income taxes paid in cash by such Person during the period in question.
"Affiliate" means, with respect to a Person, (a) any officer, director,
employee or managing agent of such Person, (b) any spouse, parents, brothers,
sisters, children and grandchildren of such Person, (c) any association,
partnership, trust, entity or enterprise in which such Person is a director,
officer or general partner, (d) any other Person that, (i) directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such given Person, (ii) directly or indirectly
beneficially owns or holds 10% or more of any class of voting stock or
partnership or other interest of such Person or any Subsidiary of such Person,
or (iii) 10% or more of the voting stock or partnership or other interest of
which is directly or indirectly beneficially owned or held by such Person or a
Subsidiary of such Person. The term "control" 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 of voting securities or
partnership or other interests, by contract or otherwise.
<PAGE> 2
"Agency Account" means an account of Borrower maintained by it with a
Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among Borrower, Lender and a
Clearing Bank which designates an Agency Account for the deposit of checks and
items constituting proceeds of Receivables, and establishes the terms for
transferring balances therein to Lender for deposit to the Teller Account.
"Agreement" means this Agreement, including the Exhibits and Schedules
hereto, and all amendments, modifications and supplements hereto and thereto
and restatements hereof and thereof.
"Agreement Date" means the date as of which this Agreement is dated.
"Applicable Margin" means (a) with respect to Prime Rate Loans, one-half
of one percent (0.50%) and (b) with respect to Eurodollar Loans, three percent
(3.0%).
"Approved Acquisition" means acquisitions (excluding Permitted
Acquisitions) by the Borrower or any of its Subsidiaries of substantially all
of the business of an entity (whether by asset acquisition or stock purchase)
engaged in substantially the same business as the Borrower or such Subsidiary,
provided that prior written approval is obtained from Lender.
"Availability" means as of the date of determination, the amount of
Revolving Credit Loans available to be borrowed by Borrower hereunder in
accordance with Section 2 .1 less the sum of the outstanding principal balance
of all Revolving Credit Loans hereunder and the Letter of Credit Reserve as of
such date.
"Benefit Plan" means an employee benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan) in respect of which a Person or any
Related Company is, or within the immediately preceding 6 years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
"Blocked Collection Account" means a demand deposit account maintained by
Borrower with Lender and established for the purpose of depositing checks and
other items received in a Lockbox and otherwise and constituting proceeds of
Receivables, access to which (other than for purposes of deposit) is blocked to
Borrower and over which Lender has the sole right of control and access for
purposes of withdrawal, transfer and debit.
"Borrower" means ACR Group, Inc., a Texas corporation, and its successors
and assigns.
"Borrowing Base" means at any time an amount equal to the sum of:
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<PAGE> 3
(a) 85 % (or such lesser percentage as Lender may in its sole good
faith discretion determine from time to time) of the face value of
Eligible Receivables due and owing at such time, plus
(b) The Lesser Of
(i) 50 % (or such lesser percentage as Lender may in its sole
good faith discretion determine from time to time) of the lesser of
cost and fair market value of Eligible Inventory at such time, AND
(ii) $9,000,000, MINUS
(c) the Letter of Credit Reserve and such other reserves as Lender
may determine from time to time in the good faith exercise of its
reasonable credit judgment.
"Borrowing Base Certificate" means a certificate in the form of EXHIBIT B
attached hereto.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks in the city in which the principal office of Lender is located are
authorized to close.
"Business Unit" means the assets constituting the business, or a division
or operating unit thereof, of any Person.
"Capital Expenditures" means, with respect to any Person, all expenditures
made and liabilities incurred for the acquisition of assets (other than assets
which constitute a Business Unit) which are not, in accordance with GAAP,
treated as expense items for such Person in the year made or incurred or as a
prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented by
obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Clearing Bank" means any banking institution with which an Agency Account
has been established pursuant to an Agency Account Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means and includes all of Borrower's and each Guarantor's
right, title and interest in and to each of the following, wherever located and
whether now or hereafter existing or now owned or hereafter acquired or
arising:
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<PAGE> 4
(a) all Receivables,
(b) all Inventory,
(c) all Contract Rights,
(d) all General Intangibles,
(e) all Deposit Accounts,
(f) all goods and other property, whether or not delivered, (i) the
sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including,
without limitation, all rights as an unpaid vendor or lienor (including,
without limitation, stoppage in transit, replevin and reclamation) with
respect to such goods and other properties,
(g) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any
item thereof,
(h) all documents of title, policies and certificates of insurance,
securities, chattel paper and other documents and instruments evidencing
or pertaining to any and all items of Collateral,
(i) all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the
amounts thereof or payments thereon or otherwise necessary or helpful in
the realization thereon or the collection thereof,
(j) all cash deposited with Lender or any Affiliate thereof or which
Lender is entitled to retain or otherwise possess as collateral pursuant
to the provisions of this Agreement or any of the Security Documents, and
(k) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred
to in this definition and any claims against third parties for loss of,
damage to or destruction of any or all of the Collateral or for proceeds
payable under or unearned premiums with respect to policies of insurance)
in whatever form, including, but not limited to, cash, negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements and other documents.
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<PAGE> 5
"Contract Rights" means and includes, as to any Person, all of such
Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
"Contribution and Indemnification Agreement" means the contribution and
indemnification agreement executed by each Guarantor with respect to their
obligations under the Guaranty Agreements.
"Controlled Disbursement Account" means the account maintained by and in
the name of Borrower with Lender for the purpose of disbursing Revolving Credit
Loan proceeds and amounts credited thereto pursuant to Section 2.2(b)(i) and
Section 7.1(f).
"Default" means any event or condition which, if not cured, would with the
passage of time or the giving of notice, or both, constitute an Event of
Default.
"Default Margin" means 2%.
"Deposit Accounts" means any demand, time, savings, passbook or like
account-maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.
"Dollar" and "$" means freely transferable United States dollars.
"ERISA" means the Employee Retirement Income Security Act of 1974, as in
effect from time to time, and any successor statute.
"Effective Date" means the later of (a) the Agreement Date, and (b) the
first date on which all of the conditions set forth in Section 4.1 shall have
been fulfilled or waived by Lender.
"Effective Interest Rate" means the rate of interest per annum on the
Loans in effect from time to time pursuant to the provisions of Sections
3.1(a), (b) and (c).
"Eligible Inventory" means items of Inventory of Borrower and its
Subsidiaries held for sale in the ordinary course of the business of Borrower
or such Subsidiary (but not including packaging or shipping materials or
maintenance supplies) which are deemed by Lender in the exercise of its sole
good faith discretion to be eligible for inclusion in the calculation of the
Borrowing Base. Unless otherwise approved in writing by Lender, no Inventory
shall be deemed to be Eligible Inventory unless it meets all of the following
requirements: (a) such Inventory is owned by Borrower or a Subsidiary of the
Borrower, is subject to the Security Interest, which is perfected as to such
Inventory, and is subject to no other Lien whatsoever other than a Permitted
Lien; (b) such Inventory consists of raw materials or finished goods and
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<PAGE> 6
does not consist of work-in-process, supplies or consigned goods; (c) such
Inventory is in good condition and meets all standards applicable to such
goods, their use or sale imposed by any governmental agency, or department or
division thereof, having regulatory authority over such matters; (d) such
Inventory is currently either usable or saleable, at prices approximating at
least the cost thereof, in the normal course of Borrower's or such Subsidiary's
business; (e) such Inventory is not obsolete or returned or repossessed or used
goods taken in trade; (f) such Inventory is located within the United States at
one of the locations listed in Schedule 5.1(u); and (g) such Inventory is in
the possession and control of Borrower or a Subsidiary of the Borrower and not
any third party.
"Eligible Receivable" means the unpaid portion of a Receivable payable in
Dollars to Borrower or a Subsidiary of the Borrower net of any returns,
discounts, claims, credits, charges or other allowances, offsets, deductions,
counterclaims, disputes or other defenses and reduced by the aggregate amount
of all reserves, limits and deductions provided for in this definition and
elsewhere in this Agreement which is deemed by Lender in the exercise of its
sole good faith discretion to be eligible for inclusion in the calculation of
the Borrowing Base. Unless otherwise approved in writing by Lender, no
Receivable shall be deemed an Eligible Receivable unless it meets all of the
following requirements: (a) such Receivable is owned by Borrower or such
Subsidiary and represents a complete bona fide transaction which requires no
further act under any circumstances on the part of Borrower or such Subsidiary
to make such Receivable payable by the Account Debtor; (b) such Receivable is
not unpaid more than 90 days after the date of the original invoice or past due
more than 60 days after its due date, which shall not be later than 30 days
after the invoice date; (c) such Receivable does not arise out of any
transaction with any Subsidiary, Affiliate, creditor, lessor or supplier of
Borrower or such Subsidiary; (d) such Receivable is not owing by an Account
Debtor more than 40% of whose then-existing accounts owing to Borrower or such
Subsidiary do not meet the requirements set forth in clause b above; (e) if the
Account Debtor with respect thereto is located outside of the United States of
America, the goods which gave rise to such Receivable were shipped after
receipt by Borrower or such Subsidiary from the Account Debtor of an
irrevocable letter of credit that has been confirmed by a financial institution
acceptable to Lender and is in form and substance acceptable to Lender, payable
in the full face amount of the face value of the Receivable in Dollars at a
place of payment located within the United States and has been duly assigned to
Lender; (f) such Receivable is not subject to the Assignment of Claims Act of
1940, as amended from time to time, or any applicable law now or hereafter
existing similar in effect thereto, as determined in the sole discretion of
Lender, or to any provision prohibiting its assignment or requiring notice of
or consent to such assignment; (g) neither Borrower nor such Subsidiary is in
breach of any express or implied representation or warranty with respect to the
goods the sale of which gave rise to such Receivable; (h) the Account Debtor
with respect to such Receivable is not insolvent or the subject of any
bankruptcy or insolvency proceedings of any kind or of any other proceeding or
action, threatened or pending, which might, in Lender's sole judgment, have a
Materially Adverse Effect on such Account Debtor; (i) the goods the sale of
which gave rise to such Receivable were shipped or delivered to the Account
Debtor on an absolute sale basis and not on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return basis or on
the basis of any other similar understanding, and such goods have not been
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<PAGE> 7
returned or rejected; (j) such Receivable is not owing by an Account Debtor or
a group of affiliated Account Debtors whose then-existing accounts owing to
Borrower exceed in face amount 25% of Borrower's total Eligible Receivables;
(k) such Receivable is evidenced by an invoice or other documentation in form
acceptable to Lender containing only terms normally offered by Borrower or such
Subsidiary, and dated no later than the date of shipment; (1) such Receivable
is a valid, legally enforceable obligation of the Account Debtor with respect
thereto and is not subject to any present, or contingent (and no facts exist
which are the basis for any future), offset, deduction or counterclaim, dispute
or other defense on the part of such Account Debtor; (m) such Receivable is not
evidenced by chattel paper or an instrument of any kind; (n) such Receivable
does not arise from the performance of services other than training and
educational services to customers, including services under or related to any
warranty obligation of Borrower or such Subsidiary or out of service charges by
Borrower or such Subsidiary or other fees for the time value of money; and (o)
such Receivable is subject to the Security Interest, which is perfected as to
such Receivable, and is subject to no other Lien whatsoever other than a
Permitted Lien and the goods giving rise to such Receivable were not, at the
time of the sale thereof, subject to any Lien other than a Permitted Lien.
"Environmental Laws" means all federal, state, local and foreign laws now
or hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water or land) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any and all
regulations, notices or demand letters issued, entered, promulgated or approved
thereunder.
"Equipment" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising machinery, apparatus,
equipment, motor vehicles, tractors, trailers, rolling stock, fittings,
fixtures and other tangible personal property (other than Inventory) of every
kind and description used in such Person's business operations or owned by such
Person or in which such Person has an interest and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
"Eurodollar Business Day" means any Business Day on which transactions in
United States Dollars are conducted in the London interbank market.
"Eurodollar Loans" means Revolving Credit Loans bearing interest at the
LIBOR Contract Rate in accordance with Section 3.1(b) hereof.
"Eurodollar Reserve Percentage" shall mean the maximum reserve requirement
(including without limitation, any basic, supplemental, marginal and emergency
reserves) (expressed as a percentage) applicable to member banks of the Federal
Reserve System in respect of "Eurocurrency Liabilities" under Regulation D of
the Board of Governors of the Federal
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<PAGE> 8
Reserve System, or such additional, substituted or amended reserve requirement
as may be hereafter applicable to member banks of the Federal Reserve System.
"Event of Default" means any of the events specified in Section 11.1.
"Existing Borrower Security Agreement" means that certain Security
Agreement dated March 8, 1994 previously executed by the Borrower in favor of
Lender pursuant to the terms of the Prior Loan Agreement, as the same has been
modified, amended or supplemented from time to time.
"Existing Guarantor Security Agreements" means each security agreement
previously executed by certain of the Guarantors in favor of Lender pursuant to
the terms of the Prior Loan Agreement, as the same have been modified, amended
or supplemented from time to time.
"Financing Statements" means the Uniform Commercial Code financing
statements previously executed and delivered or to be executed and delivered by
Borrower and each of its Subsidiaries to Lender, naming Lender as secured party
and Borrower or such Subsidiary, as applicable, as debtor, in connection with
the Prior Loan Agreement, as the same may be amended, modified or supplemented
from time to time.
"Fixed Charge Coverage Ratio" means the ratio of (a) earnings before
interest, income taxes, depreciation and amortization less, to the extent paid
in cash, income taxes, dividends, and Capital Expenditures (other than Capital
Expenditures funded by Long Term Debt from a source other than the Revolving
Credit Facility) of the Borrower, and its Subsidiaries on a consolidated basis
and any Approved Acquisition or Permitted Acquisition for the preceding twelve
(12) calendar months to (b) the sum of (i) current maturities of Long Term Debt
of Borrower, and its Subsidiaries on a consolidated basis and any Permitted
Acquisition or Approved Acquisition (excluding the St. James Note) plus (c)
interest expense of the Borrower, and its Subsidiaries on a consolidated basis
and any Permitted Acquisition or Approved Acquisition for the preceding 12
calendar months.
"GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
prior financial practice of the Person referred to.
"General Intangibles" means, as to any Person, all of such Person's then
owned or existing and future acquired or arising general intangibles, choses in
action and causes of action and all other intangible personal property of such
Person of every kind and nature (other than Receivables), including, without
limitation, Intellectual Property, corporate or other business records,
inventions, designs, blueprints, plans, specifications, trade secrets,
goodwill, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, reversions or any rights thereto and any other
amounts payable to such Person from any Benefit Plan, Multiemployer Plan or
other employee benefit plan, rights and claims against carriers and shippers,
rights to indemnification, business interruption insurance and proceeds
thereof, property, casualty
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<PAGE> 9
or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which such Person is
beneficiary (specifically excluding that certain $1 million life insurance
policy on Alex Trevino, Jr. pledged to The Catalyst Fund, Ltd.) and any letter
of credit, guarantee, claims, security interest or other security held by or
granted to such Person to secure payment by an Account Debtor of Any of the
Receivables.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local, foreign national or
provincial, and all agencies thereof.
"Governmental Authority" means any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Guarantor" means, individually and collectively, each Person who
guarantees the Secured Obligations, including without limitation, each
Subsidiary of the Borrower.
"Guaranty", "Guaranteed" or to "Guarantee," as applied to any obligation
of another Person shall mean and include:
(a) a guaranty (other than by endorsement of negotiable instruments
for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such
other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and
whether or not constituting a guaranty, the practical effect of which is
to assure the payment or performance (or payment of damages in the event
of nonperformance) of any part or all of such obligation of such other
Person whether by (i) the purchase of securities or obligations, (ii) the
purchase, sale or lease (as lessee or lessor) of property or the purchase
or sale of services primarily for the purpose of enabling the obligor with
respect to such obligation to make any payment or performance (or payment
of damages in the event of nonperformance) of or on account of any part or
all of such obligation or to assure the owner of such obligation against
loss, (iii) the supplying of hinds to, or in any other manner investing
in, the obligor with respect to such obligation, (iv) repayment of amounts
drawn down by beneficiaries of letters of credit, or (v) the supplying of
funds to or investing in a Person on account of all or any part of such
Person's obligation under a guaranty of any obligation or indemnifying or
holding harmless, in any way, such Person against any part or all of such
obligation.
"Guaranty Agreements" shall mean the guaranty agreements executed by each
Guarantor substantially in the form of Exhibit C hereto.
"Indebtedness" of any Person means, without duplication, (a) Liabilities,
(b) all obligations for money borrowed or for the deferred purchase price of
property or services or in
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<PAGE> 10
respect of reimbursement obligations under letters of credit, (c) all
obligations represented by bonds, debentures, notes and accepted drafts that
represent extensions of credit, (d) Capitalized Lease Obligations, (e) all
obligations (including, during the noncancellable term of any lease in the
nature of a title retention agreement, all future payment obligations under
such lease discounted to their present value in accordance with GAAP) secured
by any Lien to which any property or asset owned or held by such Person is
subject, whether or not the obligation secured thereby shall have been assumed
by such Person, (f) all obligations of other Persons which such Person has
Guaranteed, including, but not limited to, all obligations of such Person
consisting of recourse liability with respect to accounts receivable sold or
otherwise disposed of by such Person, and (g) in the case of Borrower (without
duplication) the Revolving Credit Loans.
"Indemnified Claims" means any and all claims, demands, actions, causes of
action, judgments, obligations, liabilities, losses, damages and consequential
damages, penalties, fines, costs, fees, expenses and disbursements (including
without limitation, fees and expenses of attorneys and other professional
consultants and experts in connection with investigation or defense) of every
kind, known or unknown, existing or hereafter arising, foreseeable or
unforeseeable, which may be imposed upon, threatened or asserted against, or
incurred or paid by, any Indemnified Person at any time and from time to time,
because of, resulting from, in connection with, or arising out of any
transaction, act, omission, event or circumstance in any way connected with the
Collateral or the Loan Documents (including enforcement of Lender's rights
thereunder or defense of Lender's actions thereunder), including but not
limited to economic loss, property damage, personal injury or death in
connection with, or occurring on or in the vicinity of, any Collateral through
any cause whatsoever, any act performed or omitted to be performed under any
Loan Documents, any breach by Borrower or a Subsidiary of the Borrower of any
representation, warranty, covenant, agreement or condition contained in any
Loan Documents or any Event of Default as defined in this Agreement.
"Indemnified Claims" does not include any claims arising from the gross
negligence or willful misconduct of Lender.
"Indemnified Persons" collectively means Lender and its officers,
directors, shareholders, employees, agents, attorneys and representatives, and
any Person owned or controlled by, or which owns or controls or is under common
control or is otherwise affiliated with, Lender.
"Initial Loan" means the Revolving Credit Loan made to Borrower on the
Effective Date pursuant to the letter referred to in Section 4.1(a)(15).
"Intellectual Property" means, as to any Person, all of such Person's then
owned existing and future acquired or arising patents, patent rights,
copyrights, works which are the subject of copyrights, trademarks, service
marks, trade names, trade styles, patent, trademark and service mark
applications, and all licenses and rights related to any of the foregoing and
all other rights under any of the foregoing, all extensions, renewals,
reissues, divisions, continuations and continuations-in-part of any of the
foregoing and all rights to sue for past, present and future infringements of
any of the foregoing.
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<PAGE> 11
"Interest Period" means the period commencing on the first effective
Eurodollar Business Day of a LIBOR Contract Rate election under Section 3.1(b)
and ending one, two, three or six months thereafter as designated by Borrower
at the time of such election, provided that (i) if any Interest Period would
otherwise end on a day which is not a Eurodollar Business Day, then such
Interest Period shall be extended to the next succeeding Eurodollar Business
Day unless to do so would extend such Interest Period into a subsequent
calendar month in which event such Interest Period shall end on the next
preceding Eurodollar Business Day, and (ii) any Interest Period that begins on
the last day of a 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 Eurodollar Business Day of the last calendar month of
such Interest Period, and provided further, that no Interest Period may end on
a day which is after the Termination Date or such later date to which the
termination of the Revolving Credit Facility may be extended pursuant to
Section 2.5.
"Inventory" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) goods intended for
sale or lease or for display or demonstration, (b) work in process, (c) raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or otherwise used or
consumed in the conduct of business, and (d) documents evidencing and general
intangibles relating to any of the foregoing.
"Investment" means, with respect to any Person: (a) the direct or indirect
purchase or acquisition of any beneficial interest in, any share of capital
stock of, evidence of Indebtedness of or other security issued by any other
Person, (b) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person, excluding advances to employees in the ordinary
course of business not to exceed $20,000.00 and sales of inventory in the
ordinary course of business, (c) any Guaranty of the obligations of any other
Person, or (d) any commitment or option to take any of the actions described in
clauses (a), (b) or (c) above.
"Issuer" means the issuing entity of a letter of credit. The issuing
entity of commercial letters of credit is NationsBank, N.A.; the issuing entity
of standby letters of credit is NationsBank of Texas, N.A.
"Lender" means NationsBank of Texas, N.A., a national banking association,
and its successors and assigns. When used throughout this Agreement, the term
"Lender" shall also include Lender's successors and assigns, including
specifically any party to whom Lender, or its successors or assigns, may assign
its rights and interests under this Agreement.
"Lender's Office" means the office of Lender specified in or determined in
accordance with the provisions of Section 12.1(c).
"Letter of Credit" means any standby letter of credit issued for the
account of Borrower or a Subsidiary of the Borrower.
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<PAGE> 12
"Letter of Credit Documents" means each of the documents, agreements and
other writings required by the Lender to be executed and/or delivered in
connection with the issuance of a Letter of Credit, including, without
limitation, each letter of credit application and reimbursement agreement.
"Letter of Credit Facility" means, at any time, obligations arising under
Letters of Credit in an aggregate face amount not to exceed $1,000,000 incurred
pursuant to Section 2.6.
"Letter of Credit Fees" means fees charged in connection with the issuance
of a Letter of Credit determined in accordance with Section 3.2(c).
"Letter of Credit Reserve" means, at any time, 100% of the sum of (i) the
aggregate undrawn amount of all Letters of Credit outstanding at such time,
plus (ii) the aggregate amount of all drawings under Letters of Credit for
which Issuer has not been reimbursed.
"Leverage Ratio" means the ratio of (a) total Liabilities, minus
Subordinated Indebtedness to (b) Tangible Net Worth.
"Liabilities" means all liabilities of a Person determined in accordance
with GAAP and includable on a balance sheet of such Person prepared in
accordance with GAAP.
"LIBOR Contract Rate" means the Adjusted LIBOR Rate plus the Applicable
Margin.
"LIBOR Rate Option" means any election by Borrower, in accordance with
Section 3.1(b), to have any Revolving Credit Loan bear interest according to the
LIBOR Contract Rate.
"Lien" as applied to the property of any Person means: (a) any security
interest, mortgage, deed to secure debt, deed of trust, lien, pledge, charge,
lease constituting a Capitalized Lease Obligation, conditional sale or other
title retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person or upon
proceeds thereof or upon the income or profits therefrom, (b) any arrangement,
express or implied, under which any property of such Person is transferred,
sequestered or otherwise identified for the purpose of subjecting the same to
the payment of Indebtedness or performance of any other obligation in priority
to the payment of the general, unsecured creditors of such Person, (c) any
Indebtedness which is unpaid more than 30 days after the same shall have become
due and payable and which if unpaid might by law (including, but not limited
to, bankruptcy and insolvency laws) or otherwise be given any priority
whatsoever over general unsecured creditors of such Person, and (d) the filing
of, or any agreement to give, any financing statement under the UCC or its
equivalent in any jurisdiction.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents and each other instrument, agreement and document executed
and delivered by Borrower and its Subsidiaries in connection with this
Agreement and each other instrument,
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<PAGE> 13
agreement or document referred to herein or contemplated hereby, and any and
all renewals, extensions, amendments, modifications or replacements thereof.
"Lockbox" means the U.S. Post Office Box(es) specified in, or pursuant to,
an Agency Account Agreement or a Lockbox Agreement.
"Lockbox Agreement" means an agreement between Lender and Borrower
pursuant to which Lender and Borrower designate a Lockbox for the receipt of
checks and other items constituting proceeds of Receivables.
"London Interbank Offered Rate" means, with respect to any LIBOR Rate
Option for the applicable Interest Period, the rate of interest per annum
(rounded upward, if necessary, to the next higher 1/100 of one percent)
determined by Lender, in accordance with its customary general practice from
time to time, to be the rate at which deposits in immediately available funds
in Dollars are or would be offered or quoted by Lender to major banks in the
London interbank market, as of approximately 11:00 a.m. London time or as soon
thereafter as practicable, on the second Business Day immediately preceding the
first day of such Interest Period, for a term comparable to such interest
period and in an amount equal to the amount of the tranche to be the subject of
such LIBOR Rate Option. If no such offers or quotes are generally available for
such amount, then Lender shall be entitled to determine the London Interbank
Offered Rate for any such LIBOR Rate Option by estimating in its reasonable
judgment the per annum rate (described above) that would be applicable if such
quotes or offers were generally available.
"Long Term Debt" means any Indebtedness which will not mature or become
due within the next twelve (12) months.
"Materially Adverse Effect" means any act, omission, event or undertaking
which would, singly or in the aggregate, have a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), results of operations or business prospects of Borrower or any of
its Subsidiaries, (b) upon the respective ability of Borrower or any of its
Subsidiaries to perform any obligations under this Agreement or any other Loan
Document to which it is a party, or (c) the legality, validity, binding effect,
enforceability or admissibility into evidence of any Loan Document or the
ability of Lender to enforce any rights or remedies under or in connection with
any Loan Document; in any case, whether resulting from any single act,
omission, situation, status, event, or undertaking, together with other such
acts, omissions, situations, statuses, events, or undertakings.
"Maximum Rate" means the greater of (i) the "monthly ceiling" as referred
to and in effect from time to time under the provisions of Tex. Rev. Civ. Stat.
Ann. art. 5069-1.04(c), as amended, or (ii) the maximum rate of interest
permitted from day to day by any other applicable state or federal law.
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<PAGE> 14
"Money Borrowed" means, as applied to Indebtedness, (a) Indebtedness for
money borrowed, (b) Indebtedness, whether or not in any such case the same was
for money borrowed, (i) represented by notes payable and drafts accepted, that
represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid (other than trade Indebtedness) or that was issued
or assumed as full or partial payment for property, (c) Indebtedness that
constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such
by virtue of clause (f) of the definition thereof, but only to the extent that
the obligations Guaranteed are obligations that would constitute Indebtedness
for Money Borrowed.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding 6 years.
"Net Income" or "Net Loss" means, as applied to any Person, the net income
(or net loss) of such Person for the period in question after giving effect to
deduction of or provision for all operating expenses, all taxes and reserves
(including reserves for deferred taxes and all other proper deductions), all
determined in accordance with GAAP, provided that there shall be excluded (net
of tax effect): (a) the net income (or net loss) of any Person accrued prior to
the date it becomes a Subsidiary of, or is merged into or consolidated with,
the Person whose Net Income is being determined or a Subsidiary of such Person,
(b) the net income (or net loss) of any Person [excluding Subsidiaries
consolidated in accordance with GAAP] in which the Person whose Net Income is
being determined or any Subsidiary of such Person has an ownership interest,
except, in the case of net income, to the extent that any such income has
actually been received by such Person or such Subsidiary in the form of cash
dividends or similar distributions, (c) any restoration of any contingency
reserve, except to the extent that provision for such reserve was made out of
income during such period or such restoration is made within six months of the
commencement of the next fiscal year, (d) any net gains or losses on the sale
or other disposition, not in the ordinary course of business, of Investments,
Business Units and other capital assets, (e) any non-cash net gain arising from
the collection of the proceeds of any insurance policy, (f) any write-up of any
asset, and (g) any other extraordinary item as defined by GAAP.
"Net Worth" of any Person means the total shareholders' equity (including
capital stock, additional paid-in capital and retained earnings, after
deducting treasury stock) which would appear as such on a balance sheet of such
Person prepared in accordance with GAAP.
"Note" means the Revolving Credit Note made by Borrower payable to the
order of Lender evidencing the obligation of Borrower to pay the aggregate
unpaid principal amount of all Revolving Credit Loans made to it by under
substantially in the form of Exhibit A hereto, with all blanks properly
completed (and any promissory note or notes that may be issued from time to
time in substitution, renewal, extension, replacement or exchange therefor,
whether payable to the Lender or a different lender, whether issued in
connection with a Person becoming a lender after the Effective Date or
otherwise),
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"Operating Lease" means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Permitted Acquisitions" means acquisitions by the Borrower or any of its
Subsidiaries of substantially all of the business of an entity (whether by
asset acquisition or stock purchase) engaged in substantially the same business
as the Borrower or such Subsidiary, provided that (a) the total incremental
increase in Lender's Secured Obligations does not exceed $1,000,000, (b) assets
of quality and amount satisfactory to Lender are brought into the Borrowing
Base and (c) no Default exists or would result or is projected to result
therefrom.
"Permitted Guaranties" means the Guaranty of the Secured Obligations by
each of the Borrower's Subsidiaries.
"Permitted Indebtedness for Money Borrowed" means the Indebtedness listed
on Schedule 1.2 - Permitted Indebtedness.
"Permitted Investments" means: Investments of Borrower or any of its
Subsidiaries in: (i) negotiable certificates of deposit, time deposits and
banker's acceptances issued by Lender or any Affiliate of Lender or by any
United States bank or trust company having capital, surplus and undivided
profits in excess of $250,000,000, (ii) any direct obligation of the United
States of America or any agency or instrumentality thereof which has a
remaining maturity at the time of purchase of not more than one year and
repurchase agreements relating to the same, and (iii) sales on credit in the
ordinary course of business on terms customary in the industry.
"Permitted Liens" means: (a) Liens securing taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, but (i) in all cases, only if payment shall
not at the time be required to be made in accordance with Section 8.4, and (ii)
in the case of warehousemen or landlords controlling locations where Inventory
is located, only if such liens have been waived or subordinated to the Security
Interest in a manner satisfactory to Lender; (b) Liens consisting of deposits
or pledges made in the ordinary course of business in connection with, or to
secure payment of, obligations under workers' compensation, unemployment
insurance or similar legislation or under surety or performance bonds, in each
case arising in the ordinary course of business; (c) Purchase Money Liens
securing Permitted Purchase Money Indebtedness; (d) Liens of Lender arising
under this Agreement and the other Loan Documents; and (e) Liens shown on
Schedule 5.1(h).
"Permitted Purchase Money Indebtedness" means Purchase Money Indebtedness
secured only by Purchase Money Liens and Capitalized Lease Obligations,
incurred by Borrower or any of its Subsidiaries after the Agreement Date,
subject to a maximum increase of $400,000 annually.
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"Person" means an individual, corporation, partnership, association, trust
or unincorporated organization or a government or any agency or political
subdivision thereof.
"Prime Rate" means during the period from the Effective Date through the
last day of the month in which the Effective Date falls, the per annum rate of
interest publicly announced by Lender at its principal office as its "prime
rate" as in effect on the Effective Date, and thereafter during each succeeding
calendar month, means such "prime rate" as in effect on the last Business Day
of the immediately preceding calendar month. Any change in an interest rate
resulting from a change in the Prime Rate shall become effective as of 12:01
a.m. on the first day of the month following the month in which such change was
announced. The Prime Rate is a reference used by Lender in determining interest
rates on certain loans and is not intended to be the lowest rate of interest
charged on any extension of credit to any debtor.
"Prime Rate Loans" means Revolving Credit Loans bearing interest at the
Prime Rate, plus the Applicable Margin in accordance with Section 31(a).
"Prior Loan Agreement" means that certain Loan Agreement dated March 8,
1994, as amended by (a) that certain First Amendment to Loan Agreement dated
October 27, 1994, (b) that certain Second Amendment to Loan Agreement dated
March 27, 1995, and (c) that certain Third Amendment to Loan Agreement dated
February 20, 1996.
"Purchase Money Indebtedness" means Indebtedness created to finance the
payment of all or any part of the purchase price (not in excess of the fair
market value thereof) of any tangible asset (other than Inventory) and incurred
at the time of or within 10 days prior to or after the acquisition of such
tangible asset.
"Purchase Money Lien" means any Lien securing Purchase Money Indebtedness,
but only if such Lien shall at all times be confined solely to the tangible
asset (other than Inventory) the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien.
"Receivables" means and includes, as to any Person, all of such Person's
then owned or existing and future acquired or arising (a) rights to the payment
of money or other forms of consideration of any kind (whether classified under
the UCC as accounts, contract rights, chattel paper, general intangibles or
otherwise) including, but not limited to, accounts receivable, letters of
credit and the right to receive payment thereunder, chattel paper, tax refunds,
insurance proceeds, Contract Rights, notes, drafts, instruments, documents,
acceptances and all other debts, obligations and liabilities in whatever form
from any Person and guaranties, security and Liens securing payment thereof,
(b) goods, whether now owned or hereafter acquired, and whether sold,
delivered, undelivered, in transit or returned, which may be represented by, or
the sale or lease of which may have given rise to, any such right to payment or
other debt, obligation or liability, and (c) cash and non-cash proceeds of any
of the foregoing. Notwithstanding the foregoing, the definition of
"Receivables" shall not include money received as proceeds from the sale of
capital stock or securities of the Borrower or any Subsidiary.
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"Related Company" means, as to any Person, any (a) corporation which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as such Person, (b) partnership or other trade or
business (whether or not incorporated) under common control (within the meaning
of Section 414(c) of the Code) with such Person, or (c) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
such Person or any corporation described in clause (a) above or any
partnership, trade or business described in clause (b) above.
"Restricted Distribution" by any Person means (a) its retirement,
redemption, purchase, or other acquisition for value of any capital stock or
other equity securities or partnership interests issued by such Person, (b) the
declaration or payment of any dividend or distribution on or with respect to
any such securities or partnership interests, (c) any loan or advance by such
Person to, or other investment by such Person in, the holder of any of such
securities or partnership interests, and (d) any other payment by such Person
in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption, repurchase or prepayment or
other retirement, prior to the stated maturity thereof or prior to the due date
of any regularly scheduled installment or amortization payment with respect
thereto, of any Indebtedness of a Person (other than the Secured Obligations
and trade debt), and (b) the payment by any Person of the principal amount of
or interest on any Indebtedness (other than trade debt) owing to an Affiliate
of such Person.
"Revolving Credit Facility" means the Principal sum of $18,000,000.
"Revolving Credit Loan" means any loan made to Borrower pursuant to
Section 2.1, as well as all such Revolving Credit Loans collectively, and any
and all renewals, extensions, modifications, or replacements thereof.
"St. James Note" means that certain promissory note in the amount of
$1,400,000 dated January 24, 1997 executed by ACR Group, Inc. and made payable
to St. James Capital Partners, L.P. and subordinated to Lender.
"Schedule of Inventory" means a schedule delivered by Borrower to Lender
pursuant to the provisions of Section 7.14(b).
"Schedule of Receivables" means a schedule delivered by Borrower to Lender
pursuant to the provisions of Section 7.14(a).
"Secured Obligations" means, in each case whether now in existence or
hereafter arising, (a) the principal of and interest and premium, if any, on
the Revolving Credit Loans, (b) all reimbursement and other obligations
relating to Letters of Credit, and (c) all indebtedness, liabilities,
obligations, overdrafts, covenants and duties of Borrower to Lender or any
Affiliate of Lender of every kind, nature and description, direct or indirect,
absolute or contingent, due
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or not due, contractual or tortious, liquidated or unliquidated and whether or
not evidenced by any note and whether or not for the payment of money under or
in respect of this Agreement, the Note or any of the other Loan Documents.
"Security Documents" means this Agreement and each of (a) the Existing
Borrower Security Agreement, (b) the Existing Guarantor Security Agreements,
(c) the Financing Statements, and (d) each other writing executed and delivered
by any Person securing the Secured Obligations or evidencing such security.
"Security Interest" means the Liens of Lender on and in the Collateral
effected hereby or by any of the Security Documents or pursuant to the terms
hereof or thereof.
"Subordinated Indebtedness" means any Indebtedness for money borrowed of
the Borrower or any of its Subsidiaries which is subordinated to the Secured
Obligations on terms and conditions acceptable to Lender in its sole
discretion.
"Subsidiary" when used to determine the relationship of a Person to
another Person, means a Person of which an aggregate of 50% or more of the
stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person or by one or more
Subsidiaries of such other Person or by such other Person and one or more
Subsidiaries of such Person, (i) if the holders of such stock or other
ownership interests (A) are ordinarily, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or other
individuals performing similar functions) of such Person, even though the right
so to vote has been suspended by the happening of such a contingency, or (B)
are entitled, as such holders, to vote for the election of a majority of the
directors (or individuals performing similar functions) of such Person, whether
or not the right so to vote exists by reason of the happening of a contingency,
or (ii) in the case of such other ownership interests, if such ownership
interests constitute a majority voting interest.
"Tangible Net Worth" means, as applied to any Person, the Net Worth of
such Person plus Subordinated Debt at the time in question, after deducting
therefrom the amount of all intangible items reflected therein, including all
unamortized debt discount and expense, unamortized research and development
expense, unamortized deferred charges, goodwill, Intellectual Property,
unamortized excess cost of investment in Subsidiaries over equity at dates of
acquisition, and all similar items which should properly be treated as
intangibles in accordance with GAAP.
"Teller Account" means an account of Lender maintained for the purpose of
receiving deposits and transfers of proceeds of Collateral (including without
limitation deposits and transfers from the Blocked Collection Account) for
application to the Obligations.
"Termination Date" means the earlier of (a) August 31, 2000 or such later
date to which the termination of the Revolving Credit Facility shall be
extended pursuant to Section
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2.5, and (b) the date on which all Secured Obligations shall have been
irrevocably paid in full and the Revolving Credit Facility terminated.
"Termination Event" means (a) a "Reportable Event" as defined in Section
4043(b) of ERISA, but excluding any such event as to which the provision for 30
days' notice to the PBGC is waived under applicable regulations, (b) the filing
of a notice of intent to terminate a Benefit Plan or the treatment of a Benefit
Plan amendment as a termination under Section 4041 of ERISA, or (c) the
institution of proceedings to terminate a Benefit Plan by the PBGC under
Section 4042 of ERISA or the appointment of a trustee to administer any Benefit
Plan.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the State of Texas.
"Unfunded Vested Accrued Benefits" means, with respect to any Benefit Plan
at any time, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Benefit Plan exceeds (b) the fair market
value of all Benefit Plan assets allocable to such benefits, as determined
using such reasonable actuarial assumptions and methods as are specified in the
Schedule B (Actuarial Information) to the most recent Annual Report (Form 5500)
filed with respect to such Benefit Plan.
1.2 Other Referential Provisions.
(a) All terms in this Agreement, the Exhibits and Schedules hereto
shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
(b) Except as otherwise expressly provided herein, all accounting
terms not specifically defined or specified herein shall have the meanings
generally attributed to such terms under GAAP including, without
limitation, applicable statements and interpretations issued by the
Financial Accounting Standards Board and bulletins, opinions,
interpretations and statements issued by the American Institute of
Certified Public Accountants or its committees.
(c) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the
singular.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement.
(e) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither
limit nor amplify the provisions of this Agreement, and all references in
this Agreement to Articles, Sections, Subsections,
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paragraphs, clauses, subclauses, Schedules or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause or subclause
of, or Schedule or Exhibit attached to, this Agreement, unless specific
reference is made to the articles, sections or other subdivisions or
divisions of, or to schedules or exhibits to, another document or
instrument.
(f) Each definition of a document in this Agreement shall include
such document as amended, modified, supplemented or restated from time to
time in accordance with the terms of this Agreement.
(g) Except where specifically restricted, reference to a party to a
Loan Document includes that party and its successors and assigns permitted
hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time is referred
to in this Agreement or in any other Loan Document, such time shall be the
local time in the city in which the principal office of Lender is located.
(i) Whenever the phrase "to the knowledge of Borrower" or words of
similar import relating to the knowledge of Borrower are used herein, such
phrase shall mean and refer to (i) the actual knowledge of the President
or chief financial officer or (ii) the knowledge that such officers would
have obtained if they had engaged in good faith in the diligent
performance of their duties, including the making of such reasonable
specific inquiries as may be necessary of the appropriate persons in a
good faith attempt to ascertain the accuracy of the matter to which such
phrase relates.
(j) The terms accounts, chattel paper, documents, equipment,
instruments, general intangibles and inventory, as and when used (without
being capitalized) in this Agreement or the Security Documents, shall have
the meanings given those terms in the UCC.
1.3 Exhibits and Schedules. All Exhibits and Schedules attached hereto are
by reference made a part hereof.
REVOLVING CREDIT FACILITY
2.1 Revolving Credit Loans. Upon the terms and subject to the conditions
of, and in reliance upon the representations and warranties made under, this
Agreement, Lender shall make Revolving Credit Loans to Borrower from time to
time from the Effective Date to the Termination Date, as requested by Borrower
in accordance with the terms of Section 2.2, in an aggregate principal amount
outstanding not to exceed at any time the lesser of (a) the Revolving Credit
Facility minus the Letter of Credit Reserve or (b) the Borrowing Base. It is
expressly understood and agreed that Lender may and at present intends to use
the lesser of the amounts referred to in the foregoing subclauses (a) and (b)
as a maximum ceiling on Revolving
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Credit Loans; provided, however, that it is agreed that should Revolving Credit
Loans exceed the ceiling so determined or any other limitation set forth in
this Agreement, such Revolving Credit Loans shall nevertheless constitute
Secured Obligations and, as such, shall be entitled to all benefits thereof and
security therefor. The principal amount of any Revolving Credit Loan which is
repaid may be reborrowed by Borrower in accordance with the terms of this
Section 2.1. Lender is hereby authorized to record each repayment of principal
of the Revolving Credit Loans in its books and records, such books and records
constituting prima facie evidence of the accuracy of the information contained
therein.
2.2 Manner of Borrowing Revolving Credit Loans. Borrowings of the
Revolving Credit Loans shall be made as follows:
(a) Requests for Borrowing. A request for a borrowing shall be made,
or shall be deemed to be made, in the following manner:
(i) Borrower shall give Lender notice of each request for a
Revolving Credit Loan, therein specifying the amount of the proposed
borrowing and the proposed borrowing date, as provided herein. With
respect to the Initial Loan, Borrower shall give Lender reasonable
prior notice sufficient to allow Lender to confirm Borrower's
compliance with the conditions required by Section 4.1. With respect
to all subsequent Revolving Credit Loans, Borrower shall give notice
to Lender prior to 11:00 a.m., Houston, Texas time on the proposed
borrowing date. Any notice of a request for a Revolving Credit Loan
which is received by Lender after 11:00 a.m., Houston, Texas time
shall be deemed to be received on the next succeeding Business Day.
(ii) whenever a check is presented to Lender for payment against
the Controlled Disbursement Account in an amount greater than the
then available balance in such account, such presentation shall be
deemed to be a request for a borrowing on the date of such notice in
an amount equal to the excess of such check over such available
balance;
(iii) If any Secured Obligation becomes due and payable at any
time prior to the time otherwise provided by Section 2.3, or as
required by Lender pursuant to Section 11.2, then Borrower shall be
deemed to have requested Lender to make a Revolving Credit Loan in
the amount of such Secured Obligation, and Lender in its sole
discretion may make such Revolving Credit Loan, in which event such
Secured Obligation shall be deemed paid and the amount thereof shall
be included as a part of the Revolving Credit Loans (provided,
however, that Lender shall have no obligation to make any such
Revolving Credit Loan).
(iv) pursuant to Section 2.6(b).
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(b) Disbursement of Loans. Borrower hereby irrevocably authorizes
Lender to disburse the proceeds of each borrowing requested, or deemed to
be requested, pursuant to this Section 2.2 as follows: (i) the proceeds of
each borrowing requested under Section 2.2(a)(i) or (ii) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, (A) in the case of the initial borrowing, in
accordance with the terms of the letter from Borrower to Lender referred
to in Section 4.1(a)(15), and (B) in the case of each subsequent
borrowing, by credit to the Controlled Disbursement Account or to such
other account as may be agreed upon by Borrower and Lender from time to
time; and (ii) the proceeds of each borrowing requested under Section
2.2(a)(iii) or (iv) shall be disbursed by Lender by way of direct payment
of the relevant principal, interest or other Secured Obligation, as the
case may be.
2.3 Repayment of Revolving Credit Loans. The Revolving Credit Loans will
be repaid as follows: (a) the outstanding principal amount of all the Revolving
Credit Loans is due and payable, and shall be repaid by Borrower in full
together with accrued and unpaid interest on the amount repaid to the date of
repayment, on the Termination Date; (b) if at any time the aggregate unpaid
principal amount of the Revolving Credit Loans then outstanding exceeds the
lesser of the amounts referred to in clauses (a) and (b) of Section 2.1,
Borrower shall repay the Revolving Credit Loans in an amount sufficient to
reduce the aggregate unpaid principal amount of such Loans by an amount equal
to such excess, together with accrued and unpaid interest on the amount repaid
to the date of repayment; and (c) Borrower hereby instructs Lender to repay the
Revolving Credit Loans outstanding on any day in an amount equal to the amount
received by Lender on such day pursuant to Section 7.1(e). Any repayments under
this Section 2.3 shall be applied first in reduction of unpaid principal
accruing interest according to the interest rate as prescribed by Section
3.1(a) and thereafter to unpaid principal, if any, accruing interest according
to the LIBOR Contract Rate as provided by Section 3.1(b), in Lender's
discretion. Except as results from application of proceeds of Receivables as
provided by Section 7.1(e), prepayment of a Eurodollar Loan shall not be
permitted without the prior written consent of Lender. Should any prepayment of
a Eurodollar Loan, or any portion thereof, occur (whether as a result of
applications under Section 7.1(e) or by consent of Lender, or otherwise), then
within 15 days of Lender's request therefor, Borrower shall pay to Lender any
loss or expense which Lender may incur or sustain as a result of any such
prepayment. Lender's statement of the amount of such loss or expense, prepared
in reasonable detail by Lender and presented to Borrower, shall be conclusive
and binding for all purposes, absent manifest error, gross negligence or bad
faith in computation. Calculation of such amounts shall be made as though
Lender shall have actually funded or committed to fund the relevant Eurodollar
Loan through the purchase of an underlying deposit in an amount equal to the
amount of such Eurodollar Loan and having a maturity comparable to the related
Interest Period (provided, however, that it is understood that Lender may fund,
or make provision for funding, any Eurodollar Loan in any manner as Lender may
determine in its discretion).
2.4 Note. Lender's Revolving Credit Loans and the obligation of Borrower
to repay such Revolving Credit Loans shall also be evidenced by a single Note
payable to the order of
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Lender. Such Note shall be dated on or before the date of funding of the
Initial Loan hereunder and be duly and validly executed and delivered by
Borrower.
2.5 Extension of Facility. If Borrower wishes to obtain an extension of
the then effective Termination Date, Borrower shall provide Lender with a
written notice to such effect not less than 60 days prior to the then effective
Termination Date. Lender may, in its sole and absolute discretion, by written
notice to Borrower extend the Revolving Credit Facility for a period of one
year from the then effective Termination Date. In the event of any such
extension, Borrower shall execute such documentation as Lender may request in
order to evidence such extension and preserve and protect Lender's rights under
the Loan Documents.
2.6 Letters of Credit.
(a) Upon the request of Borrower from time to time, Issuer shall in
accordance with the provisions of this Section 2.6 issue one or more
Letters of Credit up to an aggregate amount available to be drawn (plus
the aggregate amount of unreimbursed drawings under all Letters of Credit)
at any time not to exceed the Letter of Credit Facility; provided, that
(1) all Letter of Credit Documents in connection with each Letter of
Credit shall be satisfactory to Issuer in its sole discretion, (2) no
Letter of Credit shall be issued if, after issuance thereof, the sum of
the aggregate principal amount of Revolving Credit Loans outstanding,
plus the aggregate amount available to be drawn under all Letters of
Credit, plus the aggregate amount of any unreimbursed drawings under
Letters of Credit, would exceed the lesser of (A) the Revolving Credit
Facility and (B) the Borrowing Base plus the Letter of Credit Reserve, (3)
each Letter of Credit shall be a standby letter of credit issued to a
beneficiary and for a purpose acceptable to Lender in its sole discretion,
and (4) no Letter of Credit shall have an initial term longer than one
year or an expiration date later than the Termination Date.
(b) Whenever a drawing is made under a Letter of Credit, unless
Borrower otherwise promptly pays Issuer its reimbursement obligation
therefor, Borrower shall be deemed to have irrevocably requested Lender to
make a Revolving Credit Loan in the amount of such reimbursement
obligation, and upon Lender's funding of such Revolving Credit Loan, such
reimbursement obligation shall be deemed paid and the amount thereof shall
be included as a part of the Revolving Credit Loans.
(c) The issuance and negotiation of Letters of Credit shall be
governed by the Uniform Customs and Practices for Documentary Credits
(1993 Revision), as published in the International Chamber of Commerce
Uniform Customs and Practices, Publication No. 500 or, at Lender's option,
such other policies and practices as may be followed by Lender with
respect to similar letters of credit at the time.
2.7 Borrowing Base. The advance rates specified in this Agreement for
determination of the Borrowing Base may be decreased from time to time based
upon such considerations as Lender in good faith may deem appropriate in its
reasonable discretion.
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Advance rates from time to time used by Lender in calculating the Borrowing
Base are for the sole purpose of determining the maximum amount of Revolving
Credit Loans that may be outstanding from time to time under this Agreement,
and shall not be evidentiary of or binding upon Lender with respect to the
market value or liquidation value of any Collateral. Lender shall have the
right at any time in its good faith discretion to establish a reserve in
reduction of the Borrowing Base in respect of costs, expenses, liens, claims,
contingencies or other potential factors which, in the event they should occur,
could adversely affect or otherwise reduce the anticipated net amount of timely
collections in payment of Eligible Receivables or the anticipated amount of
proceeds which could be realized upon liquidation of Eligible Inventory.
Funding of Revolving Credit Loans hereunder shall at all times remain subject
to confirmation of existence and acceptability of Eligible Receivables and
Eligible Inventory, and the Borrowing Base. Any request for a Revolving Credit
Loan which, if funded, would exceed the Availability may be declined by Lender
in its sole discretion without prior notice.
ARTICLE 3 - GENERAL REVOLVING CREDIT LOAN PROVISIONS
3.1 Interest.
(a) Borrower shall pay interest on the unpaid principal amount of
each Revolving Credit Loan for each day from the day such Revolving Credit
Loan is made until such Revolving Credit Loan is due (whether at maturity,
by reason of acceleration or otherwise) at a rate per annum equal to the
lesser of (i) the sum of the Prime Rate and the Applicable Margin or (ii)
the Maximum Rate, payable monthly in arrears on the first day of each
calendar month commencing August 1, 1997.
(b) Subject to the terms and provisions of this Agreement, and in
lieu of the interest rate otherwise applicable under Section 3.1(a),
Borrower shall have the option to elect a rate per annum equal to the
lesser of (i) the LIBOR Contract Rate or (H) the Maximum Rate as being
applicable to any Revolving Credit Loan during any Interest Period,
provided, that any such Eurodollar Loan shall be in the minimum amount of
$500,000, and no more than five (5) separate Eurodollar Loans may exist in
the aggregate at any one time. Borrower may make such election at any time
by written notice, in form satisfactory to Lender, delivered to Lender no
later than two (2) Eurodollar Business Days prior to the beginning of the
Interest Period to which such election shall be applicable, therein
stating (i) the Interest Period selected, and the date such Interest
Period is. to begin, and (ii) the principal amount of the Revolving Credit
Loan to be subject to such election. Any such written notice of election
shall be irrevocable by Borrower. Accrued interest on the principal amount
of each Eurodollar Loan shall be payable monthly in arrears on the first
day of each calendar month and on the last day of the Interest Period
applicable to such tranche. If, with respect to any election by Borrower
under this Section 3.1(b), Lender determines that deposits in United
States Dollars, in applicable amounts, are not being offered to Lender, or
other major United States banks of comparable size to Lender, in the
London interbank
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Eurodollar market for the applicable Interest Period, or Lender determines
that the LIBOR Contract Rate will not adequately and fairly reflect the
cost to Lender of maintaining or funding the applicable portion of the
Eurodollar Loans relative to such election for such Interest Period, then
at Lender's option, Lender may give notice to Borrower and thereby
suspend Borrower's option to elect the LIBOR Contract Rate, pending any
subsequent reinstatement in Lender's discretion, and with respect to any
such election then applicable to any portion of the Eurodollar Loans,
require that such portion either be repaid in full (in which event any
amounts otherwise payable in the event of prepayment of a Eurodollar Loan
as provided under Section 2.3 shall not be applicable) or converted to
bear interest according to the interest rate provided in Section 3.1(a).
All unpaid principal, if any, of Revolving Credit Loans with respect to
which no such election is made, as provided herein, shall automatically be
deemed to be subject to, and shall accrue interest at, the interest rate
as provided by Section 3.1(a).
(c) Borrower shall pay interest on the unpaid principal amount of
each Secured Obligation other than a Revolving Credit Loan for each day
from the day such Secured Obligation becomes due and payable until such
Secured Obligation is paid at the rate per annum applicable to Revolving
Credit Loans, payable on demand.
(d) From and after the occurrence of an Event of Default, the unpaid
principal amount of each Secured Obligation shall bear interest until paid
in full (or, if earlier, until such Event of Default is cured or waived in
writing by Lender) at a rate per annum equal to the Default Margin plus
the rate otherwise in effect under Section 3.1(a), (b) or (c), payable on
demand. The interest rate provided for in this Section 3.1(d) shall
continue to accrue at such rate during any proceeding described in Section
11.1(g) or (h). It is agreed that any judgement entered by a court in
favor of Lender against Borrower for payment of the Secured Obligations,
or any part thereof, shall provide for post-judgment interest on the
amount thereof at a rate equal to the Maximum Rate.
(e) The interest rates provided for in Sections 3.1(a), (b) and (c)
shall be computed on the basis of a year of 360 days and the actual number
of days elapsed.
(f) It is not intended by Lender, and nothing contained in this
Agreement or the Note shall be deemed, to establish or require the payment
of a rate of interest in excess of the Maximum Rate. If, in any month, the
Effective Interest Rate, absent such limitation, would have exceeded the
Maximum Rate, then the Effective Interest Rate for that month shall be the
Maximum Rate, and if, in future months, the Effective Interest Rate would
otherwise be less than the Maximum Rate, then the Effective Interest Rate
shall remain at the Maximum Rate until such time as the amount of interest
paid hereunder equals the amount of interest which would have been paid if
the same had not been limited by the Maximum Rate. In this connection, in
the event that, upon payment in full of the Secured Obligations, the total
amount of interest paid or accrued under the terms of this Agreement is
less than the total amount of interest which would have been paid or
accrued if the Effective Interest Rate had at all times been in effect,
then
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<PAGE> 26
Borrower shall, to the extent permitted by applicable law, pay to Lender
an amount equal to the difference between (i) the lesser of (A) the amount
of interest which would have been charged if the Maximum Rate had, at all
times, been in effect and (B) the amount of interest which would have
accrued had the Effective Interest Rate, at all times, been in effect, and
(ii) the amount of interest actually paid or accrued under this Agreement.
In the event Lender receives, collects or applies as interest any sum in
excess of the Maximum Rate, such excess amount shall be applied to the
reduction of the principal balance of the applicable Secured Obligation,
and, if no such principal is then outstanding, such excess or part thereof
remaining shall be paid to Borrower.
3.2 Fees. Subject in all respects to the provisions of Section 12.19,
Borrower agrees as follows:
(a) Closing Fee. On the Effective Date, Borrower shall pay to Lender
a closing fee in the amount of $60,000 in connection with the
establishment of the Revolving Credit Facility and in consideration of the
making of Revolving Credit Loans under this Agreement and in order to
compensate Lender for the costs associated with structuring, processing,
approving and closing the Revolving Credit Facility and the Revolving
Credit Loans, but excluding expenses for which Borrower has agreed
elsewhere in this Agreement to reimburse Lender.
(b) Administration Fee. For services performed by Lender in
connection with its continuing administration hereof, Borrower shall pay
to Lender a fee of $4,200 per quarter, payable quarterly in arrears on the
last day of December, March, June and September, commencing on September
30, 1997 and continuing so long as any Revolving Credit Loan shall remain
outstanding or the Revolving Credit Facility shall not have been
terminated.
(c) Letter of Credit Fees. As consideration for the issuance by
Lender of a Letter of Credit, Borrower agrees to pay to Lender all
applicable Letter of Credit Fees. Such fees shall be payable to Lender in
advance on the date of issuance of each Letter of Credit and shall be
calculated according to the face amount of such Letter of Credit based on
its stated term. Letter of Credit Fees shall be as follows: one and
one-half percent (1.5%) per annum of the face amount of each Letter of
Credit subject to payment of Lender's applicable minimum fee for issuance
of letters of credit. Such fees shall be payable to Lender in advance on
the date of issuance of each Letter of Credit and shall be calculated
according to the face amount of such Letter of Credit based on its stated
term.
(d) General. All fees shall be fully earned by Lender when due and
payable and, except as otherwise set forth herein, shall not be subject to
refund or rebate. All fees are for compensation for services and are not,
and shall not be deemed to be, interest or a charge for the use of money.
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<PAGE> 27
3.3 Manner Of Payment.
(a) Each payment (including prepayments) by Borrower on account of
the principal of or interest on the Revolving Credit Loans or of any fee
or other amounts payable to Lender under this Agreement or the Note shall
be made not later than [1:30 p.m.], Dallas, Texas time on the date
specified for payment under this Agreement (or if such day is not a
Business Day, the next succeeding Business Day) to Lender at Lender's
Office, in Dollars, in immediately available funds and shall be made
without any setoff, counterclaim or deduction whatsoever.
(b) Borrower hereby irrevocably authorizes Lender and each Affiliate
of Lender to charge any account of Borrower maintained with Lender or such
Affiliate with such amounts as may be necessary from time to time to pay
any Secured Obligations which are not paid when due.
3.4 Statements Of Account. Lender will account to Borrower within 30 days
after the end of each calendar month with a statement of Revolving Credit
Loans, charges and payments made pursuant to this Agreement during such
calendar month, and such account rendered by Lender shall be deemed an account
stated as between Borrower and Lender and shall be deemed final, binding and
conclusive unless Lender is notified by Borrower in writing to the contrary
within 60 days after the date such account is delivered to Borrower, save for
manifest error. Any such notice shall be deemed an objection only to those
items specifically objected to therein. Failure of Lender to render such
account shall in no way affect its rights hereunder.
3.5 Termination Of Agreement.
(a) Termination Date. The amount of the Revolving Credit Facility
shall be automatically reduced to zero on the Termination Date.
(b) Termination of Agreement. Borrower shall have the right, at any
time, to terminate this Agreement upon not less than 60 Business Days'
prior written notice to Lender of Borrower's intention to terminate this
Agreement, which notice shall specify the effective date of such
termination. On the date specified in such notice, such termination shall
be effected; PROVIDED, HOWEVER, that Borrower shall, on or prior to such
day, pay to Lender, in same day funds, an amount equal to the aggregate
amount of all Revolving Credit Loans outstanding on such date, together
with accrued interest thereon, all fees payable pursuant to SECTION 3.2
accrued from the date last paid through the effective date of termination,
any amounts payable to Lender pursuant to the other provisions of this
Agreement, including, without limitation, SECTIONS 11.2, 12.12 and 12.13,
any and all other Secured Obligations then outstanding, an amount equal to
the Letter of Credit Reserve to be held by Lender as cash collateral
security for the payment of and to be applied to the payment of any
amounts which may thereafter become due with respect to any Letter of
Credit, provide Lender with an indemnification agreement
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in form and substance satisfactory to Lender with respect to returned and
dishonored items and such other matters as Lender shall require and, if
the termination occurs prior to the Termination Date in effect at such
time, an early termination fee computed as follows: (A) three percent
(3.0%) of the amount of the Revolving Credit Facility if such termination
occurs prior to August 31, 1998, (B) two percent (2.0%) of the amount of
the Revolving Credit Facility if such termination occurs after August 31,
1998 but prior to August 31, 1999, and (C) the greater of $90,000 or
one-half of one percent (0.5%) of the amount of the Revolving Credit
Facility if such termination occurs after August 31, 1999 and prior to the
Termination Date. No early termination fee will apply if the termination
is financed by another division of Lender.
3.6 Increased Costs and Reduced Returns. Borrower agrees that if any law
now or hereafter in effect and whether or not presently applicable to Lender or
any request, guideline or directive of any Governmental Authority (whether or
not having the force of law and whether or not failure to comply therewith
would be unlawful) or the interpretation or administration thereof by any
Governmental Authority, shall either (a)(i) impose, affect, modify or deem
applicable any reserve, special deposit, capital maintenance or similar
requirement against any Revolving Credit Loan, (ii) impose on Lender any other
condition regarding any Revolving Credit Loan, this Agreement, the Note or the
facilities provided hereunder, or (iii) result in any requirement regarding
capital adequacy (including any risk-based capital guidelines) affecting.
Lender being imposed or modified or deemed applicable to Lender or (b) subject
Lender to any taxes on the recording, registration, notarization or other
formalization of the Revolving Credit Loans or the Note, and the result of any
event referred to in clause (a) or (b) above shall be to increase the cost to
Lender of making, funding or maintaining any Revolving Credit Loan or to reduce
the amount of any sum receivable by Lender or Lender's rate of return on
capital with respect to any Revolving Credit Loan to a level below that which
Lender could have achieved but for such imposition, modification or deemed
applicability (taking into consideration Lender's policies with respect to
capital adequacy) by an amount deemed by Lender (in the exercise of its good
faith discretion) to be material, then, upon demand by Lender, Borrower shall
immediately pay to Lender additional amounts which shall be sufficient to
compensate Lender for such increased cost, tax or reduced rate of return. A
certificate of Lender to Borrower claiming compensation under this SECTION 3.6
shall be final, conclusive and binding on all parties for all purposes in the
absence of manifest error. Such certificate shall set forth the nature of the
occurrence giving rise to such compensation, the additional amount or amounts
to be paid to it hereunder and the method by which such amounts were
determined. In determining such amount, Lender may use any reasonable averaging
and attribution methods.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 Conditions Precedent To Initial Loan. Notwithstanding any other
provision of this Agreement, Lender's obligation to make the Initial Loan is
subject to the fulfillment of each of the following conditions prior to or
contemporaneously with the making of such Revolving Credit Loan:
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(a) Closing Documents. Lender shall have received each of the
following documents, all of which shall be satisfactory in form and
substance to Lender and its counsel:
(1) this Agreement, duly executed and delivered by Borrower;
(2) the Note, dated the Effective Date and duly executed and
delivered by Borrower;
(3) the Guaranty Agreements, each dated the Effective Date and
duly executed and delivered by each Guarantor;
(4) the Contribution and Indemnification Agreement;
(5) certified copies of the articles of incorporation and
by-laws of Borrower and each Guarantor as in effect on the Effective
Date;
(6) certified copies of all corporate action, including
stockholder approval, if necessary, taken by Borrower and each
Guarantor to authorize the execution, delivery and performance of
each of the Loan Documents to which such Person is a party and, with
respect to the Borrower, the borrowings under this Agreement;
(7) certificates of incumbency and specimen signatures with
respect to each of the officers of Borrower and such Guarantor who is
authorized to execute and deliver each of the Loan Documents on
behalf of such Person or any document, certificate or instrument to
be delivered in connection with such Loan Documents and, with respect
to the Borrower, to request borrowings under this Agreement;
(8) a certificate evidencing the good standing of Borrower and
each Guarantor in the jurisdiction of its incorporation and in each
other jurisdiction in which it is qualified as a foreign corporation
to transact business;
(9) any necessary new Financing Statements and any necessary
modifications or amendments to existing Financing Statements duly
executed and delivered by Borrower and certain Guarantors, and
evidence satisfactory to Lender that such Financing Statements or
amendments to the Financing Statements have been filed in each
jurisdiction where such filing may be necessary or appropriate to
perfect the Security Interest;
(10) any necessary modifications to existing subordination and
intercreditor agreements, which shall be satisfactory to Lender, in
its discretion;
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(11) landlord's waiver and consent agreements duly executed on
behalf of each landlord of real property on which any Collateral is
located;
(12) mortgagee's waiver and consent agreements duly executed
on behalf of each mortgagee of real property on which any Collateral
is located;
(13) a Schedule of Inventory and a Schedule of Receivables, each
prepared as of a recent date;
(14) certificates or binders of insurance relating to each of
the policies of insurance covering any of the Collateral together
with loss payable clauses which comply with the terms of Section
7.9(b).
(15) such Agency Account Agreements as shall be required by
Lender duly executed by the applicable Clearing Bank and Borrower;
(16) a Borrowing Base Certificate satisfactory to Lender duly
executed and delivered by the chief financial officer of Borrower;
(17) a letter from Borrower to Lender requesting the Initial
Loan and specifying the method of disbursement;
(18) copies of all the financial statements referred to in
Section 5.1(m) and meeting the requirements thereof;
(19) a consolidated and consolidating balance sheet of Borrower
and its Subsidiaries prepared by Borrower on a pro forma basis,
giving effect to the transactions contemplated by this Agreement and
setting forth the assumptions on which such balance sheet was
prepared, together with a restatement, to the extent necessary, of
such balance sheet to reflect the fair saleable value of the assets
of Borrower and its Subsidiaries; forecasted consolidated financial
statements consisting of balance sheets, cash flow statements and
income statements of Borrower, giving effect to the transactions
contemplated by this Agreement and reflecting projected borrowings
hereunder and setting forth the assumptions on which such forecasted
financial statements were prepared, and prepared on a monthly basis
for the first 12 months, and such other evidence as Lender shall
require supporting the representation and warranty of Borrower set
forth in Section 5.1(r);
(20) audited consolidated financial statements of the Borrower
and its Subsidiaries for the fiscal year ended February 28, 1997,
consisting of balance sheets, statements of income, expenses and
retained earnings and statements of cash flow, which financial
statements shall reflect no material adverse change since the draft
copy delivered to Lender.
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(21) a certificate of the President of Borrower stating that, to
the best of his knowledge and based on an examination sufficient to
enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct as of the Effective Date, both with
and without giving effect to the Revolving Credit Loans to be made at
such time and the application of the proceeds thereof, and (b) no
Default or Event of Default exists;
(22) a signed opinion of Robert D. Remy, counsel for Borrower
and the Guarantors, and such local counsel as Lender shall deem
necessary or desirable, opining as to such matters in connection with
this Agreement as Lender or its counsel may reasonably request; and
(23) copies of each of the other Loan Documents duly executed by
the parties thereto with evidence satisfactory to Lender and its
counsel of the due authorization, binding effect and enforceability
of each such Loan Document on each such party and such other
documents and instruments as Lender may reasonably request.
(24) a Pledge Agreement duly executed and accompanied by
original stock certificates and stock powers executed in blank for
ACR Supply, Inc., Total Supply, Inc. and Heating and Cooling Supply,
Inc. and other Subsidiaries as they become available.
(b) Field Audit. Lender shall have completed a field audit of the
Borrower's and the Guarantors' operations, the results of which shall be
satisfactory to Lender.
(c) No Injunctions, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any court, governmental agency or legislative body to
enjoin, restrain or prohibit or to obtain substantial damages in respect
of or which is related to or arises out of this Agreement or the
consummation of the transactions contemplated hereby or which, in Lender's
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement.
(d) Material Adverse Change. As of the Effective Date, there shall
not have occurred any change which, in Lender's sole discretion, has had
or may have a Materially Adverse Effect as compared to the condition of
Borrower and its Subsidiaries as a whole presented to Lender by the most
recent audited consolidated financial statements of Borrower and its
Subsidiaries described in Section 5.1(m) and such other financial and
operating information delivered to Lender.
(e) Solvency. Lender shall have received evidence satisfactory to it
that, after giving effect to the Initial Loan (i) Borrower and each
Guarantor has assets (excluding
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goodwill and other intangible assets not capable of valuation) having
value, both at fair value and at present fair saleable value, greater than
the amount of its liabilities, and (ii) Borrower's and each Guarantor's
assets are sufficient in value to provide Borrower or such Guarantor with
sufficient working capital to enable it profitably to operate its business
and to meet its obligations as they become due, and (iii) Borrower and
each Guarantor has adequate capital to conduct the business in which it is
and proposes to be engaged.
(f) Security Interests. Lender shall have received evidence
satisfactory to it of (i) the release and termination of all Liens other
than Permitted Liens and (ii) of Lender's first priority perfected Lien in
the Collateral.
(g) Payment of Costs and Expenses. Borrower shall have paid all costs
and expenses, including without limitation, reasonable attorneys fees,
incurred by Lender in connection with the preparation, negotiation and
execution of this Agreement and the other Loan Documents.
4.2 All Loans. At the time of making of each Loan, including the Initial
Loan:
(a) all of the representations and warranties made or deemed to be
made under this Agreement shall be true and correct at such time both with
and without giving effect to the Revolving Credit Loans to be made at such
time and the application of the proceeds thereof, except that
representations and warranties which, by their terms, are applicable only
to the Effective Date shall be required to be true and correct only as of
the Effective Date,
(b) no Default or Event of Default shall have occurred and be
continuing, or shall result from such Revolving Credit Loan, and no other
event or condition which would be the subject of a required notice under
any of subparagraphs (c), (d) or (e) of Section 9.4 shall be in existence,
(c) the corporate actions of Borrower referred to in Section
4.1(a)(4) shall remain in full force and effect and the incumbency of
officers shall be as stated in the certificates of incumbency delivered
pursuant to Section 4.1(a)(5) or as subsequently modified and reflected in
a certificate of incumbency delivered to Lender, and
(d) Lender may, without waiving any condition, consider the
conditions specified in subparagraphs (a), (b) and (c) of this Section 4.2
fulfilled and a representation by Borrower to such effect made if no
written notice to the contrary is received by Lender from Borrower prior
to the making of the Revolving Credit Loans then to be made.
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ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BORROWER
5.1 Representations and Warranties. Borrower represents and warrants to
Lender as follows:
(a) Organization; Power; Qualification. Borrower and each of its
Subsidiaries is a corporation, duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has
the corporate power and authority to own its properties and to carry on
its business as now being and hereafter proposed to be conducted and is
duly qualified and authorized to do business in each jurisdiction in which
failure to be so qualified and authorized would have a Materially Adverse
Effect. The jurisdictions in which Borrower and each of its Subsidiaries
is qualified to do business as a foreign corporation are listed on
Schedule 5.1(a).
(b) Subsidiaries and Ownership of Borrower. Borrower has no
Subsidiaries except those which are listed on Schedule 5.1(b). The
outstanding stock of Borrower has been duly and validly issued and is
fully paid and nonassessable.
(c) Authorization of Agreement, Note, Loan Documents and Borrowing.
Borrower and each Guarantor have the right and power and has taken all
necessary action to authorize such Person to execute, deliver and perform
each of the Loan Documents to which it is a party in accordance with their
respective terms and, with respect to the Borrower, to borrow hereunder.
Each of the Loan Documents have been duly executed and delivered by the
duly authorized officers of Borrower or such Guarantor, as applicable, and
each is, or when executed and delivered in accordance with this Agreement
will be, a legal, valid and binding obligation of Borrower or such
Guarantor, as applicable, enforceable in accordance with its terms.
(d) Compliance of Agreement, Note, Loan Documents and Borrowing with
Laws, Etc. The execution, delivery and performance of the other Documents
in accordance with their respective terms and, the borrowings hereunder do
not and will not, by the passage of time, the giving of notice or
otherwise,
(i) require any Governmental Approval or violate any applicable
law relating to Borrower, any Guarantor or any of the Borrower's or
any Guarantor's Affiliates,
(ii) conflict with, result in a breach of or constitute a
default under (A) the articles or certificate of incorporation or
by-laws of Borrower or any Guarantor, (B) any indenture, agreement or
other instrument to which Borrower or any Guarantor is a party or by
which any of its property may be bound or (C) any Governmental
Approval relating to Borrower or any Guarantor, or,
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by Borrower or any Guarantor other than the Security
Interest.
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(e) Business. Borrower and each of its Subsidiaries are engaged
principally in the business described on Schedule 5.1(e).
(f) Compliance with Law: Governmental Approvals. Except as set forth
in Schedule 5.1(f), each of Borrower and each of its Subsidiaries (i) has
all Governmental Approvals, including permits relating to federal, state
and local Environmental Laws, ordinances and regulations required by any
applicable law for it to conduct its business, each of which is in full
force and effect, is final and not subject to review on appeal and is not
the subject of any pending or, to the knowledge of Borrower or such
Subsidiary, as applicable, threatened attack by direct or collateral
proceeding, and (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other applicable laws relating
to it, including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to Borrower or such
Subsidiary or its properties, except for instances of noncompliance which
would not, singly or in the aggregate, cause a Default or Event of Default
or have a Materially Adverse Effect and in respect of which adequate
reserves have been established on the books of Borrower or such
Subsidiary, as applicable.
(g) Titles to Properties. Except as set forth in Schedule 5.1(g),
each of Borrower and each of its Subsidiaries has valid and legal title to
or a valid leasehold interest in all personal property and assets used in
or necessary to the conduct of Borrower's or such Subsidiary's business,
as applicable, including, but not limited to, those reflected on the
consolidated balance sheet of Borrower and its Subsidiaries delivered
pursuant to Section 5.1(m)(ii).
(h) Liens. Except as set forth in Schedule 5.1(h), none of the
properties and assets of Borrower or any Subsidiary of Borrower is subject
to any Lien, except Permitted Liens. Other than the Financing Statements,
no financing statement under the Uniform Commercial Code of any state
which names Borrower or any Subsidiary of Borrower as debtor and which has
not been terminated has been filed in any state or other jurisdiction, and
Borrower or such Subsidiary, as applicable, has not signed any such
financing statement or any security agreement authorizing any secured
party thereunder to file any such financing statement, except to perfect
those Liens listed in Schedule 5.1(h) and Permitted Liens.
(i) Indebtedness and Guaranties. Set forth on Schedule 5.1(i) is a
complete and correct listing of all of Borrower's and each of its
Subsidiaries Indebtedness for Money Borrowed. Set forth on Schedule 10.3
is a complete and correct listing of all Guaranties. Neither Borrower nor
any Subsidiary of Borrower is in default of any material provision of any
agreement evidencing or relating to such any such Indebtedness or
Guaranty.
(j) Litigation. Except as set forth on Schedule 5.10(j), there are no
actions, suits or proceedings pending (nor, to the knowledge of Borrower,
are there any actions,
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suits or proceedings threatened, nor is there any basis therefor) against
or in any other way relating adversely to or affecting Borrower or any
Subsidiary of Borrower or any of its or any Subsidiary's property in any
court or before any arbitrator of any kind or before or by any
governmental body.
(k) Tax Return and Payments. Except as set forth on Schedule
5.1(k), all United States federal, state and local and foreign national,
provincial and local and all other tax returns of Borrower and each of its
Subsidiaries required by applicable law to be filed have been duly filed,
and all United States federal, state and local and foreign national,
provincial and local and all other taxes, assessments and other
governmental charges or levies upon Borrower or any Subsidiary of Borrower
and its property, income, profits and assets which are due and payable
have been paid, except any such nonpayment which is at the time permitted
under Section 8.4. The charges, accruals and reserves on the books of
Borrower and each of its Subsidiaries in respect of United States federal,
state and local taxes and foreign national, provincial and local taxes for
all fiscal years and portions thereof since the organization of Borrower
or such Subsidiary, as applicable are in the judgment of Borrower
adequate, and neither Borrower nor such Subsidiary, as applicable knows of
any reason to anticipate any additional assessments for any of such years
which, singly or in the aggregate, might have a Materially Adverse Effect.
(1) Burdensome Provisions. Neither Borrower nor any of its
Subsidiaries is a party to any indenture, agreement, lease or other
instrument, or subject to any charter or corporate restriction,
Governmental Approval or applicable law, compliance with the terms of
which might have a Materially Adverse Effect.
(m) Financial Statements. Borrower has furnished to Lender a copy of
(i) the consolidated and consolidating audited balance sheet of Borrower
and its Subsidiaries as at February 28, 1997, and the related statements
of income, cash flow and retained earnings for the twelve-month period
then ended and (ii) the consolidated and consolidating unaudited balance
sheet of Borrower and its Subsidiaries as at June 30, 1997, and the
related statement of income for the four-month period then ended. Such
financial statements are complete and correct and present fairly and in
all material respects in accordance with GAAP, the consolidated financial
position of Borrower and its Subsidiaries as at the dates thereof and the
results of operations of Borrower and its Subsidiaries for the periods
then ended. Except as disclosed or reflected in such financial statements,
neither Borrower nor any of its Subsidiaries had any material liabilities,
contingent or otherwise, and there were no material unrealized or
anticipated losses of Borrower or any of its Subsidiaries.
(n) Adverse Change. Since the date of the financial statements
described in clause (i) of Section 5.1(m), (i) no change in the business,
assets, liabilities, condition (financial or otherwise), results of
operations or business prospects of Borrower has
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occurred that has had, or may have, a Materially Adverse Effect, and (ii)
no event has occurred or failed to occur which has had, or may have, a
Materially Adverse Effect.
(o) Erisa. Neither Borrower nor any of its Subsidiaries nor any
Related Company maintains or contributes to any Benefit Plan other than
those listed on Schedule 5.1(o). Each Benefit Plan is in substantial
compliance with ERISA, and neither Borrower nor any of its Subsidiaries
nor any Related Company has received any notice asserting that a Benefit
Plan is not in compliance with ERISA. No material liability to the PBGC or
to a Multiemployer Plan has been, or is expected by Borrower to be,
incurred by Borrower or any of its Subsidiaries or any Related Company.
(p) Absence Of Defaults. Neither Borrower nor any of its Subsidiaries
is in default under its articles or certificate of incorporation or
by-laws, and no event or condition has occurred or exists which has not
been remedied, cured or waived (i) that constitutes a Default or an Event
of Default or (ii) that constitutes or that, with the passage of time or
giving of notice, or both, would constitute a default or event of default
by Borrower under any material agreement (other than this Agreement) or
judgment, decree or order to which Borrower or such Subsidiary, as
applicable, is a party or by which Borrower or such Subsidiary, as
applicable, or any of its properties may be bound or which would require
Borrower or such Subsidiary, as applicable, to make any payment thereunder
prior to the scheduled maturity date therefor.
(q) Accuracy and Completeness of Information. Borrower has disclosed
to Lender all material facts known to Borrower concerning the consolidated
financial condition and business operations of Borrower and its
Subsidiaries. All written information, reports and other papers and data
produced by or on behalf of Borrower and furnished to Lender were, at the
time the same were so furnished, complete and correct in all material
respects to the extent necessary to give the recipient a true and accurate
knowledge of the subject matter. No fact is known to Borrower which has
had, or may in the future have (so far as Borrower can foresee), a
Materially Adverse Effect which has not been set forth in the financial
statements or disclosure delivered prior to the Effective Date, in each
case referred to in Section 5.1(m), or in such written information,
reports or other papers or data or otherwise disclosed in writing to
Lender prior to the Effective Date. No document furnished or written
statement made to Lender by Borrower in connection with the negotiation,
preparation or execution of this Agreement or any of the Loan Documents
contains or will contain any untrue statement of a fact material to the
creditworthiness of Borrower or any of its Subsidiaries or omits or will
omit to state a material fact necessary in order to make the statements
contained therein not misleading.
(r) Solvency. In each case after giving effect to the Indebtedness
represented by the Revolving Credit Loans outstanding and to be incurred
and the transactions contemplated by this Agreement, Borrower and each of
its Subsidiaries are solvent, having assets of a fair value which exceeds
the amount required to pay its respective
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debts (including contingent, subordinated, unmatured and unliquidated
liabilities) as they become absolute and matured, and each of Borrower and
each of its Subsidiaries are able to and anticipates that it will be able
to meet its debts as they mature and has adequate capital to conduct the
business in which it is or proposes to be engaged.
(s) Status of Receivables. Each Receivable reflected in the
computations included in any Borrowing Base Certificate meets the criteria
enumerated in clauses (a) through (o) of the definition of Eligible
Receivables, except as disclosed in such Borrowing Base Certificate or as
disclosed in a timely manner in a subsequent Borrowing Base Certificate or
otherwise in writing to Lender.
(t) Chief Executive Office. The chief executive office of Borrower
and each of its Subsidiaries and the books and records relating to the
Receivables are located at the address or addresses set forth on Schedule
5.1(t); except as set forth Schedule 5.1(t), neither Borrower nor any of
its Subsidiaries has maintained its chief executive office or the books
and records relating to any Receivables at any other address at any time
during the five years immediately preceding the Agreement Date.
(u) Status of Inventory. All Inventory included in any Borrowing Base
Certificate delivered to Lender pursuant to Section 7.14(d) meets the
criteria enumerated in clauses (a) through (g) of the definition of
Eligible Inventory, except as disclosed in such Borrowing Base Certificate
or in a subsequent Borrowing Base Certificate or as otherwise specifically
disclosed in writing to Lender. All Inventory is in good condition, meets
all standards imposed by any governmental agency or department or division
thereof having regulatory authority over such goods, their use or sale,
and is currently either usable or saleable in the normal course of
Borrower's or such Subsidiary's business, as applicable, except to the
extent reserved against in the financial statements delivered pursuant to
Article 9 or as disclosed on a Schedule of Inventory delivered to Lender
pursuant to Section 7.14(b). Set forth on Schedule 5.1(u) is the (i)
address (including street, city, county and state) of each facility at
which Inventory is located, (ii) the approximate quantity in Dollars of
the Inventory customarily located at each such facility, and (iii) if the
facility is leased or is a third party warehouse or processor location,
the name of the landlord or such third party warehouseman or processor.
All Inventory is located on the premises set forth on Schedule 5.1(u) or
is in transit to one of such locations, except as otherwise disclosed in
writing to Lender.
(v) Corporate and Fictitious Names; Trade Names. Except as otherwise
disclosed on Schedule 5.1(v), during the one-year period preceding the
Agreement Date, neither Borrower nor any Subsidiary of Borrower has been
known as or used any corporate or fictitious name other than the corporate
name of Borrower or such Subsidiary, as applicable, on the Effective Date.
All trade names or styles under which Borrower, or such Subsidiary, as
applicable, sells Inventory or creates Receivables, or to which
instruments in payment of Receivables are made payable, are listed on
Schedule 5.1(v).
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(w) Federal Regulations. Neither Borrower nor any of its Subsidiaries
is engaged, principally or as one of its important activities, in the
business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" (as each of the quoted terms is defined or used in
Regulations G and U of the Board of Governors of the Federal Reserve
System).
(x) Investment Company Act. Neither Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" (as each of the quoted terms is defined or used in
the Investment Company Act of 1940, as amended).
(y) Employee Relations. Neither Borrower nor any of its Subsidiaries
is, except as set forth on Schedule 5.1(y), party to any collective
bargaining agreement nor has any labor union been recognized as the
representative of Borrower's or any Subsidiary's employees; Borrower knows
of no pending, threatened or contemplated strikes, work stoppage or other
labor disputes involving its employees or those of its Subsidiaries.
(z) Intellectual Property. Each of Borrower and each of its
Subsidiaries owns or possesses all Intellectual Property required to
conduct its business as now and presently planned to be conducted without,
to its knowledge, conflict with the rights of others, and Schedule 5.1(z)
lists all Intellectual Property owned by Borrower and its Subsidiaries.
5.2 Survival of Representations and Warranties, Etc. All representations
and warranties set forth in this Article 5 and all statements contained in any
certificate, financial statement or other instrument delivered by or on behalf
of Borrower pursuant to or in connection with this Agreement or any of the Loan
Documents (including, but not limited to, any such representation, warranty or
statement made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Agreement Date, at and as of the Effective Date and at and as of
the date of each Loan, except that representations and warranties which, by
their terms are applicable only to one such date shall be deemed to be made
only at and as of such date. All representations and warranties made or deemed
to be made under this Agreement shall survive and not be waived by the
execution and delivery of this Agreement, any investigation made by or on
behalf of Lender or any borrowing hereunder.
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ARTICLE 6 - SECURITY INTEREST
6.1 Security Interest.
(a) To secure the payment, observance and performance of the Secured
Obligations, Borrower and each Guarantor hereby mortgages, pledges and
assigns all of the Collateral owned by Borrower and each Guarantor to
Lender for itself and as agent for any Affiliate of Lender and grants to
Lender for itself and as agent for any Affiliate of Lender a continuing
security interest in, and a continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations,
Borrower and each Guarantor grants to Lender for itself and as agent for
any Affiliate of Lender a security interest in, and assigns to Lender for
itself and as agent for any Affiliate of Lender all of Borrower's and
Guarantor's right, title and interest in and to, any deposits or other
sums at any time credited by or due from Lender and each Affiliate of
Lender to Borrower, with the same rights therein as if the deposits or
other sums were credited by or due from Lender.
(c) As security for the reimbursement and other obligations relating
to Letters of Credit, Borrower and each Guarantor grants to Issuer for
itself and as agent for any affiliate of Issuer a continuing security
interest in, and a continuing Lien upon all of the Collateral.
6.2 Existing Liens to Continue. Borrower and each Guarantor hereby
acknowledge, agree and confirm that Liens previously granted to Lender shall
continue and survive the execution and delivery of this Agreement, and all of
the rights granted to the Lender pursuant to the Security Documents shall also
continue and survive the execution and delivery of this Agreement and the other
Loan Documents executed in connection herewith; provided, however, that, to the
extent there is any conflict, of whatever nature, between the conditions, terms
and provisions of the Existing Borrower Security Agreement, the Existing
Guarantor Security Agreements and this Agreement, this Agreement shall govern,
prevail and control any such conflict or inconsistency.
6.3 Continued Priority of Security Interest.
(a) The Security Interest granted by Borrower and each Guarantor
shall at all times be valid, perfected and enforceable against Borrower
and each Guarantor and all third parties in accordance with the terms of
this Agreement, as security for the Secured Obligations, and the
Collateral shall not at any time be subject to any Liens that are prior
to, on a parity with or junior to the Security Interest, other than
Permitted Liens.
(b) Borrower and each Guarantor shall, at its sole cost and expense,
take all action that may be necessary or desirable, or that Lender may
request, so as at all times
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to maintain the validity, perfection, enforceability and priority of the
Security Interest in the Collateral in conformity with the requirements of
Section 6.2(a) or to enable Lender to exercise or enforce its rights
hereunder, including, but not limited to: (i) paying all taxes,
assessments and other claims lawfully levied or assessed on any of the
Collateral, except to the extent that such taxes, assessments and other
claims constitute Permitted Liens, (ii) diligently seeking to obtain,
after the Agreement Date, obtaining and delivering to Lender such
landlords waivers, mortgagees waivers or mechanics lien waivers, or
subordinations, in form satisfactory to Lender, (iii) delivering to
Lender, endorsed or accompanied by such instruments of assignment as
Lender may specify, and stamping or marking in such manner as Lender may
specify, any and all chattel paper, instruments, letters and advices of
guaranty and documents evidencing or forming a part of the Collateral, and
(iv) executing and delivering financing statements, pledges, designations,
hypothecations, notices and assignments, in each case in form and
substance satisfactory to Lender, relating to the creation, validity,
perfection, maintenance or continuation of the Security Interest under the
UCC or other applicable law.
(c) Lender is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or
in the name of Borrower or such Guarantor for any purpose described in
Section 6.3(b). A carbon, photographic or other reproduction of this
Agreement or of any of the Security Documents or of any. financing
statement filed in connection with this Agreement is sufficient as a
financing statement, to the extent permitted by applicable law.
(d) Borrower and each Guarantor shall mark its books and records as
may be necessary or appropriate to evidence, protect and perfect the
Security Interest and shall cause its financial statements to reflect the
Security Interest.
ARTICLE 7 - COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless Lender shall
otherwise consent in the manner provided in Section 12.11:
7.1 Collection of Receivables.
(a) Unless otherwise agreed between Borrower or such Guarantor and
the Lender and except as otherwise allowed by Section 7.1(d), Borrower and
each Guarantor will cause all moneys, checks, notes, drafts and other
collections and proceeds of Receivables to be forwarded either to a
Lockbox for deposit to an Agency Account or to a Blocked Collection
Account, and will instruct each Account Debtor to address all remittances
in payment of Receivables to a specified Lockbox and stamp all invoices
evidencing Receivables with a legend stating that payment thereon is to be
made to the Borrower or such Guarantor, as applicable, at such specified
Lockbox.
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(b) All moneys, checks, notes, drafts and other payments relating to
or constituting proceeds of Receivables, or of any other Collateral, at
any time coming into the Borrower's or any Guarantor's possession or
control shall be subject to an express trust in favor of the Lender and
promptly deposited to an Agency Account or the Teller Account or delivered
directly to the Lender for deposit to the Teller Account.
(c) All deposits to the Blocked Collection Account shall be
transferred daily for deposit to the Teller Account. All deposits to each
Agency Account shall be transmitted to the Lender for deposit to the
Teller Account in accordance with the procedures set forth in the
applicable Agency Account Agreement.
(d) At Borrower's or any Guarantor's option, Borrower or such
Guarantor may allow any Account Debtor to make payment on any Receivables
by deposit directly to the Teller Account, for the account of Borrower, by
wire or electronic transfer or other immediately available cash
equivalent, with contemporaneous notice thereof to the Lender.
(e) All deposits to the Teller Account shall be applied in payment of
the Secured Obligations pursuant to Section 2.3(c), as follows:
(i) All checks, drafts and similar non-cash items deposited to
the Teller Account shall be deemed subject to a collection period of
two (2) Business Days prior to application to the Secured
Obligations, at which time credit shall be provisional unless and
until such items are actually collected, provided, that for the sole
purpose of calculating the amount that may be borrowed and remain
outstanding from time to time under the Revolving Credit Facility,
such items shall be assumed to be applied in reduction of the Secured
Obligations as of the Business Day of deposit thereof to the Teller
Account.
(ii) All deposits to the Teller Account consisting of cash, wire
or electronic transfers or other immediately available cash
equivalents transferred from an Agency account as contemplated by
Section 7.1(c) shall be deemed received and applied to the Secured
Obligations as of the Business Day of deposit thereof to the Teller
Account. Any and all other deposits consisting of cash, wire or
electronic transfers or other immediately available cash equivalents
(including any such deposits received directly from an Account Debtor
as provided in Section 7.1(d)), shall be deemed received and applied
as of the later of the Business Day of deposit thereof to the Teller
Account or notification of such deposit to the Lender by the
Borrower, such Guarantor, or such Account Debtor.
(f) Any excess of amounts available for application to the Secured
Obligations under Section 7.1(b), Section 7.1(c) or Section 7.1(d) at any
time existing shall be held by the Lender in a segregated cash collateral
account designated by the Lender, as continuing security for the Secured
Obligations or, upon request by the Borrower or any
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Guarantor during any time when no Default or Event of Default is in
existence, deposited to the Controlled Disbursement Account.
(g) Neither Borrower nor any Guarantor will use, dispose, withhold or
otherwise exercise dominion over any proceeds of Receivables. Borrower and
each Guarantor agrees that it will not commingle proceeds of Receivables
with any other funds, and that no deposits will be made to the Blocked
Collection Account or any Agency Account other than collections and
proceeds of Receivables or proceeds of other Collateral. All amounts from
time to time deposited to the Blocked Collection Account or any Agency
Account shall remain subject to Lender's security interests under this
Agreement.
7.2 Verification And Notification. Lender shall have the right (a) at any
time and from time to time, in the name of Lender or in the name of Borrower or
the applicable Guarantor, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise, and (b)
after an Event of Default, to notify the Account Debtors or obligors under any
Receivables of the assignment of such Receivables to Lender and to direct such
Account Debtor or obligors to make payment of all amounts due or to become due
thereunder directly to Lender and, upon such notification and at the expense of
Borrower or such Guarantor, to enforce collection of any such Receivables and
to adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as Borrower or such Guarantor might have done.
7.3 Disputes, Returns and Adjustments.
(a) Borrower and each Guarantor shall provide Lender with prompt
written notice of any dispute in excess of $50,000 under any Receivable.
(b) Borrower and each Guarantor shall notify Lender promptly of all
material returns and credits in excess of $25,000 in respect of any
Receivable, which notice shall specify the Receivables affected.
(c) Borrower and each Guarantor may, in the ordinary course of
business and prior to a Default or an Event of Default, grant any
extension of time for payment of any Receivable or compromise, compound or
settle the same for less than the full amount thereof or release wholly or
partly any Person liable for the payment thereof or allow any credit or
discount whatsoever thereon; provided that (i) with respect to all
Receivables in any fiscal year of Borrower, any and all such actions do
not exceed the balance in the allowance for doubtful account reserve, and
(ii) Lender is notified at least quarterly in writing of all such
adjustments and the Receivable(s) affected thereby.
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7.4 Invoices.
(a) Neither Borrower nor any Guarantor will use any invoices except
invoices in the forms delivered to Lender prior to the Agreement Date,
unless Borrower or such Guarantor shall have given Lender 45 days' prior
notice of the intended use of a different form of invoice together with a
copy of such different form.
(b) Upon the request of Lender, Borrower or any Guarantor shall
deliver to Lender, at Borrower's or such Guarantor's expense, copies of
customers' invoices or the equivalent, original shipping and delivery
receipts or other proof of delivery, customers' statements, the original
copy of all documents, including, without limitation, repayment histories
and present status reports, relating to Receivables and such other
documents and information relating to the Receivables as Lender shall
specify.
7.5 Delivery of InstrumentS. In the event any Receivable in an amount in
excess of $50,000 is, or Receivables in excess of $100,000 in the aggregate
are, at any time evidenced by a promissory note or notes, trade acceptance or
any other instrument for the payment of money, Borrower or the applicable
Guarantor will immediately notify Lender and, if directed, thereafter deliver
such instruments to Lender, appropriately endorsed to Lender.
7.6 Inventory. Borrower and each Guarantor represent and warrant to Lender
that all Inventory shall be held for sale in the ordinary course of Borrower's
or such Guarantor's business, and is and will be fit for such purpose. Borrower
and each Guarantor will keep its Inventory in good and marketable condition, at
its own expense. Borrower and each Guarantor will maintain a perpetual
inventory system at all times and will conduct a physical count of its
Inventory at least once per calendar year and at Lender's request shall
promptly supply Lender with a copy of such count. No negotiable documents have
been issued in respect of Borrower's or any Guarantor's Inventory, and except
for bills of lading covering Inventory shipped to a purchaser in the ordinary
course of business, none shall be issued without prior written notice to Lender
and, at Lender's request, completion of arrangements satisfactory to Lender for
possession of such negotiable documents to be delivered to Lender. Except as
disclosed on Schedule 7.6 - Inventory Exceptions: (i) no Inventory is held by
Borrower or any Guarantor on consignment or approval, or on a sale or return,
bill-and-hold, guaranteed sale, repurchase or similar basis, or has been sold
or delivered to any Person on consignment or approval, or on a sale or return,
bill-and-hold, guaranteed sale, repurchase or similar basis, and (ii) neither
Borrower nor any Guarantor will acquire or accept any Inventory on consignment
or approval, or on a sale or return, bill-and-hold, guaranteed sale, repurchase
or similar basis and will not sell any Inventory on consignment or approval, or
on a sale or return, bill-and-hold, guaranteed sale, repurchase or similar
basis without the prior written consent of Lender. All cash receipts, if any,
from time to time received by Borrower or any Guarantor in respect of the sale
of Inventory, including without limitation cash, checks or similar items, shall
be subject to an express trust for the benefit of Lender and promptly delivered
to Lender in the form received for application in reduction of the Secured
Obligations.
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7.7 Returned Goods. The Security Interest in the Inventory shall, without
further act, attach to the cash and non-cash proceeds resulting from the sale
or other disposition thereof and to all Inventory which is returned to Borrower
or any Guarantor by customers or is otherwise recovered. Unless Lender agrees
otherwise: (i) neither Borrower nor any Guarantor shall issue any credits or
allowances with respect to such returned Inventory, and (ii) all such returned
Inventory shall be segregated from all other Inventory, and shall not be
reported as Eligible Inventory, unless and until it is demonstrated to Lender's
satisfaction that such returned Inventory is in saleable condition and meets
all criteria for Eligible Inventory. Unless otherwise agreed by Lender, the
amount of Receivables relating to all returned Inventory shall be excluded from
Eligible Receivables. All returned Inventory shall be subject to Lender's
continuing security interests under this Agreement. Lender agrees to the
existing practice of credits for return of saleable Inventory issued within 90
days of purchase.
7.8 Ownership and Defense of Title.
(a) Except for Permitted Liens, either Borrower or such Guarantor
shall at all times be the sole owner of each and every item of Collateral
and shall not create any Lien on, or sell, lease, exchange, assign,
transfer, pledge, hypothecate, grant a security interest or security title
in or otherwise dispose of, any of the Collateral or any interest therein,
except for sales of Inventory in the ordinary course of business, for cash
or on open account or on terms of payment ordinarily extended to its
customers and except as otherwise expressly contemplated herein. The
inclusion of "proceeds" of the Collateral under the Security Interest
shall not be deemed a consent by Lender to any other sale or other
disposition of any part or all of the Collateral.
(b) Borrower and each Guarantor shall defend its title in and to the
Collateral and shall defend the Security Interest in the Collateral
against the claims and demands of all Persons.
(c) In addition to, and not in derogation of, the foregoing and the
requirements of any of the Security Documents, Borrower and each Guarantor
shall (i) protect and preserve all properties material to its business,
including Intellectual Property and maintain all tangible property in good
and workable condition in all material respects, with reasonable allowance
for wear and tear, and (ii) from time to time make or cause to be made all
needed and appropriate repairs, renewals, replacements and additions to
such properties necessary for the conduct of its business, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
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7.9 Insurance.
(a) Borrower and each Guarantor shall at all times maintain insurance
on the Inventory and Equipment against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Lender
shall reasonably specify, in amounts and under policies issued by insurers
acceptable to Lender. All premiums on such insurance shall be paid by
Borrower or such Guarantor and copies of the policies delivered to Lender.
Neither Borrower nor any Guarantor shall use or permit the Inventory or
Equipment to be used in violation of any applicable law or in any manner
which might render inapplicable any insurance coverage.
(b) All insurance Policies required under Section 7.9(a) shall name
Lender as an additional named insured and shall contain "New York
standard" loss payable clauses in the form submitted to Borrower or any
Guarantor by Lender, or otherwise in form and substance satisfactory to
Lender, naming Lender as loss payee as its interests may appear, and
providing that (i) all proceeds thereunder shall be payable to Lender, (ii)
no such insurance shall be affected by any act or neglect of the insured
or owner of the property described in such policy, and (iii) such policy
and loss payable clauses may not be cancelled, amended or terminated
unless at least ten days' prior written notice is given to Lender.
(c) Any proceeds of insurance referred to in this Section 7.9 which
are paid to Lender shall be, at the option of Lender in its sole
discretion, either (i) applied to rebuild, restore or replace the damaged
or destroyed property, or (ii) applied to the payment or prepayment of the
Secured Obligations.
(d) Borrower and each Guarantor shall at all times maintain, in
addition to the insurance required by Section 7.9(a) or any of the
Security Documents, insurance with responsible insurance companies against
such risks and in such amounts as is customarily maintained by similar
businesses or as may be required by applicable law, including such public
liability, products liability, and third party property damage as is
consistent with reasonable business practices, and from time to time
deliver to Lender upon its request a detailed list of the insurance then
in effect, stating the names of the insurance companies, the amounts and
rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby.
7.10 Location of Offices and Collateral.
(a) Neither Borrower nor any Guarantor will change the location of
its chief executive office or the place where it keeps its books and
records relating to the Collateral or change its name, identity or
corporate structure, or use any trade name, assumed name or other
fictitious name, without giving Lender at least 30 days' prior written
notice thereof.
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(b) All Inventory, other than Inventory in transit to any such
location, will at all times be kept by Borrower or such Guarantor at one
of the locations set forth in Schedules 5.1(t) and 5.1(u), respectively,
and shall not, without the prior written consent of Lender, be removed
therefrom except, so long as no Event of Default shall have occurred and
be continuing, for sales of Inventory otherwise permitted by this
Agreement.
(c) if any Inventory is in the possession or control of any of
Borrower's or any Guarantor's agents or processors, Borrower or such
Guarantor shall notify such agents or processors of the Security Interest
and, upon the occurrence of an Event of Default, shall instruct them (and
cause them to acknowledge such instruction) to hold all such Inventory for
the account of Lender, subject to the instructions of Lender.
7.11 Records Relating to Collateral.
(a) Borrower and each Guarantor will at all times (i) keep complete
and accurate records of Inventory on a basis consistent with past
practices of Borrower or such Guarantor, itemizing and describing the
kind, type and quantity of Inventory and Borrower's or such Guarantor's
cost therefor and a current price list for such Inventory, and (ii) keep
complete and accurate records of all other Collateral.
(b) Borrower and each Guarantor will take a physical listing of all
Inventory, wherever located, at least annually.
7.12 Inspection. Lender shall have the right without hindrance or delay to
conduct field examinations to inspect the Collateral and to inspect, audit and
copy Borrower's or any Guarantor's books, records, journals, correspondence and
other records and data relating to the Collateral or its business. Lender (by
any of its officers, employees or agents) shall have the right, to the extent
that the exercise of such right shall be within the control of Borrower or such
Guarantor, at any time or times to (a) visit the properties of Borrower or any
Guarantor, inspect the Collateral and the other assets of Borrower and each
Guarantor and inspect and make extracts from the books and records of Borrower
and each Guarantor, including, but not limited to, management letters prepared
by independent accountants, all during customary business hours at such
premises, (b) discuss Borrower's and each Guarantor's business, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of Lender hereunder or
under any of the Loan Documents, with Borrower's and each Guarantor's (i)
principal officers, (ii) independent accountants and other professionals
providing services to Borrower or such Guarantor, and (iii) any other Person
(except that any such discussion with any third parties shall be conducted only
in accordance with Lender's standard operating procedures relating to the
maintenance of confidentiality of confidential information of borrowers), and
(c) verify the amount, quantity, value and condition of, or any other matter
relating to, any of the Collateral and in this connection to review, audit and
make extracts from all records and files related to any of the Collateral.
Lender shall have full access to all records available to Borrower or any
Guarantor from any credit reporting
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service, bureau or similar service and shall have the right to examine and make
copies of any such records. Borrower and each Guarantor hereby irrevocably
authorize any such employees, services, accountants and other professionals to
rely upon the authority granted hereunder in engaging in such discussions and
making such information available as provided herein. At Lender's request,
Borrower and each Guarantor will deliver to Lender express written
authorization for any such discussions or for access to any such information.
7.13 Information and Reports.
(a) Schedule of Receivables. Borrower shall deliver to Lender (i) on
or before the Effective Date, a Schedule of Receivables (for itself and
each Guarantor) as of a date not more than three Business Days prior to
the Effective Date setting forth a detailed aged trial balance of all of
then existing Receivables, specifying the name of the Person to whom the
Receivable is owed, the name of and the balance due from (and any rebate
due to) each Account Debtor obligated on a Receivable so listed, and (ii)
no later than 30 days after the end of each calendar month, a Schedule of
Receivables as of the last Business Day of Borrower's immediately
preceding calendar month setting forth (A) a detailed aged trial balance
of all then existing Receivables, specifying the name of and the balance
due from (and any rebate due to) each Account Debtor obligated on a
Receivable so listed and (B) a reconciliation to the Schedule of
Receivables delivered in respect of the next preceding accounting month.
(b) Schedule of Inventory. Borrower shall deliver to Lender on or
before the Effective Date and no later than the last day of each calendar
month thereafter a Schedule of Inventory (for itself and each Guarantor)
as of the last Business Day of the immediately preceding calendar month,
itemizing and describing the kind, type, quantity and location of
Inventory and the cost thereof.
(c) Borrowing Base Certificate. Unless otherwise agreed,
contemporaneously with each request for a Revolving Credit Loan and in any
event at least weekly, and at such other times as Lender may request,
Borrower shall execute and deliver to Lender, in form satisfactory to
Lender, a Borrowing Base Certificate setting forth a certification of
Eligible Receivables and Eligible Inventory, and calculation of the
Borrowing Base, in form prescribed by Lender. Each Borrowing Base
Certificate shall include a reconciliation of the calculation of the
Borrowing Base as certified in the most recent Borrowing Base Certificate
delivered to Lender, and be accompanied by such documents and supporting
information relating to Eligible Receivables and Eligible Inventory as
Lender may request. Borrower and each Guarantor shall maintain and shall
furnish to Lender at Lender's request, such supporting documents or copies
as Lender may require including, but not limited to: a schedule of
Eligible Receivables created, and Eligible Inventory purchased and
received, since the previous Borrowing Base Certificate delivered to
Lender; copies of invoices and supporting delivery or service records in
connection therewith; a schedule of collections received; copies of credit
memos or other advices of credit or reductions against amounts previously
billed; and such other reports
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as Lender may request from time to time. If any of such records or reports
are prepared by an accounting service, or other agent, Borrower and each
Guarantor hereby authorize such service or agent to deliver such records,
reports and related documents to Lender. Lender may exhibit a copy of this
Agreement to any such service or agent and such service or agent is
irrevocably authorized to rely on the provisions hereof in providing such
documentation to Lender. Each Borrowing Base Certificate shall bear a
signed statement by an authorized officer of Borrower and each Guarantor
certificate the accuracy and completeness of all information included
therein and shall incorporate therein by reference, as if fully set forth
therein, all the terms and provisions hereof. The execution and delivery
of a Borrowing Base Certificate shall in each instance constitute an
agreement, representation and warranty to Lender by Borrower and each
Guarantor that, except for the security interest of Lender therein: it is
the sole owner of and has full unrestricted power to grant to Lender a
continuing security interest and lien in and to all Collateral included
therein free from any lien, security interest or encumbrance; each account
included therein is in existence, unconditional and valid, and arose from
a bona fide outright sale of Inventory in the ordinary course of business
for liquidated amounts as set forth in the Borrowing Base Certificate, and
such Inventory has been delivered or provided to the respective account
debtors; no account included therein arose in connection with a contract
or assignment which purports to make an assignment or security interest
therein void or conditions such assignment or security interest on consent
of the account debtor; no account is subject to any sale, assignment, claim
or security interest of any character and it will not make any sale or
other assignment thereof or, subject to Permitted Liens, create any other
security interest therein; it has not received any notice or other
communication, and has no knowledge, that any account is subject to any
claim for credit, deduction, allowance, extension or adjustment, defense,
dispute, setoff or counterclaim, except for discounts for early payment
allowed in the ordinary course of business as previously disclosed to
Lender and as reflected on the face of the invoice evidencing such
account; all Inventory reflected in such Borrowing Base Certificate is
held for sale in the ordinary course of its business, and no such
Inventory is located at any location in breach of the requirements of this
Agreement and no negotiable documents have been issued in respect of any
such Inventory; and no Inventory reflected in such Borrowing Base
Certificate is returned Inventory unless otherwise disclosed to Lender in
writing.
(d) Notice of Diminution of Value. Borrower and each Guarantor shall
give prompt notice to Lender of any matter or event which has resulted in,
or may result in, the actual or potential diminution in excess of $100,000
in the value of any of the Collateral, except for any diminution in the
value of any Receivables or Inventory in the ordinary course of business
which has been appropriately reserved against, as reflected in the
financial statements previously delivered to Lender pursuant to Article 9.
(e) Certification. Each of the schedules delivered to Lender pursuant
to this Section 7.13 shall be certified by the Chief Financial Officer of
Borrower to be true, correct and complete as of the date indicated
thereon.
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(f) Other Information. Lender may, in its discretion, from time to
time require Borrower to deliver the schedules described in Section
7.13(a), (b), (c) and (d) more or less often and on different schedules
than specified in such Section, and Borrower will comply with such
requests. Borrower and each Guarantor shall also furnish to Lender such
other information with respect to the Collateral as Lender may from time
to time reasonably request.
7.14 Power of Attorney. Borrower and each Guarantor hereby appoint Lender
as its attorney, with power (a) to endorse the name of Borrower or such
Guarantor on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security that may come into Lender's possession, and (b) to
sign the name of Borrower or such Guarantor on any invoice or bill of lading
relating to any Receivables, Inventory or other Collateral, on any drafts
against customers related to letters of credit, on schedules and assignments of
Receivables furnished to Lender by Borrower or such Guarantor, on notices of
assignment, financing statements and other public records relating to the
perfection or priority of the Security Interest or verifications of account and
on notices to or from customers.
7.15 Preservation of Lender's Rights. To the extent allowed by law,
neither Lender nor any of its officers, directors, employees, and agents shall
be liable or responsible in any way for the safekeeping of any Collateral or
for any act or failure to act with respect to the Collateral, or for any loss
or damage thereto or any diminution in the value thereof, or for any act by any
other Person. In the case of any instruments and chattel paper included within
the Collateral, Lender shall have no duty or obligation to preserve rights
against prior parties. The Secured Obligations shall not be affected by any
failure of Lender to take any steps to perfect its security interests or to
collect or realize upon the Collateral, nor shall loss of or damage to the
Collateral release Borrower from any of the Secured Obligations. Lender may
extend the time for payment of the Secured Obligations or modify or amend the
terms of any of the Loan Documents, or compromise or grant other indulgences,
renewals, extensions or releases, and take or omit to take any other action
with respect to the Secured Obligations or the Collateral, or any Person
directly or indirectly obligated in connection therewith, without impairing
Lender's security interests in the Collateral or any of Lender's rights under
the Loan Documents.
ARTICLE 8-AFFIRMATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless Lender shall
otherwise consent in the manner provided for in Section 12.11, Borrower will
and will cause each of its Subsidiaries to:
8.1 Preservation of Corporate Existence and Similar Matters. Preserve and
maintain its corporate existence, rights, franchises, licenses and privileges
in the jurisdiction of its incorporation and qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization.
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8.2 Compliance with Applicable Law. Comply with all applicable laws.
8.3 Conduct of Business. Engage only in businesses in substantially the
same fields as the businesses conducted on the Effective Date.
8.4 Payment of Taxes and Claims. Pay or discharge when due (a) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any properties belonging to it, and (b) all lawful
claims of materialmen, mechanics, carriers, warehousemen and landlords for
labor, materials, supplies and rentals which, if unpaid, might become a Lien on
any properties of Borrower or such Subsidiary, except that this Section 8.4
shall not require the payment or discharge of any such tax, assessment, charge,
levy or claim which is being contested in good faith by appropriate proceedings
for which adequate reserves have been established on the appropriate books.
Borrower agrees that it shall immediately notify Lender of the initiation of
any such contests and advise Lender from time to time of the status thereof.
Borrower shall and shall cause each Subsidiary to promptly pay any amounts
adjudged to be due pursuant to any such contest, with all costs, penalties, and
interest thereon, before such judgment becomes final or any writ or order is
issued under which the Collateral, or any portion thereof, may become subject
to any lien or encumbrance. In any event, Lender shall have the right at any
time in its discretion to include the amount of any unpaid assessed taxes as
provided in Section 2.7.
8.5 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts (which shall be true and
complete), as may be required or as may be necessary to permit the preparation
of financial statements in accordance with GAAP consistently applied.
8.6 Use of Proceeds.
(a) Use the proceeds of (i) the Initial Loan as provided in Schedule
8.6, and (ii) all subsequent Revolving Credit Loans only for working
capital and general business purposes and for Permitted Acquisitions, and
(b) not use any part of such proceeds to purchase or carry, or to
reduce or retire or refinance any credit incurred to purchase or carry,
any margin stock (within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System) or for any other purpose which
would involve a violation of such Regulation G or U or Regulation T or X
of such Board of Governors or for any other purpose prohibited by law or
by the terms and conditions of this Agreement.
8.7 Hazardous Waste and Substances; Environmental Requirements.
(a) In addition to, and not in derogation of, the requirements of
Section 8.2 and of the Security Documents, comply with all laws,
governmental standards and regulations applicable to Borrower or such
Subsidiary or to any of its assets in respect
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of occupational health and safety laws, rules and regulations and
Environmental Laws, promptly notify Lender of its receipt of any notice of
a violation of any such law, rule, standard or regulation and indemnify
and hold Lender harmless from all loss, cost, damage, liability, claim and
expense incurred by or imposed upon Lender on account of Borrower's or
such Subsidiary's failure to perform its obligations under this Section
8.7.
(b) Whenever Borrower gives notice to Lender pursuant to this Section
8.7 with respect to a matter that reasonably could be expected to result
in liability to Borrower or any Subsidiary in excess of $100,000 in the
aggregate, Borrower shall, at Lender's request and Borrower's expense, (i)
cause an independent environmental engineer acceptable to Lender to
conduct such tests of the site where the noncompliance or alleged
noncompliance with Environmental Laws has occurred and prepare and deliver
to Lender a report setting forth the results of such tests, a proposed
plan to bring Borrower or such Subsidiary into compliance with such
Environmental Laws and an estimate of the costs thereof, and (ii) provide
to Lender a supplemental report of such engineer whenever the scope of the
noncompliance or the response thereto or the estimated costs thereof shall
materially change.
8.8 Accuracy of Information. All written information, reports, statements
and other papers and data furnished to Lender, whether pursuant to Article 9 or
any other provision of this Agreement or any of the other Loan Documents, shall
be, at the time the same is so furnished, complete and correct in all material
respects to the extent necessary to give Lender true and accurate knowledge of
the subject matter.
8.9 Revisions or Updates to Schedules. Should any of the information or
disclosures provided on any of the Schedules originally attached hereto become
outdated or incorrect in any material respect, Borrower shall provide promptly
to Lender such revisions or updates to such Schedule(s) as may be necessary or
appropriate to update or correct such Schedule(s); provided that no such
revisions or updates to any Schedule(s) shall be deemed to have cured any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule(s) unless and until Lender, in its sole
discretion, shall have accepted in writing such revisions or updates to such
Schedule(s).
ARTICLE 9 - INFORMATION
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless Lender shall
otherwise consent in the manner set forth in Section 12.11, Borrower will
furnish to Lender at Lender's Office:
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9.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in any
event within 120 days after the end of each fiscal year of Borrower,
copies of the audited consolidated and consolidating balance sheet of
Borrower and its Subsidiaries as at the end of such fiscal year and the
related statements of income, shareholders' equity and cash flow for such
fiscal year, in each case setting forth in comparative form the figures
for the previous fiscal year, each of the foregoing to be audited, without
qualification, by certified public accountants selected by Borrower and
acceptable to Lender.
(b) Monthly Financial Statements. As soon as available, but in any
event within 30 days after the end of each calendar month, copies of the
unaudited consolidated and consolidating balance sheet of Borrower and its
Subsidiaries as at the end of such month and the related unaudited
consolidated and consolidating income statement and, if so requested, a
statement of cash flows for Borrower and its Subsidiaries for such month
and for the portion of the fiscal year of Borrower through such month,
certified by the chief financial officer of Borrower to the best of his
knowledge as presenting fairly the financial condition and results of
operations of Borrower and its Subsidiaries as at the date thereof and for
the periods ended on such date, subject to normal year end adjustments.
(c) Annual Projections. As soon as available, but in any event within
30 days after the end of each fiscal year, projections, on a consolidated
and consolidating basis, of the Borrower's and the Subsidiaries
anticipated financial performance for the next year.
All such financial statements shall be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of footnotes) applied consistently
throughout the periods reflected therein.
9.2 Officer's Certificate. Together with each delivery of financial
statements required by Section 9.1(a) and (b), a certificate of Borrower's
President or chief financial officer (a) stating that, based on an examination
sufficient to enable him to make an informed statement, no Default or Event of
Default exists or, if such is not the case, specifying such Default or Event of
Default and its nature, when it occurred, whether it is continuing and the
steps being taken by Borrower with respect to such Default or Event of Default,
and (b) setting forth the calculations necessary to establish whether or not
Borrower was in compliance with the covenants contained in Sections 10.1, 10.2,
and 10.5 as of the date of such statements.
9.3 Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to Borrower or any Subsidiary or its Board of Directors by its
independent public accountants, including, without limitation, all
management reports.
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(b) From time to time and promptly upon each request, such forecasts,
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
condition, results of operations or business prospects of Borrower or any
Subsidiary as Lender may reasonably request. The rights of Lender under
this Section 9.3(b) are in addition to and not in derogation of its rights
under any other provision of this Agreement or any Loan Document.
(c) If requested by Lender, statements in conformity with the
requirements of Federal Reserve Form G-1 or U-1 referred in Regulations G
or U, respectively, of the Board of Governors of the Federal Reserve
System.
9.4 Notice of Litigation and Other Matters. Prompt notice of the
following:
(a) the commencement, to the extent Borrower is aware of the same, of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or
before any arbitrator against or in any other way relating adversely to,
or adversely affecting, Borrower, any Subsidiary or any Affiliate of
Borrower, any Subsidiary or any of their respective property, assets or
businesses that would be treated as a contingent liability under GAAP and
is in an amount in excess of $250,000, or might, singly or in the
aggregate, cause a Default or an Event of Default or have a Materially
Adverse Effect.
(b) any amendment of the articles of incorporation or by-laws of
Borrower or any Subsidiary,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of Borrower or any
Affiliate of Borrower which has had or may have any Materially Adverse
Effect.
(d) (i) any Default or Event of Default, or (ii) event that
constitutes or that, with the passage of time or giving of notice or both,
would constitute a default or event of default by Borrower or such
Subsidiary under any material agreement (other than this Agreement) to
which Borrower or such Subsidiary is a party or by which Borrower or such
Subsidiary or any of its property may be bound if the exercise of remedies
thereunder by the other party to such agreement would have, either
individually or in the aggregate, a Materially Adverse Effect, or (iii)
Borrower is aware, or reasonably expects, that any covenant under this
Agreement will be breached,
(e) Borrower's or any Subsidiary's board of directors has authorized
the filing by Borrower or such Subsidiary of a petition in bankruptcy,
(f) Borrower is aware that any account debtor obligated on any
Receivables involving an amount in excess of $50,000 is in bankruptcy,
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(g) Borrower has knowledge of any claim by any Person claiming past
due rent, fees or other charges in excess of $10,000 in respect of any
Collateral, and
(h) any change in any other material fact or circumstance represented
or warranted in any of the Loan Documents.
(i) any change in the executive officers of Borrower.
9.5 ERISA. As soon as possible and in any event within 30 days after
Borrower knows, or has reason to know, that:
(a) any Termination Event with respect to a Benefit Plan has occurred
or will occur,
(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Plans has increased to an amount in excess of $0, or
(c) Borrower or any Subsidiary is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
required by reason of its complete or partial withdrawal (as described in
Section 4203 or 4205 of ERISA) from such Multiemployer Plan, a certificate
of the President or the chief financial officer of Borrower or such
Subsidiary setting forth the details of such events described in clauses
(a) through (c) as applicable and the action which is proposed to be taken
with respect thereto and, simultaneously with the filing thereof, copies
of any notice or filing which may be required by the PBGC or other agency
of the United States government with respect to such of the events
described in clauses (a) through (c) as applicable.
ARTICLE 10 - NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the
Secured Obligations have been indefeasibly paid in full, unless Lender shall
otherwise consent in the manner set forth in Section 12.11, Borrower will not
and will not permit any Subsidiary to, directly or indirectly:
10.1 Financial Ratios.
(a) Maximum Leverage Ratio. Permit the Leverage Ratio of the Borrower
and its Subsidiaries on a consolidated basis, at any time:
(i) from the Effective Date through the fiscal year ending
February 28, 1998 to be greater than 6.5 to 1;
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(ii) from March 1, 1998 to February 28, 1999 to be greater than
5.5 to 1; and
(iii)from and after March 1, 1999, to be greater than 4.75 to
1.
(b) Minimum Tangible Net Worth. Permit the Tangible Net Worth of
Borrower and its Subsidiaries on a consolidated basis at any time to be
less than the sum of (i) $7,688,000.00, plus (ii) an amount equal to fifty
percent (50%) of the cumulative Adjusted Net Income of the Borrower and
its Subsidiaries on a consolidated basis (from each fiscal year beginning
the year ending February 28, 1998).
(c) Minimum Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio of the Borrower and its Subsidiaries on a consolidated
basis at any time to be less than 1. 1 to 1.
(d) Minimum Net Income. Permit Net Income of the Borrower and its
Subsidiaries, on a consolidated basis: (i) to be less than $0 for more
than five (5) months in any twelve-month period through the period ending
March 31, 1998 or for more than four (4) months in any twelve-month period
thereafter; or (ii) to constitute a Net Loss of more than $210,000 in any
month; or (iii) to constitute a Net Loss of more than $475,000 in any
twelve-month period; or (iv) to be less than $0 for any fiscal year.
10.2 Indebtedness. Create, assume, or otherwise become or remain obligated
in respect of, or permit or suffer to exist or to be created, assumed or
incurred or to be outstanding any Indebtedness for Money Borrowed, except for
Permitted Indebtedness for Money Borrowed.
10.3 Guaranties. Become or remain liable with respect to any Guaranty of
any obligation of any other Person, except for Permitted Guaranties; provided
however that this covenant shall not apply to Guaranties by the Borrower listed
in Schedule 10.3 or to guaranties by Borrower of commercially reasonable leases
or supply arrangements of the Subsidiaries if prior written notice is given to
Lender.
10.4 Investments. Acquire, after the Agreement Date, any Business Unit or
Investment or, after such date, permit any Investment to be outstanding, other
than Permitted Investments.
10.5 Capital Expenditures. Make or incur any Capital Expenditures, except
that borrower may make or incur Capital Expenditures in any fiscal year in any
amount not exceed, in the aggregate, $1,100,000 in the fiscal year ending
February 28, 1998 and $900,000 in any fiscal year thereafter.
10.6 Restricted Distributions and Payments, Etc. Declare or make any
Restricted Distribution or Restricted Payment.
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10.7 Merger, Consolidation, Dissolution, and Sale of Assets. Merge or
consolidate with any other Person, or dissolve or liquidate, or sell, lease or
transfer a substantial portion of its assets to any Person or sell or transfer
control of any Subsidiary.
10.8 Transactions with Affiliates. Enter into any transaction with an
Affiliate except in the ordinary course of business on terms no less favorable
to Borrower, nor more favorable to such Affiliate. than would be obtainable in
a comparable arm's length transaction with a Person who is not an Affiliate
except that inventory and fixed assets may be sold or transferred between
Guarantors. Borrower will not enter into any transaction with an Affiliate
unless such transaction is specifically approved by Borrower's board of
directors, or the duly authorized executive committee thereof, as being an
arm's length transaction on terms no less favorable to Borrower, nor more
favorable to such Affiliate, than would be obtainable in a comparable arm's
length transaction with a Person who is not an Affiliate.
10.9 Liens. Create, assume or permit or suffer to exist or to be created
or assumed any Lien on any of the property or assets of Borrower or such
Subsidiary, real, personal or mixed, tangible or intangible, except for
Permitted Liens.
10.10 Operating Leases. Enter into any lease other than a Capitalized
Lease which would cause the aggregate annual payment obligations of Borrower
and its Subsidiaries under all leases (other than leases of real property
listed on Schedule 5.1(u) and existing Capitalized Leases) to increase by more
than $250,000.
10.11 Benefit Plans. Permit, or take any action which would result in, the
aggregate present value of the Unfunded Vested Accrued Benefits under all
Benefit Plans of Borrower to exceed $0.
10.12 Sales and Leasebacks. Without the prior written approval of Lender,
which shall not be unreasonably withheld, enter into any arrangement with any
Person providing for the leasing from such Person of real or personal property
which has been or is to be sold or transferred, directly or indirectly, by
Borrower or any Subsidiary to such Person.
10.13 Amendments of Other Agreements. Amend in any way the interest rate
or principal amount or schedule of payments of principal and interest with
respect to any Indebtedness (other than the Secured Obligations) other than to
reduce the interest rate or extend the schedule of payments with respect
thereto.
10.14 Minimum Availability. Permit Availability to be less than $200,000
during the period of each fiscal year comprised by the calendar months
December, January and February.
10.15 Change in Business. Discontinue, or make any material change in, its
business as currently established, or enter any new or different line of
business not directly related to Borrower's or any Subsidiary's existing line
of business.
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ARTICLE 11 - DEFAULT
11.1 Events of Default. Each of the following shall constitute an Event of
Default, whatever the reason for such event and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment
or order of any court or any order, rule or regulation of any governmental or
nongovernmental body:
(a) Default in Payment of Revolving Credit Loans. Borrower shall
default in any payment of principal of, or interest on, the Revolving
Credit Loans or the Note when and as due (whether at maturity, by reason
of acceleration or otherwise).
(b) Other Payment Default. Borrower shall default in the payment, as
and when due, of principal of or interest on, any other Secured
Obligation, and such default shall continue for ten days after written
notice thereof has been given to Borrower by Under.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by Borrower or any Guarantor under this Agreement or any Loan
Document or any amendment hereto or thereto shall at any time prove to
have been incorrect or misleading in any material respect when made.
(d) Default in Performance. Borrower shall default in the performance
or observance of any term, covenant, condition or agreement contained in
(i) Articles 6, 7, 8, 9 or 10 or (ii) this Agreement (other than as
specifically provided for otherwise in this Section 11.1) and such default
shall continue for a period of ten days after written notice thereof has
been given to Borrower by Lender.
(e) Indebtedness Cross-Default. (i) Borrower or any of its
Subsidiaries shall fail to pay when due and payable the principal of or
interest on any Indebtedness (other than the Revolving Credit Loans or the
Note or trade accounts payable to suppliers of goods or services to the
Borrower or any of its Subsidiaries in the ordinary course of business)
where the principal amount of such Indebtedness is in excess of $50,000,
or (ii) the maturity of any such Indebtedness shall have (A) been
accelerated in accordance with the provisions of any indenture, contract
or instrument providing for the creation of or concerning such
Indebtedness, or (B) been required to be prepaid prior to the stated
maturity thereof, or (iii) any event shall have occurred and be continuing
which, with or without the passage of time or the giving of notice, or
both, would permit any holder or holders of such Indebtedness, any
trustee or agent acting on behalf of such holder or holders or any other
Person so to accelerate such maturity.
(f) Other Cross-Defaults. Borrower or any of its Subsidiaries shall
default in any payment when due or in the performance or observance of any
material obligation or condition of any agreement, contract or lease
(other than the Security Documents) or
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any such agreement, contract or lease relating to Indebtedness, if the
exercise of remedies thereunder by the other party to such agreement could
have a Materially Adverse Effect.
(g) Voluntary Bankruptcy Proceeding. Borrower or any of its
Subsidiaries shall (i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (ii) commence a
proceeding seeking to take advantage of any other laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, winding up or
composition for adjustment of debts, (iii) consent to or fail to contest
in a timely and appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for
or consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by a receiver, custodian,
trustee or liquidator of itself or of a substantial part of its property,
domestic or foreign, (v) admit in writing its inability to pay its debts
as they become due. (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of
authorizing any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against Borrower or any of its Subsidiaries in any
court of competent jurisdiction seeking (i) relief under the federal
bankruptcy laws (as now or hereafter in effect) or under any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustment of debts, or (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of Borrower or any of its
Subsidiaries or of all or any substantial part of the assets, domestic or
foreign, of Borrower or any of its Subsidiaries, and such case or
proceeding shall continue undismissed or unstayed for a period of 60
consecutive calendar days, or an order granting the relief requested in
such case or proceeding against Borrower or any of its Subsidiaries
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
(i) Loan Documents. Any default or event of default under any other
Loan Document shall occur and remain uncured after any applicable cure
period or Borrower or any Guarantor shall default in the performance or
observance of any material term, covenant, condition or agreement
contained in, or the payment of any other sum covenanted to be paid by
Borrower or any Guarantor under, any such Loan Document or any provision
of this Agreement, or if any other Loan Document after delivery thereof
hereunder, shall for any reason cease to be valid and binding, other than
a nonmaterial provision rendered unenforceable by operation of law, or
Borrower or any of its Subsidiaries or any other party thereto (other than
Lender) shall so state in writing, or this Agreement or any other Loan
Document, after delivery thereof hereunder, shall for any mason (other
than any action taken independently by Lender and except to the extent
permitted by the terms thereof) cease to create a valid, perfected and,
except as otherwise expressly permitted herein, first priority Lien on, or
security interest in, any of the Collateral purported to be covered
thereby.
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(j) Judgment. A judgment or order for the payment of money which
exceeds $100,000 in amount not fully covered by insurance shall be entered
against Borrower or any of its Subsidiaries by any court and such judgment
or order shall continue undischarged or unstayed for 30 days.
(k) Attachment. The filing or commencement of any attachment,
sequestration, garnishment, execution or other action against or with
respect to any of the Collateral involving an amount in controversy in
excess of $100,000, or the filing or commencement of any attachment,
sequestration, garnishment, execution or other action against or with
respect to Borrower's or any Subsidiary's property not included within the
Collateral if (a) the amount in controversy is in excess of $100,000 and
such attachment, sequestration, garnishment, execution or other action has
not been dismissed, or superseded by appropriate bond, within thirty (30)
days after the occurrence thereof, or (b) the outcome, pendency or effect
thereof is reasonably expected to result in or cause a Material Adverse
Effect.
(l) Erisa. (i) Any Termination Event with respect to a Benefit Plan
shall occur that, after taking into account the excess, if any, of (A) the
fair market value of the assets of any other Benefit Plan with respect to
which a Termination Event occurs on the same day (but only to the extent
that such excess is the property of Borrower or a Subsidiary of the
Borrower, as applicable) over (B) the present value on such day of all
vested nonforfeitable benefits under such other Benefit Plan, results in
an Unfunded Vested Accrued Benefit in excess of $0, (ii) any Benefit Plan
shall incur an "accumulated funding deficiency" (as defined in Section 412
of the Code or Section 302 of ERISA) for which a waiver has not been
obtained in accordance with the applicable provisions of the Code and
ERISA, or (iii) Borrower or any of its Subsidiaries is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's or any of its Subsidiaries
complete or partial withdrawal (as described in Section 4203 or 4205 of
ERISA) from such Multiemployer Plan.
(m) Qualified Audits. The independent certified public accountants
retained by Borrower shall refuse to deliver an opinion in accordance with
Section 9.1(a) with respect to the consolidated and consolidating annual
financial statements of Borrower and its Subsidiaries.
(n) Cessation of Business, etc. The cessation of business of Borrower
or any of its Subsidiaries, or the taking of any action by the board of
directors or shareholders of Borrower or any of its Subsidiaries to
dissolve or liquidate.
(o) Insecurity. Lender in good faith believes that the prospect for
payment or performance of the Secured Obligations is impaired.
(p) Guarantor Revocation. Revocation or repudiation by any Person of
its obligations under Guaranty of the Secured Obligations.
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(q) Material Adverse Change. There occurs any act, omission, event,
undertaking or circumstance or series of acts, omissions, events,
undertakings or circumstances which have, or in the sole good faith
judgment of Lender would have, either individually or in the aggregate, a
Materially Adverse Effect.
(r) Change in Management. Alex Trevino, Jr. and Anthony R. Maresca
shall for any reason cease to be the President and Chief Financial
Officer, respectively, of Borrower and 60 days shall have elapsed during
which time no replacement satisfactory to Lender in its sole and absolute
discretion shall have been appointed.
(s) Payment of Subordinated Debt. Use of proceeds of Revolving Credit
Loan to prepay any Subordinated Debt or pay the St. James Note.
11.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon the
occurrence of an Event of Default specified in Section 11.1(g) or (h), (i)
the principal of and the interest on the Revolving Credit Loans and the
Note at the time outstanding, and all other amounts owed to Lender under
this Agreement or any of the Loan Documents and all other Secured
Obligations, shall thereupon become due and payable without presentment,
demand, protest or other notice of any kind, all of which are expressly
waived, anything in this Agreement or any of the Loan Documents to the
contrary notwithstanding, and (ii) the Revolving Credit Facility and the
commitment of Lender to make advances thereunder or under this Agreement
shall immediately terminate.
(b) Other Remedies. If any Event of Default (other than as specified
in Section 11.1(g) or (h)) shall have occurred and be continuing, Lender,
in its sole and absolute discretion, may do any of the following:
(i) declare the principal of and interest on the Revolving
Credit Loans and the Note at the time outstanding, and all other
amounts owed to Lender under this Agreement or any of the Loan
Documents and all other Secured Obligations, to be forthwith due and
payable, whereupon the same shall immediately become due and payable
without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in this Agreement or the Loan
Documents to the contrary notwithstanding;
(ii) terminate the Revolving Credit Facility and any commitment
of Lender to make advances hereunder;
(iii) notify, or request Borrower to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or
more of the Receivables to make payment to Lender or any agent or
designee of Lender, at such address as may be specified by Lender,
and, if, notwithstanding the giving of any notice,
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any Account Debtor or other such obligor shall make payments to
Borrower or any of its Subsidiaries, Borrower or such Subsidiary
shall hold all such payments it receives in trust for Lender, without
commingling the same with other funds or property of, or held by
Borrower or such Subsidiary and shall deliver the same to Lender or
any such agent or designee immediately upon receipt by Borrower or
such Subsidiary in the identical form received, together with any
necessary endorsements;
(iv) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms
which Lender considers advisable and in all such cases only the net
amounts received by Lender in payment of such amounts, after
deductions of costs and attorneys' fees, shall constitute Collateral,
and neither Borrower nor any Subsidiary shall have any further right
to make any such settlements or adjustments or to accept any returns
of merchandise;
(v) enter upon any premises on which Inventory may be located
and, without resistance or interference by Borrower or such
Subsidiary, take physical possession of any or all thereof and
maintain such possession on such premises or move the same or any
part thereof to such other place or places as Lender shall choose.
without being liable to Borrower on account or such Subsidiary of any
loss, damage or depreciation that reasonably results therefrom;
(vi) require Borrower to and Borrower shall, without charge to
Lender, assemble the Inventory and Equipment and maintain or deliver
it into the possession of Lender or any agent or representative of
Lender at such place or places as Lender may designate;
(vii) at the expense of Borrower, cause any of the Inventory and
Equipment to be placed in a public or field warehouse, and Lender
shall not be liable to Borrower or any Subsidiary on account of any
loss, damage or depreciation that may occur as a result thereof, so
long as Lender shall act reasonably and in good faith;
(viii) without notice, demand or other process, and without
payment of any rent or any other charge, enter any of Borrower's or
any Subsidiary's premises and, without breach of the peace, until
Lender completes the enforcement of its rights in the Collateral,
take possession of such premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of
Borrower's equipment, for the purpose of (A) completing any work in
process, preparing any Inventory for disposition and disposing
thereof, and (B) collecting any Receivable, and Lender is hereby
granted a license or sublicense and all other rights as may be
necessary, appropriate or desirable to use the Intellectual Property
in connection with the foregoing, and the rights of
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Borrower under all licenses and franchise agreements shall inure to
Lender's benefit (provided, however, that any use of any federally
registered trademarks as to any goods shall be subject to the control
as to the quality of such goods of the owner of such trademarks and
the goodwill of the business symbolized thereby);
(ix) exercise any and all of its rights under any and all of the
Security Documents;
(x) apply any cash Collateral to the payment of the Secured
Obligations in any order in which Lender may elect or use such cash
in connection with the exercise of any of its other rights hereunder
or under any of the Security Documents;
(xi) establish or cause to be established one or more Lockboxes
or other arrangement for the deposit of proceeds of Receivables, and,
in such case, Borrower shall cause and shall cause each of its
Subsidiaries to cause to be forwarded to Lender at Lender's Office,
on a daily basis, copies of all checks and other items of payment and
deposit slips related thereto deposited in such Lockboxes, together
with collection reports in form and substance satisfactory to Lender;
and
(xii) exercise all of the rights and remedies of a secured party
under the UCC (whether or not the UCC is applicable) and under any
other applicable law, including, without limitation, the right,
without notice except as specified below and with or without taking
the possession thereof, to sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen
by Lender, for cash; on credit or for future delivery and at such
price or prices and upon such other terms as Lender may deem
commercially reasonable. Borrower agrees that, to the extent notice
of sale shall be required by law; at least 10 days' notice to
Borrower of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notice, but notice given in any other reasonable manner or at any
other reasonable time shall also constitute reasonable notification.
Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Lender may adjourn
any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may; without further
notice, be made at the time and place to which it was so adjourned.
(c) Cash Collateral; Injunctive Relief. All cash proceeds of
Collateral from time to time existing, including without limitation
collections and payments of Receivables and cash receipts, if any, for
other Collateral, whether consisting of cash, checks or other similar
items, at all times shall be subject to an express trust for the benefit
of Lender. All such proceeds shall be subject to Lender's continuing
security
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interests under this Agreement. Except as may be specifically allowed
otherwise by this Agreement, Borrower is expressly prohibited from using,
spending, retaining or otherwise exercising any dominion over such
proceeds. Borrower acknowledges and agrees that an action for damages
against Borrower for any breach of such prohibitions shall not be an
adequate remedy at law. In the event of any such breach, Borrower agrees
to the fullest extent allowed by law that Lender shall be entitled to
injunctive relief to restrain such breach and require compliance with the
requirements of this Agreement.
(d) Refusal of Funding. Lender shall have no obligation to make any
Revolving Credit Loan (i) at any time when any applicable condition for
funding prescribed under this Agreement has not been fulfilled to Lender's
satisfaction, (ii) at any time when any Default or Event of Default is in
existence, (iii) if Lender has received any notice under subparagraphs
(c), (d) or (e) of Section 9.4 or has knowledge of any event or condition
which would be the subject of any notice required thereunder, or (iv) if
Borrower or any Guarantor has repudiated or made any anticipatory breach
of any of its obligations under the Loan Documents. Any Revolving Credit
Loan requested at any such time may be declined by Lender, in whole or in
part, in Lender's sole discretion without prior notice.
(e) Performance by Lender. Should Borrower or any Guarantor fail to
perform any covenant, duty, or agreement required by the Loan Documents,
Lender may, at its sole option and election, perform or attempt to perform
same on behalf of Borrower or such Guarantor, at Borrower's cost and
expense, provided that Lender shall have no obligation or duty to take any
such action. Borrower agrees to reimburse Lender for such costs and
expenses on demand.
11.3 Application of Proceeds. All proceeds from each sale of, or other
realization upon, all or any part of the Collateral following an Event of
Default shall be applied or paid over as follows:
(a) First: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including attorneys' fees,
(b) Second: to the payment of the Secured Obligations (with Borrower
remaining liable for any deficiency) in any order which Lender may elect,
(c) Third: to the creation of a cash collateral account in an amount
equal to the Letter of Credit Reserve, which fund shall be held by Lender
as security for and applied to the payment of any amounts which may
thereafter become due under the Letter of Credit Facility, and
(d) Fourth: the balance (if any) of such proceeds shall be paid to
Borrower or, subject to any duty imposed by law or otherwise, to
whomsoever is entitled thereto.
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Borrower shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Secured Obligations, together with interest thereon
at a rate per annum equal to the highest rate then payable hereunder on such
Secured Obligations, which interest shall constitute part of the Secured
Obligations.
11.4 Power of Attorney. In addition to the authorizations granted to
Lender under Section 7.14 or under any other provision of this Agreement or any
of the Loan Documents: Borrower hereby irrevocably appoints Lender as its agent
and attorney-in-fact to take any action necessary to preserve and protect the
Collateral and Lender's interests under the Loan Documents. Borrower hereby
authorizes and appoints Lender as attorney in fact to sign and file any
financing statement or other document necessary to perfect Lender's security
interest in the Collateral. Lender shall have the right at any time to take in
good faith any of the following action, in its own name or in the name of
Borrower, whether or not an Event of Default is in existence: (i) make written
or verbal requests for verification of amounts owing on Receivables from any or
all Persons which Lender believes may be account debtors or obligors on
Receivables; (ii) take possession and control of proceeds of Receivables, (iii)
redirect the deposit and disposition of collections and proceeds of
Receivables; (iv) endorse the name of Borrower on checks, instruments or other
evidences of payment on Receivables; (v) prepare, sign and file, on behalf of
Borrower in Borrower's name or in Lender's name as assignee, any notice of
lien, or any proof of claim or other document in any bankruptcy proceedings of
any account debtor or obligor on Receivables; (vi) access, copy or utilize any
information recorded or contained in any computer or data processing equipment
or system in respect of the Receivables maintained by Borrower or any
Affiliate, or to which Borrower has access; (vii) enter onto Borrower's
premises and discuss Borrower's affairs with Borrower's personnel as may be
reasonably necessary in connection with maintaining or enforcing Lender's
rights under the Loan Documents; (viii) access and utilize the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Receivables, Inventory or other Collateral to
which Borrower or any Subsidiary of Borrower has access; and (ix) take all
other action allowed by law as may be necessary to carry out the Loan Documents
and give effect to Lender's rights thereunder. In addition, Lender shall have
the right to take any of the following action, in its own name or in the name
of Borrower, at any time when any Event of Default is in existence: (x) notify
any or all Persons which Lender believes may be account debtors or obligors on
Receivables to make payments directly to Lender; (xi) settle, adjust,
compromise or discharge Receivables or extend time of payment upon such terms
as Lender may determine; (xii) take action in Lender's name or Borrower's name
to enforce collection of Receivables; (xiii) open mail addressed to Borrower to
take possession of and dispose of checks or other proceeds of Receivables in
accordance with this Agreement; and (xiv) direct the U.S. Postal service to
change the address to which Borrower's mail is delivered. Should Lender at any
time elect to exercise its right of verification or notification with respect
to the Receivables as provided in clause (i) or clause (ii) above,
respectively, Lender shall have the right in its sole discretion to direct such
request for verification, or notification, as the case may be. to all Persons
which Lender believes may have transacted business with Borrower at any time,
whether or not such Persons are then indebted to Borrower, and Lender is hereby
released and discharged from any liability by reason of any such request for
verification or notification.
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Costs and expenses incurred by Lender in connection with any of such actions by
Lender, including attorneys' fees and out-of-pocket expenses, shall be
reimbursed to Lender on demand,
11.5 Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of Under under this
Agreement, the Note and each of the Loan Documents shall be cumulative and
not exclusive of any rights or remedies which it or they would otherwise
have. In exercising such rights and remedies, Lender may be selective and
no failure or delay by Under in exercising any right shall operate as a
waiver of such right nor shall any single or partial exercise of any power
or right preclude its other or further exercise or the exercise of any
other power or right.
(b) Waiver of Marshalling. Borrower hereby waives any right to
require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this Article 11 or
elsewhere in this Agreement or in any of the Loan Documents shall be
construed as requiring or obligating Lender or any agent or designee of
Lender to make any demand or to make any inquiry as to the nature or
sufficiency of any payment received by it or to present or file any claim
or notice or take any action with respect to any Receivable or any other
Collateral or the moneys due or to become due thereunder or in connection
therewith or to take any steps necessary to preserve any rights against
prior parties, and neither Lender nor any of its agents or designees shall
have any liability to Borrower for actions taken pursuant to this Article
11, any other provision of this Agreement or any of the Loan Documents, so
long as Lender or such agent or designee shall act reasonably and in good
faith.
(d) Appointment of Receiver. In any action under this Article 11,
Lender shall be entitled to apply for the appointment of a receiver,
without notice of any kind whatsoever, to take possession of all or any
portion of the Collateral and to exercise such power as the court shall
confer upon such receiver.
(e) Waiver of Notices. Except as otherwise expressly provided in this
Agreement, Borrower expressly waives presentment, demand, notice of
intention to accelerate, notice of acceleration, protest and any other
notices of any kind with respect to the Secured Obligations and the
remedies provided by the Loan Documents.
(f) Non-waiver. Forbearance or indulgence by Lender of any Default or
Event of Default or any other event or condition which is or would be the
subject of a required notice under Section 9.5, at any time from time to
time, shall not be deemed a waiver of any rights of Lender under the Loan
Documents. The acceptance by Lender at any time and from time to time of
any partial performance or partial payment of the Secured Obligations
shall not be deemed to be a waiver of any Event of Default then
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existing. No delay or omission by Lender in exercising any right or remedy
shall impair such right or remedy, or be construed as a waiver thereof,
nor shall any single or partial exercise of any such rights or remedies
preclude other or further exercise thereof. Lender shall not be required
or obligated to file suit or otherwise pursue any other Person for
enforcement or collection of any of the Secured Obligations or to take any
action to realize upon any of the Collateral.
ARTICLE 12 - MISCELLANEOUS
12.1 Notices.
(a) Method of Communication. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing or by
telephone subsequently confirmed in writing. Notices in writing shall be
delivered personally or sent by overnight courier service, by certified or
registered mail, postage pre-paid, or by facsimile transmission and shall
be deemed received, in the case of personal delivery, when delivered, in
the case of overnight courier service, on the next Business Day after
delivery to such service, in the case of mailing, on the third day after
mailing (or, if such day is a day on which deliveries of mail are not made,
on the next succeeding day on which deliveries of mail are made) and, in
the case of facsimile transmission, upon transmittal; provided that in the
case of notices to Lender, Lender shall be charged with knowledge of the
contents thereof only when such notice is actually received by Leader. A
telephonic notice to Lender as understood by Lender will be deemed to be
the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it
at the following addresses, or any other address of which all the other
parties are notified in writing.
If to Borrower: ACR Group, Inc.
3200 Wilcrest Drive, Suite 440
Houston, Texas 77042
Attention: Anthony R. Maresca,
Senior Vice President
Facsimile No.: (713) 780-4067
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If to Lender:
Mailing address: NationsBank of Texas, N.A.
P.O. Box 830732
Dallas, Texas 75283-0732
Attention: Business Credit
Regional Manager:
URGENT
Address for personal
or courier delivery: NationsBank of Texas, N.A.
NationsBank Plaza, 6th Floor
901 Main Street
Dallas, Texas 75202
Attention: Business Credit
Regional Manager
Facsimile No.: (214) 508-3501
(c) Lender's Office. Lender hereby designates its office located at
NationsBank Plaza, 901 Main Street, 6th Floor, Dallas, Texas 75202, or any
subsequent office which shall have been specified for such purpose by
written notice to Borrower, as the office to which payments due are to be
made and at which Loans will be disbursed.
12.2 Expenses. Borrower agrees to pay or reimburse on demand all costs and
expenses incurred by Lender, including, without limitation, the reasonable fees
and disbursements of counsel, in connection with (a) the negotiation,
preparation, execution, delivery, administration, enforcement and termination
of this Agreement and each of the other Loan Documents, whenever the same shall
be executed and delivered, including, without limitation, (i) the out-of-pocket
costs and expenses incurred in connection with the administration and
interpretation of this Agreement and the other Loan Documents, (ii) the costs
and expenses of appraisals of the Collateral, (iii) the costs and expenses of
lien searches, (iv) fees and other charges of (a) filing the Financing
Statements and continuations and the costs and expenses of taking other actions
to perfect, protect, and continue the Security Interest; (b) the preparation,
execution and delivery of any waiver, amendment, supplement or consent by
Lender relating to this Agreement or any of the Loan Documents; (c) sums paid
or obligations incurred in connection with the payment of any amount or taking
any action required of Borrower under the Loan Documents that Borrower fails to
pay or take; (d) costs of inspections and verifications of the Collateral,
including, without limitation, standard per diem fees charged by Lender,
travel, lodging, and meals for inspections of the Collateral and Borrower's
operations and books and records by Lender's agents up to four times per year
and whenever an Event of Default exists; (e) costs and expenses of forwarding
loan proceeds, collecting checks and other items of payment, and establishing
and maintaining each Controlled Disbursement Account, Agency Account and
Lockbox; (f) costs and expenses of preserving and protecting the Collateral;
(g)
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after the occurrence of a Default, consulting with and obtaining opinions and
appraisals from one or more Persons, including real estate and personal
property appraisers, accountants and lawyers, concerning the value of any
Collateral for the Secured Obligations or related to the nature, scope or value
of any right or remedy of Lender hereunder or under any of the Loan Documents,
including any review of factual matters in connection therewith, which expenses
shall include the fees and disbursements of such Persons; and (h) costs and
expenses paid or incurred to obtain payment of the Secured Obligations, enforce
the Security Interest, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of the Loan Documents, or to prosecute or
defend any claim in any way arising out of, related to or connected with, this
Agreement or any of the Loan Documents, which expenses shall include the
reasonable fees and disbursements of counsel and of experts and other
consultants retained by Lender. The costs described in (iv)(d) shall be payable
to Lender as a quarterly fee of $4,200 payable quarterly in arrears. Such fee
is based upon current operations and may be adjusted to reflect increased
administrative costs if increased administration is required by increased
operations.
The foregoing shall not be construed to limit any other provisions of the
Loan Documents regarding costs and expenses to be paid by Borrower. Borrower
hereby authorizes Lender to debit Borrower's loan accounts (by increasing the
principal amount of the Revolving Credit loans) in the amount of any such costs
and expenses owed by Borrower when due.
12.3 Stamp and Other Taxes. Borrower will pay any and all stamp,
registration, recordation and similar taxes. fees or charges and shall
indemnify Lender against any and all liabilities with respect to or resulting
from any delay in the payment or omission to pay any such taxes, fees or
charges. which may be payable or determined to be payable in connection with
the execution, delivery, performance or enforcement of this Agreement and any of
the Loan Documents or the perfection of any rights or security interest
thereunder.
12.4 Setoff. Borrower irrevocably authorizes Lender to charge any account
of Borrower maintained with Lender with such amount as may be necessary from
time to time to pay any Secured Obligations which are not timely paid when due
as required by the Loan Documents. In addition to any rights now or hereafter
granted under applicable law, and not by way of limitation of any such rights.
upon and after the occurrence of any Default or Event of Default, Lender and
any participant with Lender in the Revolving Credit Loans are hereby authorized
by Borrower at any time or from time to time. without notice to Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness at any
time held or owing by Lender or any participant to or for the credit or the
account of Borrower against and on account of the Secured Obligations
irrespective or whether or not (a) Lender shall have made any demand under this
Agreement or any of the Loan Documents, or (b) Lender shall have declared any
or all of the Secured Obligations to be due and payable as permitted by Section
11.2 and although such Secured Obligations shall be contingent or unmatured.
Upon the occurrence of an Event of Default and for so long as the
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same shall remain in existence and not cured or waived. Lender shall be
entitled in its discretion to hold any such deposits or other sums pending
acceleration of the Secured Obligations.
12.5 Litigation. EACH OF LENDER AND BORROWER HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING
OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR
AGAINST BORROWER OR LENDER ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY
ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER
BETWEEN BORROWER AND LENDER OF ANY KIND OR NATURE. EACH SUCH PARTY
ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF
THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY, AND WITH THE BENEFIT OF
ADVICE OF COUNSEL OF ITS CHOOSING. BORROWER AND LENDER HEREBY AGREE THAT THE
FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF LENDER,
ANY COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY AND WHICH
SITS IN A JURISDICTION IN WHICH BORROWER TRANSACTS BUSINESS SHALL HAVE
NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE
LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. BORROWER EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING
COMMENCED IN SUCH COURTS, HEREBY WAIVING PERSONAL SERVICE OF THE SUMMONS AND
COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREEING THAT SERVICE
OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AND ITS COUNSEL AT THE
RESPECTIVE ADDRESSES SET FORTH IN SECTION 12.1 (B), WHICH SERVICE SHALL BE
DEEMED MADE UPON RECEIPT THEREOF. THE NON-EXCLUSIVE CHOICE OF FORUM SET FORTH
IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION.
12.6 Waiver of Rights. [DELETED]
12.7 Continuing Rights of Lender in Respect of Secured Obligations;
Reversal of Payments. In the event any amounts from time to time applied in
reduction of the Secured Obligations are subsequently invalidated, declared to
be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, or Lender refunds or repays any such amount
pursuant to any applicable law or pursuant to any compromise or settlement of
any such claim, then, the Secured Obligations shall automatically be deemed to
be revived and increased to the extent of such amount and the same shall
continue to be secured by the Collateral as if
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<PAGE> 70
such amount had not been so applied. Lender shall have the continuing and
exclusive right to apply, or reverse and re-apply, any and all payments to any
portion of the Secured Obligations.
12.8 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to
Lender, therefore, Borrower agrees that Lender, at Lender's option, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages. The rights of Lender under this
Section 12.8 are cumulative of, and in addition to, those specified under
Section 11.2(c).
12.9 Accounting Matters. All financial and accounting calculations,
measurements and computations made for any purpose relating to this Agreement,
including, without limitation, all computations utilized by Borrower to
determine whether it is in compliance with any covenant contained herein,
shall, unless there is an express written direction or consent by Lender to the
contrary, be performed in accordance with GAAP.
12.10 Assignment; Participation. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights under this Agreement. Lender may assign to one or
more Persons, or sell participations to one or more Persons in, all or a
portion of its rights and obligations hereunder and under the Notes and, in
connection with any such assignment or sale of a participation, may assign its
rights and obligations under the Security Documents. Lender may, in connection
with any assignment or proposed assignment or sale or proposed sale of a
participation, disclose to the assignee or proposed assignee or 'participant or
proposed participant any information relating to Borrower furnished to Lender
by or on behalf of Borrower.
12.11 Amendments. Any term, covenant, agreement or condition of this
Agreement or any of the other Loan Documents may be amended or waived and any
departure therefrom may be consented to if, but only if, such amendment, waiver
or consent is in writing signed by Lender and, in the case of an amendment, by
Borrower. Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific instance and
for the specific purpose for which given.
12.12 Performance of Borrower's Duties. Borrower's obligations under this
Agreement and each of the Loan Documents shall be performed by Borrower at its
sole cost and expense. If Borrower shall fail to do any act or thing which it
has covenanted to do under this Agreement or any of the Loan Documents, Lender
may (but shall not be obligated to) do the same or cause it to be done either
in the name of Lender or in the name and on behalf of Borrower, and Borrower
hereby irrevocably authorizes Lender so to act.
12.13 Indemnification. Borrower hereby agrees to indemnify and hold
harmless and defend all Indemnified Persons from and against any and all
Indemnified Claims, except in the case of a dispute between Borrower and Lender
in which Borrower prevails in a final unappealed
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or unappealable judgment. Upon notification and demand, Borrower agrees to
provide defense of any Indemnified Claim and pay all costs and expenses of
counsel selected by Borrower and reasonably acceptable to such Indemnified
Person in respect thereof. Any settlement or compromise of any such Indemnified
Claim shall be subject to the consent of Borrower and such Indemnified Person,
in which event the obligations of such Indemnified Person, if any, pursuant to
any such settlement or compromise shall be deemed included within the
Indemnified Claims. The indemnification provided for in this Section 12.13
shall survive any termination of this Agreement and shall continue for the
benefit of all Indemnified Persons. Except as specifically provided herein,
Borrower waives all notices from any Indemnified Person.
12.14 All Powers Coupled with Interest. All powers of attorney and other
authorizations granted to Lender and any Persons designated by Lender pursuant
to any provisions of this Agreement or any of the Loan Documents shall be
deemed coupled with an interest and shall be irrevocable so long as any of the
Secured Obligations remain unpaid or unsatisfied or the Revolving Credit
Facility has not been terminated.
12.15 Survival. Notwithstanding any termination of this Agreement, (a)
until all Secured Obligations have been paid in full and the Revolving Credit
Facility terminated, Lender shall retain its Security Interest and shall retain
all rights under this Agreement and each of the Security Documents with respect
to the Collateral as fully as though this Agreement had not been terminated,
and (b) the indemnities to which the Lender is entitled under the provisions of
this Article 12 and any other provision of this Agreement and the Loan
Documents shall continue in full force and effect and shall protect Lender
against events arising after such termination as well as before.
12.16 Severability of Provisions. Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
12.17 Governing Law. The Loan Documents, and all documents and instruments
executed in connection therewith shall be construed in accordance with and
governed by the law of the State of Texas, provided, that to the extent federal
law would allow a higher rate of interest than would be allowed by the laws of
the State of Texas, then with respect to the provisions of any law which
purport to limit the amount of interest that may be contracted for, charged or
received in connection with any of the Secured Obligations, such federal law
shall apply.
12.18 Acceptance and Performance. This Agreement shall become effective
only upon acceptance by Lender. The Secured Obligations are payable at Lender's
offices in Dallas, Dallas County, Texas.
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<PAGE> 72
12.19 Interest Limitation. In no contingency or event whatsoever shall the
amount of interest under the Loan Documents paid by Borrower, received by
Lender, agreed to be paid by Borrower, or requested or demanded to be paid by
Lender, exceed the Maximum Rate. In the event any such sums paid to Lender by
Borrower would exceed the Maximum Rate, Lender shall automatically apply such
excess to any unpaid principal or, if the amount of such excess exceeds said
unpaid principal, such excess shall be paid to Borrower. All sums paid, or
agreed to be paid, by Borrower which are or hereafter may be construed to be
compensation for the use, forbearance, or detention of money shall be
amortized, prorated, spread and allocated in respect of the Secured Obligations
throughout the full Contract Term until the Secured Obligations are paid in
full. Notwithstanding any provisions contained in the Loan Documents, or in any
notes or other related documents executed pursuant hereto. Lender shall never
be entitled to receive, collect or apply as interest any amount in excess of
the Maximum Rate and, in the event Lender ever receives, collects, or applies
any amount in respect of Borrower that otherwise would be in excess of the
Maximum Rate, such amount shall automatically be deemed to be applied in
reduction of the unpaid principal balance of the Secured Obligations and, if
such principal balance is paid in full, any remaining excess shall forthwith be
paid to Borrower. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Rate, Borrower and Lender
shall, to the maximum extent permitted under applicable law, (i) characterize
any non-principal payment as a standby fee, commitment fee, prepayment charge,
delinquency charge or reimbursement for a third-party expense rather than as
interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii)
amortize, prorate, allocate and spread in equal parts throughout the entire
period during which the indebtedness was outstanding the total amount of
interest at any time contracted for, charged or received, Nothing herein
contained shall be construed or so operate as to require Borrower to pay any
interest, fees, costs, or charges greater than is permitted by applicable law.
Subject to the foregoing, Borrower hereby agrees that the actual effective rate
of interest from time to time existing with respect to loans made by Lender to
Borrower, including all amounts agreed to by Borrower or charged or received by
Lender, which may be deemed to be interest under applicable law, shall be
deemed to be a rate which is agreed to and stipulated by Borrower and Lender in
accordance with applicable law.
12.20 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
12.21 Reproduction of Documents. This Agreement, each of the Loan
Documents and all documents relating thereto, including, without limitation,
(a) consents, waivers and modifications that may hereafter be executed, (b)
documents received by Lender, and (c) financial statements, certificates and
other information previously or hereafter furnished to Lender, may be reproduced
by Lender by any photographic, photostatic, microcard, microfilm, miniature
photographic or other similar process, and Lender may destroy any original
document so reproduced. Each party hereto stipulates that, to the extent
permitted by applicable laws any such reproduction shall be as admissible in
evidence as the original itself in any judicial or
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administrative proceeding (whether or not the original shall be in existence
and whether or not such reproduction was made by such Lender in the regular
course of business), and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence.
12.22 Funds Transfer Services.
(a) The Borrower acknowledges that the Lender and its affiliates have
made available to it Wire Transfer Procedures a copy of which is attached
hereto as Exhibit D which include a description of security procedures
regarding funds transfers executed by the Lender or an affiliate bank at
the request of the Borrower (the "Security Procedures"). The Borrower and
the Lender agree that the Security Procedures are commercially reasonable.
The Borrower further acknowledges that the full scope of the Security
Procedures which the Lender or such affiliate bank offers and strongly
recommends for funds transfers is available only if the Borrower
communicates directly with the Lender or such affiliate bank as applicable
in accordance with said procedures. If the Borrower attempts to
communicate by any other method or otherwise not in accordance with the
Security Procedures, the Lender or such affiliate bank, as applicable,
shall not be required to execute such instructions, but if the Lender or
such affiliate bank, as applicable, does so, the Borrower will be deemed
to have refused the Security Procedures that the Lender or such affiliate
bank, as applicable, offers and strongly recommends, and the Borrower will
be bound by any funds transfer, whether or not authorized, which is issued
in the Borrower's name and accepted by the Lender or such affiliate bank,
as applicable, in good faith. The Lender or such affiliate bank, as
applicable, may modify the Wire Transfer Procedures including, without
limitation, the Security Procedures at such time or times and in such
manner as the Lender or such affiliate bank, as applicable, in its sole
discretion, deems appropriate to meet prevailing standards of good banking
practice. By continuing to use the Lender's or such affiliate bank's as
applicable, wire transfer services after receipt of any modification of
the Wire Transfer Procedures including, without limitation, the Security
Procedures, the Borrower agrees that the Wire Transfer Procedures
including, without limitation, the Security Procedures, as modified, are
likewise commercially reasonable. The Borrower further agrees to establish
and maintain procedures to safeguard the Security Procedures and any
information related thereto. Neither Lender nor any affiliate bank is
responsible for detecting any error in any payment order sent by the
Borrower to the Lender.
(b) The Lender or such affiliate bank, as applicable, will generally
use the Fedwire funds transfer system for domestic funds transfers, and
the funds transfer system operated by the Society for Worldwide
International Financial Telecommunication (SWIFT) for international funds
transfers. International funds transfers may also be initiated through the
Clearing House InterBank Payment System (CHIPs) or international cable.
However, the Lender or such affiliate bank, as applicable, may use any
means and routes that the Lender or such affiliate bank, as applicable, in
its sole discretion, may consider suitable for the transmission of funds.
Each payment order, or cancellation
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<PAGE> 74
thereof, carried out through a funds transfer system or a clearinghouse
will be governed by all applicable funds transfer system rules and clearing
arrangements, whether or not the Lender or such affiliate bank, as
applicable, is a member of the system, clearinghouse or arrangement and
the Borrower acknowledges that the Lender's or such affiliate bank's, as
applicable, right to reverse, adjust, stop payment or delay posting of an
executed payment order is subject to the laws, regulations, rules,
circulars and arrangements described herein.
12.23 No Oral Agreements. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of
the day and year first written above.
BORROWER:
ACR GROUP, INC.
By: /s/ ANTHONY R. MARESCA
-----------------------------
Title: Anthony R. Maresca
--------------------------
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: /s/ CATHY BARLOW SHERRILL
-----------------------------
Name: Cathy Barlow Sherrill
---------------------------
Title: Vice President
--------------------------
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<PAGE> 75
Each of the following Guarantors hereby acknowledge, consent and agree to
the provisions of Article 6 and Article 7 hereof with respect to the
continuation and confirmation of the security interest previously granted in
favor of the Lender pursuant to this Agreement and the Existing Guarantor
Security Agreements and with respect to the covenants relating to Collateral.
IN WITNESS WHEREOF, each Guarantor has caused this Agreement to be
executed by its duly authorized officers in several counterparts all as of the
day and year first written above.
GUARANTORS:
ACR SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
HEATING & COOLING SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
TOTAL SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
VALLEY SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
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<PAGE> 76
ENER-TECH INDUSTRIES, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
FLORIDA COOLING SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
LIFETIME FILTER, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
WEST COAST HVAC SUPPLY, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
TIME ENERGY SYSTEMS SOUTHWEST, INC.
By: /s/ ANTHONY R. MARESCA
--------------------------------
Name: Anthony R. Maresca
--------------------------
Title: Secretary
-------------------------
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<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of September 9, 1997, is among ACR GROUP, INC. a Texas corporation
("Borrower"), NATIONSBANK OF TEXAS, N.A., a national banking association
("Lender") and the guarantors listed on the signature pages hereto (each
individually a "Guarantor" and collectively, the "Guarantors").
RECITALS:
Borrower, Lender and Guarantors have entered into that certain Loan and
Security Agreement dated as of August 27, 1997 (such Loan and Security
Agreement, as amended or otherwise modified from time to time, the
"Agreement").
Borrower, Lender and Guarantors desire to amend the Agreement to include a
form of additional subsidiaries supplement to be executed by certain new
subsidiaries formed or acquired by the Borrower and to effect certain other
amendments as herein provided.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.1. Definitions. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE II
Amendments
Section 2.1. Addition of Definition. Effective as of the date hereof,
the following definition is hereby added to Section 1.1:
"Additional Subsidiaries Supplement" shall mean an additional
subsidiaries supplement substantially in the form of Exhibit E hereto
which shall be executed by Subsidiaries of the Borrower formed or
acquired after the date of the Agreement.
Section 2.2. Amendment to Section 8.6. Effective as of the date hereof,
Section 8.6 of the Agreement is hereby amended by adding the phrase "and
Approved Acquisitions" after the words "Permitted Acquisitions".
Section 2.3. Addition of Section 8.10. Effective as of the date hereof,
the following Section 8.10 is hereby added at the end of Article 8 of the
Agreement:
<PAGE> 2
8.10 Additional Subsidiaries and Pledge of Assets. In the event
that the Borrower or any Subsidiary forms or acquires additional
subsidiaries in accordance with the terms of this Agreement, in order
for the assets of the new Subsidiary to be considered for inclusion in
the Borrowing Base, the Borrower shall cause the new Subsidiary to
execute an Additional Subsidiaries Supplement.
Section 2.4. Amendment to Section 10.1(b). Effective as of the date
hereof, Section 10.1(b) of the Agreement is hereby amended by changing (i) to
read "(i) $6,500,000, plus".
Section 2.5. Amendment to Section 10.4. Effective as of the date hereof,
Section 10.4 of the Agreement is hereby amended by adding the phrase,
"Permitted Acquisitions and Approved Acquisitions" at the end of such section.
Section 2.6. Amendment to Section 10.10. Effective as of the date
hereof, Section 10.10 of the Agreement is hereby amended by deleting $250,000
and adding "$500,000 in the fiscal year ending February 28, 1998 or by more than
$250,000 thereafter."
ARTICLE III
Ratifications and Other Agreements
Section 3.1. Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and except as expressly modified and superseded by this
Amendment, the terms and provisions of all other documents executed in
connection with the Agreement are hereby ratified and confirmed and shall
continue in full force and effect. Borrower, Lender and Guarantors agree that
the Agreement as amended hereby and all other documents executed in connection
with the Agreement or this Amendment to which Borrower or such Guarantor is a
party shall continue to be legal, valid, binding and enforceable in accordance
with their respective terms.
Section 3.2. Representations and Warranties. Each of Borrower and each
Guarantor hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment and any and all other documents
executed and/or delivered in connection herewith have been authorized by all
requisite corporate action on the part of Borrower or such Guarantor and will
not violate the articles of incorporation or bylaws of Borrower or such
Guarantor or any agreement to which Borrower or such Guarantor or any of its
properties is bound, (b) neither the articles of incorporation nor the bylaws
of Borrower or any Guarantor have been amended or revoked since the date of the
Agreement and such articles of incorporation and bylaws are in full force and
effect, (c) the representations and warranties contained in the Agreement, as
amended hereby, and any other documents executed in connection therewith or
herewith are true and correct on and as of the date hereof as though made on
and as of the date hereof, (d) no Event of Default has occurred and is
continuing and no event or condition has occurred that with the giving of
notice or lapse of time or both would be an Event of Default, and (e) Borrower
is in full compliance with all covenants and agreements contained in the
Agreement as amended hereby.
<PAGE> 3
ARTICLE IV
Miscellaneous
Section 4.1. Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other document
executed in connection herewith shall survive the execution and delivery of
this Amendment, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
Section 4.2. Reference to Agreement. Each of the Agreement and any and
all other agreements, documents, or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the
Agreement as amended hereby, are hereby amended so that any reference in such
documents to the Agreement shall mean a reference to the Agreement as amended
hereby.
Section 4.3. Expenses of Lender. As provided in the Agreement, Borrower
agrees to pay on demand all reasonable costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and any other documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including without limitation the costs
and reasonable fees of Lender's legal counsel, and all costs and expenses
incurred by Lender in connection with the enforcement or preservation of any
rights under the Agreement, as amended hereby, or any other document executed
in connection therewith, including without limitation the costs and reasonable
fees of Lender's legal counsel.
Section 4.4. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 4.5. Applicable Law. This Amendment and all other documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of Texas.
Section 4.6. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Lender, Borrower, Guarantors and their respective
successors and assigns, except Borrower may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of Lender.
Section 4.7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
Section 4.8. Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
Section 4.9. Entire Agreement. THE AGREEMENT, THIS AMENDMENT AND ALL OTHER
INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH
THE AGREEMENT OR THIS AMENDMENT
<PAGE> 4
REPRESENT THE FINAL AGREEMENTS AMONG THE PARTIES HERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
THE PARTIES HERETO.
Executed as of the date first written above.
BORROWER:
ACR GROUP, INC.
By: /s/ Anthony R. Maresca
------------------------------------
Name: ANTHONY R. MARESCA
----------------------------------
Title: SR. VICE PRESIDENT AND SECRETARY
---------------------------------
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: /s/ Dora Martinez
------------------------------------
Name: DORA MARTINEZ
-------------------------------
Title: Vice President
------------------------------
<PAGE> 5
Each of the undersigned Guarantors hereby consents and agrees to this
Amendment.
GUARANTORS:
ACR SUPPLY, INC.
By: /s/ ANTHONY MARESCA
-------------------------------
Secretary
HEATING AND COOLING SUPPLY, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
TOTAL SUPPLY, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
VALLEY SUPPLY, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
ENER-TECH INDUSTRIES, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
<PAGE> 6
FLORIDA COOLING SUPPLY, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
LIFETIME FILTER, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
WEST COAST HVAC SUPPLY, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
TIME ENERGY SYSTEMS SOUTHWEST, INC.
By: /s/ ANTHONY MARESCA
--------------------------------
Secretary
<PAGE> 7
Exhibit E
FORM OF ADDITIONAL SUBSIDIARIES SUPPLEMENT
ADDITIONAL SUBSIDIARIES SUPPLEMENT (this "Supplement"), dated as of
___________, 1997 to the Loan and Security Agreement dated as of August 27,
1997 among ACR GROUP, INC., a Texas corporation ("Borrower"), NATIONSBANK OF
TEXAS, N.A., a national banking association ("Lender") and the guarantors
listed on the signature pages hereto (each individually a "Guarantor" and
collectively, the "Guarantors") (as amended. supplemented and otherwise
modified, the "Loan Agreement"). Capitalized terms not otherwise defined
herein shall have the meaning assigned to such terms in the Loan Agreement.
RECITALS:
The Loan Agreement provides that, in the event that the Borrower or
any Subsidiary forms or acquires additional subsidiaries in accordance with the
terms of the Loan Agreement, in order for the assets of the new Subsidiary to
be considered for inclusion in the Borrowing Base, the Borrower shall cause the
new Subsidiary to execute an Additional Subsidiaries Supplement.
________________, a _______________ corporation ("__________________"),
was not a Subsidiary of the Borrower on the date of the Loan Agreement, and,
therefore, was not a party to the Loan Agreement but now desires to become a
party thereunder and a guarantor of the Secured Obligations.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
By execution of this Supplement, _______________________ agrees to be
bound by all of the provisions of the Loan Agreement applicable to a Subsidiary
of the Borrower and a Guarantor thereunder, including without limitation
Articles 6 and 7 relating to the grant of a security interest in its assets and
certain collateral covenants. Further, ___________________ agrees that, it
shall, on the date this Supplement is accepted by the Lender, become a party to
Loan Agreement, in its capacity as Guarantor, to the same extent as if
originally a party thereto with the representations and warranties applicable to
a Subsidiary of the Borrower contained therein being deemed to be made by the
Borrower on behalf of ____________________ as of the date hereof and with the
representations and warranties applicable to a Guarantor contained therein being
deemed to be made by _____________________ as of the date hereof
Schedule 5.1(b) to the Loan Agreement is hereby amended to add
___________________ as a Subsidiary of the Borrower.
<PAGE> 8
_________________________ further grants to Lender a security interest
in the Collateral owned by ____________ and pledges and assigns the Collateral
to Lender, all upon and subject to the terms and conditions of the Loan
Agreement.
______________________ hereby represents and warrants to Lender that:
(a) Its chief executive office and the books and records relating to
the Receivables owned by _______________ are located at the address or
addresses listed on Exhibit A hereto Schedule 5.1(t) to the Loan
Agreement is hereby amended to add the addresses listed on Exhibit A.
(b) The address (including street, city, county and state) of each
facility at which Inventory owned by ___________________ is located is
set forth on Exhibit B hereto together with (i) the approximate
quantity in Dollars of the Inventory customarily located at each
Facility and (ii) if the facility is leased or is a third party
warehouse or processor location, the name of the landlord or such
third party warehouseman or processor. Schedule 5.1(u) to the Loan
Agreement is hereby amended to include the information set forth on
Exhibit B.
(c) Except as set forth on Exhibit C hereto, ____________________ has
not been known as or used any corporate or fictitious name other than
the corporate name of _____________________ on the date of this
Supplement. All trade names or styles under which _________________
sells Inventory or creates Receivables, or to which instruments in
payment or Receivables are made payable, are listed on Exhibit C
hereto. Schedule 5.1(v) to the Loan Agreement is hereby amended to
include the information set forth on Exhibit C.
IN WITNESS WHEREOF, _______________________ has executed this
Supplement on the date first above written.
-----------------------------------
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
AGREED AND ACCEPTED AS OF THE DATE
FIRST ABOVE WRITTEN:
BORROWER
ACR GROUP, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 9
LENDER:
NATIONSBANK OF TEXAS, N.A.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
GUARANTORS:
ACR SUPPLY, INC.
By:
--------------------------------
Secretary
HEATING AND COOLING SUPPLY, INC.
By:
--------------------------------
Secretary
TOTAL SUPPLY, INC.
By:
--------------------------------
Secretary
VALLEY SUPPLY, INC.
By:
--------------------------------
Secretary
<PAGE> 10
ENER-TECH INDUSTRIES, INC.
By:
--------------------------------
Secretary
FLORIDA COOLING SUPPLY, INC.
By:
--------------------------------
Secretary
LIFETIME FILTER, INC.
By:
--------------------------------
Secretary
WEST COAST HVAC SUPPLY, INC.
By:
--------------------------------
Secretary
TIME ENERGY SYSTEMS SOUTHWEST, INC.
By:
--------------------------------
Secretary
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 496,992
<SECURITIES> 0
<RECEIVABLES> 14,172,877
<ALLOWANCES> 838,518
<INVENTORY> 14,437,228
<CURRENT-ASSETS> 28,788,319
<PP&E> 5,877,626
<DEPRECIATION> 2,221,853
<TOTAL-ASSETS> 36,360,777
<CURRENT-LIABILITIES> 17,078,262
<BONDS> 0
0
0
<COMMON> 103,800
<OTHER-SE> 7,852,695
<TOTAL-LIABILITY-AND-EQUITY> 36,360,777
<SALES> 48,223,439
<TOTAL-REVENUES> 48,223,439
<CGS> 38,772,525
<TOTAL-COSTS> 38,772,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 133,122
<INTEREST-EXPENSE> 688,310
<INCOME-PRETAX> 991,251
<INCOME-TAX> 41,810
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 949,441
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
