SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
____ SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
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 0-5214
PEERLESS MFG. CO.
(Exact name of registrant as specified in its charter)
Texas 75-0724417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
2819 Walnut Hill Lane Dallas, Texas 75229
P. O. Box 540667 Dallas, Texas 75354
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 357-6181
None
Former name, former address and former fiscal year, if changed since
last report.
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter periods that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No
____ ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 12, 1999
Common stock, $1.00 par value 1,452,492 Shares
<PAGE>
PEERLESS MFG. CO.
INDEX
Page
Number
Part I: Financial Information
Item 1: Consolidated Financial Statements
Condensed Consolidated Balance Sheets for the
periods ended December 31, 1998 and June 30, 1998. 3
Condensed Consolidated Statements of Earnings for the
three and six months ended December 31, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for
the six months ended December 31, 1998 and 1997. 5
Notes to the Condensed Consolidated Financial Statements. 6 - 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8 - 11
Part II: Other Information
Legal Proceedings 12
Exhibits and Reports 12 - 13
Signatures 14
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PEERLESS MFG. CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1998 1998
(UNAUDITED (AUDITED)
---------- ----------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $1,662,762 $428,482
Short term investments 268,065 268,065
Accounts receivable-principally trade-net
of allowance for doubtful accounts of
$769,861 at December 31, 1998 and $806,200
at June 30, 1998 10,035,518 14,241,036
Inventories:
Raw materials 991,38 973,906
Work in process 1,088,167 1,114,524
Finished goods 261,956 331,415
Costs and earnings in excess of billings
on uncompleted contracts 1,913,862 1,838,641
Deferred income taxes 425,460 433,596
Other 193,801 165,631
---------- ----------
Total current assets 16,840,975 19,795,296
Property, plant and equipment-at Cost, less
accumulated depreciation 1,488,702 1,506,465
Property held for investment-at Cost, less
accumulated depreciation 802,274 830,840
Other assets 669,202 623,620
---------- ----------
$19,801,153 $22,756,221
========== ==========
<PAGE>
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $0 $200,000
Accounts payable-trade 3,097,456 5,566,068
Billings in excess of costs and
earnings on uncompleted contracts 338,397 49,977
Commissions payable 995,774 1,205,391
Accrued liabilities:
Compensation 453,554 1,499,443
Warranty 547,683 434,588
Other 555,690 366,408
---------- ----------
Total current liabilities 5,988,554 9,321,875
Deferred income taxes 38,862 38,543
Stockholders' equity:
Common stock-authorized 10,000,000 shares
of $1 par value; issued and outstanding,
1,457,492 shares 1,457,492 1,457,492
Additional paid-in capital 2,583,701 2,583,701
Unamortized value of restricted stock grants (39,427) (51,385)
Cumulative foreign currency translation
adjustment (61,063) (79,849)
Retained earnings 9,833,034 9,485,844
---------- ----------
13,773,737 13,395,803
---------- ----------
$19,801,153 $22,756,221
========== ==========
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $10,931,835 $11,041,772 $20,301,525 $18,247,561
Cost of goods sold 7,295,692 7,278,267 13,722,263 11,893,871
---------- ---------- ---------- ----------
Gross profit 3,636,143 3,763,505 6,579,262 6,353,690
Operating expenses 2,729,934 2,808,416 5,321,089 5,319,887
---------- ---------- ---------- ----------
Operating income 906,209 955,089 1,258,173 1,033,803
Other income(expense)
Interest income 16,679 6,871 23,673 15,404
Interest expense (954) (11,790) (18,898) (14,586)
Foreign exchange gains
(losses) (65,851) (21,902) (93,355) (50,984)
Other, net (10,620) (59,927) (12,805) (48,953)
---------- ---------- ---------- ----------
(60,746) (86,748) (101,385) (99,119)
---------- ---------- ---------- ----------
Earnings from operations
before Federal income tax 845,463 868,341 1,156,788 934,684
Federal income tax
Current 331,608 283,387 436,312 349,481
Deferred 2,037 (51,126) 8,905 (51,126)
---------- ---------- ---------- ----------
333,645 232,261 445,217 298,355
---------- ---------- ---------- ----------
Net earnings 511,818 636,080 711,571 636,329
========== ========== ========== ==========
Basic and diluted earnings
per share $0.35 $0.44 $0.49 $0.44
========== ========== ========== ==========
Basic weighted average
shares 1,457,492 1,451,992 1,457,492 1,451,992
Dilutive options 1,695 1,328 2,379 1,986
---------- ---------- ---------- ----------
Adjusted weighted average
shares 1,459,187 1,453,320 1,459,871 1,453,978
========== ========== ========== ==========
Cash dividend per common
share $0.125 $0.125 $0.250 $0.250
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
December 31,
1998 1997
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 711,564 $ 636,329
Adjustments to reconcile earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 172,953 177,166
Other 698 7,686
Changes in operating assets and liabilities
Accounts receivable 4,205,518 958,698
Inventories 78,338 (868,915)
Cost and earnings in excess of billings
on uncompleted contracts (75,221) 1,469,558
Other current assets (20,034) 59,257
Other assets (45,582) (116,371)
Accounts payable (2,468,612) (1,898,972)
Billings in excess of costs and earnings
on uncompleted contracts 288,420 (315,447)
Commissions payable (209,617) 81,765
Accrued liabilities (743,193) 21,717
--------- ----------
1,183,668 (423,858)
--------- ----------
Net cash provided by (used in) operating
activities 1,895,232 212,471
Cash flows from investing activities:
Net sales (purchases) of short-term investments 0 (1,587)
Net sales (purchases) of property and equipment (115,364) (195,972)
--------- ----------
Net cash provided by (used in) investing
activities (115,364) (197,559)
Cash flows from financing activities:
Net change in short-term borrowings (200,000) 1,550,000
Dividends paid (364,374) (362,999)
--------- ----------
Net cash used in financing activities (564,374) 1,187,001
Effect of exchange rate on cash and cash equivalents 18,786 15,598
--------- ----------
Net increase (decrease) in cash and cash
equivalents 1,234,280 1,217,511
Cash and cash equivalents at beginning of period 428,482 772,553
--------- ----------
Cash and cash equivalents at end period $1,662,762 $1,990,064
========= =========
The accompanying notes are an integral part of these statements.
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PEERLESS MFG. CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of
Peerless Mfg. Co. and its subsidiaries (the "Company") have
been prepared by the Company without audit. In the opinion
of the Company's management, the financial statements
reflect all adjustments necessary to present fairly the
results of operations for the three and six months ended
December 31, 1998 and 1997, the Company's financial position
at December 31, 1998 and June 30, 1998, and cash flows for
the six months ended December 31, 1998 and 1997. These
adjustments are of a normal, recurring nature which are, in
the opinion of management, necessary for a fair presentation
of the financial position and results of operations for the
interim periods.
Certain notes and other information have been condensed or
omitted from the interim financial statements presented in
this Quarterly Report on Form 10-Q. Therefore, these
financial statements should be read in conjunction with the
Company's Annual Report Form 10-K for the Fiscal year ended
June 30, 1998 and the consolidated financial statements and
notes thereto included in the Company's June 30, 1998,
audited financial statements.
2. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
Peerless Mfg. Co. designs and manufactures custom contracted
pressure vessels and other products to customer
specifications, sales of which are obtained by competitive
bids and may result in material sales and profitability
increases or decreases when comparing interim periods
between years. The Company generally recognizes sales of
custom-contracted products at the completion of the
manufacturing process, which is normally less than one year.
The percentage-of-completion method is used for significant
long-term contracts.
3. The backlog of uncompleted orders and letters of intent at
December 31, 1998 was approximately $25,000,000 as compared
to a December 31, 1997 backlog of $26,800,000. Of the
$25,000,000 backlog at December 31, 1998, approximately 75%
is scheduled to be completed in the current fiscal year.
6 of 14
<PAGE>
4. The Company has formal agreements with NationsBank N.A. and
Chase Bank of Texas N.A. for $3,500,000 each for an
aggregate of $7,000,000 continuing lines of credit,
renewable annually. Under the terms of these agreements,
loans bear interest at the prevailing prime rate and the
Company is required to pay 1/4 of 1% per annum on the unused
portion of the facility. In addition, Chase Bank of Texas
provided the Company a LIBOR rate option. As of December
31, 1998, the Company had nothing outstanding and $1,550,000
outstanding at December 31, 1997 against these lines of
credit.
5. The Company consolidates the accounts of its wholly-owned
foreign subsidiaries, Peerless Europe Limited and Peerless
Europe B.V. All significant intercompany accounts and
transactions have been eliminated in the consolidation.
7 of 14
<PAGE>
Item 2. Management's discussion and analysis of financial
- - ------- -------------------------------------------------
condition and results of operations.
------------------------------------
PEERLESS MFG. CO.
This report contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such
statements are subject to inherent risks and uncertainties, some
of which cannot be predicted or quantified. Actual results could
differ materially from those projected in the forward-looking
statements as a result of changes in market conditions, increased
competition, global and domestic economic conditions, or other
factors. The following discussion and analysis should be read in
conjunction with the attached consolidated financial statements
and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended June 30,
1998.
Capital Resources and Liquidity
-------------------------------
As a general policy, the Company maintains corporate liquidity at
a level adequate to support existing operations and planned
internal growth, and to allow continued operations through
periods of unanticipated adversity.
Cash and equivalents increased $1,234,280 from June 30, 1998.
Company operations provided $1,895,232 primarily from collecting
accounts receivable of $4,205,518 and increasing billings in
excess of costs by $288,420. These positive cash flows were
partially offset by reducing accounts payable $2,468,612,
commissions payable $209,617 and accrued liabilities $743,193.
Uses of cash for the six months ended December 31, 1998 included
capital expenditures of $115,364, dividend payments of $364,374
and repayment of short term borrowing of $200,000.
The Company has historically and continues to finance plant
expansion, equipment purchases, acquisitions and working capital
requirements primarily through the retention of earnings, which
is reflected by the absence of long-term debt in the Company's
statement of financial position. In addition to retained
earnings, the Company has from time to time used two short-term
bank credit lines totaling $7,000,000 to supplement working
capital. The Company currently has no material commitments for
capital expenditures other than its established program of
maintaining existing plant and equipment.
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<PAGE>
REVENUE: Revenue decreased to $10,931,835 for the three months
ended December 31, 1998 from $11,041,772 for the three months
ended December 31, 1997. For the six month period, revenues
increased 11% to $20,301,525 for the six months ended December
31, 1998 from $18,247,561 for the six months ended December 31,
1997. Sales volumes continued to be firm for SCR products,
filtration and separation products, nuclear steam dryers,
commercial mist extractors, and other marine products, partially
offset by reduced sales to Asian customers for the three and six
months ended December 31, 1998 compared to the three and six
months ended December 31, 1997.
GROSS PROFIT: Gross profit at $3,636,143 for the three months
ended December 31, 1998 was down 3.5% on slightly lower volume
compared to the $3,763,505 earned for the three months ended
December 31, 1997. For the six month period, gross profit
increased 3.6% to $6,579,262 for the six months ended December
31, 1998 from $6,353,690 for the six months ended December 31,
1997. The $225,572 increase in gross profit is attributable to
the increased sales revenue.
OPERATING EXPENSES: Operating expenses decreased by 3% to
$2,729,934 for the three months ended December 31, 1998 from
$2,808,416 for the three months ended December 31, 1997. For the
six months, operating expenses remained stable at $5,321,089 for
the six months ended December 31, 1998 from $5,319,887 for the
six months ended December 31, 1997.
OTHER INCOME/(EXPENSE): The Company recognized net other expense
of $60,000 and $101,000 for the three and six months ending
December 31, 1998 for interest, foreign exchange losses and other
expenses. These expenses compare favorably to the $87,000 and
$99,000 net other expense reported for the three and six month
periods ending December 1, 1997.
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<PAGE>
YEAR 2000 COMPLIANCE:
The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data
fields containing a two-digit year is commonly referred to as the
Year 2000 Compliance issue. As the Year 2000 approaches, such
systems may be unable to accurately process certain date-based
information.
As the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year
2000 Compliance issue. The Company began converting its
information systems in 1996 through the purchase of a new
information system that is already Year 2000 compliant. The
Company has incurred approximately $450,000 to date in
implementing this new system and expects to incur an additional
$50,000 for future modifications, testing and services.
Implementation is planned for the third quarter of Fiscal 1999
with testing to be done simultaneously. The vendor has assured
management that the new system will be Year 2000 compliant.
These cost and timing estimates are based on management's best
estimates, which were derived utilizing numerous assumptions
regarding future events, including the continued availability of
certain resources and the accuracy of third-party
representations. However, there can be no guarantee that the
estimates will be achieved and actual results could differ from
those plans.
The Company purchases computer hardware and software products
from third parties for incorporation into the Company's products
and such third-party products may be affected by the Year 2000
problem. There can be no guarantee, however, that these products
or the systems of other companies on which the Company's systems
and operations rely will be timely converted or that the failure
of these systems would not have an adverse effect on the
Company's systems. The Company has advised its customers
inquiring about this issue to contact the Company's vendors for
Year 2000 information. The Company has consulted with such
vendors in an effort to assure that the vendors have minimized
the risk of Year 2000 problems in the systems currently used by
the Company.
10 of 14
<PAGE>
INTERNATIONAL MARKETS:
The demand for our products in Southeast Asia has declined as a
result of the current financial crisis there. However, some
projects remain active in the region and we continue to
aggressively pursue these opportunities as well as opportunities
in Australia, where economic conditions continue to be positive.
It is expected that the Brazilian financial crisis will have an
adverse impact on the Company's results of operations.
The Company cannot assess whether such impact will be
material. Of significant concern is the competition with our
products in Latin America from the Company's traditional
competitors as well as local fabricators. We are attempting to
counter these competitive threats with new technology as well as
global sourcing of materials and labor.
Our SCR environmental product line is experiencing growth
opportunities in the healthy U.S. domestic market. The primary
source of new SCR opportunities is the result of new gas turbine
power electric generating facilities to fill the demand for
electric power in the U.S. These projects use clean burning
natural gas, creating opportunities for our gas cleaning
equipment.
11 of 14
<PAGE>
PEERLESS MFG. CO.
PART II
OTHER INFORMATION
Item 1 -- Legal proceedings
- - ---------------------------
Reference is made to Form 10-K Annual Report, as amended,
Item 3, Page 6, "Legal Proceedings" for the Fiscal year
ended June 30, 1998. For the three months ended
December 31, 1998 there were no new material proceedings
filed against the Company.
Item 6 -- Exhibits and Reports -- Form 8-K
- - ------------------------------------------
(a) EXHIBITS:
References to the Company's SEC File Number 0-05214.
3(a) The Company's Articles of Incorporation, as amended to
date (filed as Exhibit 3(a) to the Company's Quarterly
Report on Form 10-Q, dated December 31, 1997, and
incorporated herein by reference).
3(b) The Company's Bylaws, as amended to date (filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-
K, dated June 30, 1997, and incorporated herein by
reference).
10(a) Incentive Compensation Plan effective January 1, 1981,
as amended January 23, 1991 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1991, and incorporated herein by reference).
10(b) 1985 Restricted Stock Plan for Peerless Mfg. Co.,
effective December 13, 1985 (filed as Exhibit 10(b) to
the Company's Annual Report on Form 10-K, dated June
30, 1993, and incorporated herein by reference).
10(c) 1991 Restricted Stock Plan for Non-Employee Directors
of Peerless Mfg. Co., adopted subject to shareholder
approval May 24, 1991, and approved by shareholders
November 20, 1991 (filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K dated June 30,
1991, and incorporated herein by reference).
12 of 14
<PAGE>
10(d) Employment Agreement, dated as of April 29, 1994, by
and between the Company and Sherrill Stone (filed as
Exhibit 10(d) to the Company's Annual Report on Form
10-K for the Fiscal year ended June 30, 1994, and
incorporated herein by reference).
10(e) Agreement, dated as of April 29, 1994 by and between
Company and Sherrill Stone (filed as Exhibit 10(e) to
the Company's Annual Report on Form 10-K dated June 30,
1994 and incorporated herein by reference).
10(f) Seventh Amended and Restated Loan Agreement, dated as
of December 12, 1998, between NationsBank of Texas,
N.A. and the Company.*
10(g) Amended and Restated Loan Agreement, dated as of
December 12, 1998, by and between Chase Bank of Texas
N.A, and the Company.*
10(h) Peerless Mfg. Co. 1995 Stock Option and Restricted
Stock Plan, adopted by the Board of Directors December
31, 1995 and approved by the Shareholders of the
Company November 21, 1996 (filed as Exhibit 10(h) to
the Company's Annual Report on Form 10-K dated June 30,
1997 and incorporated herein by reference).
10(i) Rights Agreement between Peerless Mfg. Co. and
ChaseMellon Shareholder Services, L.L.C., adopted by
the Board of Directors May 21, 1997 (filed as Exhibit 1
to the Company's Registration Statement on Form 8-A
(File No. 0-05214) and incorporated herein by
reference).
21 Subsidiaries of the Company (filed as Exhibit 21 to the
Company's Annual Report on Form 10-K dated June 30,
1997, and incorporated herein by reference).
27 Financial Data Schedule.*
*Filed herewith
(b) Reports on form 8-K. None.
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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 thereto duly authorized.
PEERLESS MFG. CO.
Dated: February 12, 1999
/s/ Sherrill Stone /s/ Paul W. Willey
- - ---------------------------- ----------------------------
By: Sherrill Stone By: Paul W. Willey
Chairman, President and Chief Financial Officer
Chief Executive Officer
/s/ Kent J. Van Houten
----------------------------
By: Kent J. Van Houten
Controller
Chief Accounting Officer
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EXHIBIT 10.F
NationsBank, N.A.
SEVENTH AMENDED AND RESTATED LOAN AGREEMENT
This Loan Agreement ("Agreement") dated as of December 12, 1998, by
and between NationsBank, N.A. (successor by merger of NationsBank of
Texas, N.A. into NationsBank, N.A.), a national banking association
("Bank") and the Borrower described below. This Agreement amends and
restates in its entirety the Sixth Amended and Restated Loan Agreement
dated as of January 12, 1998, between Bank and Borrower.
In consideration of the Loan or Loans and Letters of Credit
described below and the mutual covenants and agreements contained herein,
and intending to be legally bound hereby, Bank and Borrower agree as
follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. Borrower: Peerless Mfg. Co., a Texas corporation
B. Borrower's Address:
2819 Walnut Hill Lane
Dallas, Texas 75229
C. Chase Agreement. Chase Agreement means the Loan Agreement
dated as of December 12, 1998, between Borrower and Chase Bank of Texas,
N.A.
D. Collateral Account. Collateral Account means each deposit
account in which Bank has a perfected, first priority Lien, not subject
to any claim of any other Person.
E. Collateral Policy. Collateral Policy means each effective
insurance policy insuring the life of Don Sillars in which Bank has a
perfected, first priority Lien in the cash value and all death benefits,
together with such other assurances as Bank may require to evidence its
interest in such policy.
F. Compliance Certificate. Compliance Certificate mean a
certificate substantially in the form of Exhibit B.
G. Current Assets. Current Assets means the aggregate amount of
all the assets of the Borrower and its Subsidiaries, on a consolidated
basis, assets which would, in accordance with GAAP, properly be defined
as current assets.
<PAGE>
H. Current Liabilities. Current Liabilities means the aggregate
amount of all current liabilities of the Borrower and its Subsidiaries,
on a consolidated basis, as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity
date which is more than one year from the date as of which such
computation is being made, plus the amount equal to the difference (but
not less than zero) of (i) the aggregate undrawn amount of all Letters of
Credit, minus (ii) the sum of (a) the aggregate amount in each Collateral
Account, plus (b) the aggregate cash value of each Collateral Policy.
I. Hazardous Materials. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum,
petroleum products, oil and asbestos.
J. Investment. Investment means any acquisition of all or
substantially all assets of any Person, or any direct or indirect
purchase or other acquisition of, or a beneficial interest in, capital
stock or other securities of any other Person, or any direct or indirect
loan, advance (other than advances to employees for moving and travel
expenses, drawing accounts, and similar expenditures in the ordinary
course of business), or capital contribution to or investment in any
other Person, including without limitation the incurrence or sufferance
of debt or accounts receivable of any other Person that are not current
assets or do not arise from sales to that other Person in the ordinary
course of business.
K. Lien. Lien means any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind, including without limitation
any agreement to give or not to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement or other similar form of public notice under the laws of any
jurisdiction.
L. Loan. Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this Agreement.
M. Loan Documents. Loan Documents means this Agreement and any
and all promissory notes executed by Borrower in favor of Bank, each
application for issuance of a Letter of Credit and all other documents,
instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection with
any Loan or Letter of Credit.
N. Material Adverse Effect. Material Adverse Effect means any
circumstance or event that is or would reasonably be expected to be
material and adverse to the financial condition, business operations,
prospects or properties of Borrower and its Subsidiaries, taken as a
whole.
O. Net Income. Net Income means net profit after taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.
P. Net Loss. Net Loss means net loss after taxes of the Borrower
and its Subsidiaries, on a consolidated basis, determined in accordance
with GAAP.
<PAGE>
Q. Obligor. Obligor means Borrower, any Subsidiary of Borrower,
any indorser or guarantor of any obligation under any Loan Document and
any other Person liable for or the property of which secures any
obligation under any Loan Document.
R. Person. Person means an individual, partnership, joint
venture, corporation, trust, tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision thereof.
S. Subsidiary. Subsidiary means as to any Person, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than such stock or such
other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation, partnership, or other entity are
at the time owned, or the management of which is otherwise controlled,
directly or indirectly, through one or more intermediaries, or both by
such Person.
T. Accounting Terms. All accounting terms not specifically
defined or specified herein shall have the meanings generally attributed
to such terms under generally accepted accounting principles ("GAAP"), as
in effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.I. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to make (or has made) one or more
loans to Borrower in the aggregate principal face amount of $3,500,000
(as such amount may be reduced, the "Line"), provided, the aggregate
unpaid principal of all loans shall not at any time exceed the difference
between (i) the Line, minus (ii) the undrawn amount of all outstanding
Letters of Credit, minus (iii) the amount of all drawings under any
Letter of Credit for which Bank has not been reimbursed. The obligation
to repay the loans is evidenced by the promissory note dated December 31,
1998 (the promissory note or notes together with any and all renewals,
extensions or rearrangements thereof being hereafter collectively
referred to as the "Note") having a maturity date, repayment terms and
interest rate as set forth in the Note (a copy of which is attached as
Exhibit A).
i. Revolving Credit Feature. The Note provides for a
revolving line of credit under which Borrower may from time to time,
borrow, repay and re-borrow funds.
ii. Usage Fee. Borrower will pay hereafter on the last day of
each calendar quarter for the period from and including the date the
Line was established to and including the maturity date of the Line,
a usage fee at a rate per annum of .25% of the average daily unused
portion of the Line during such period. The Borrower may at any
time upon written notice to the Bank permanently reduce the amount
of the Line at which time the obligation of the Borrower to pay a
usage fee shall thereupon correspondingly be reduced.
<PAGE>
iii. Letter of Credit Subfeature. As a subfeature under the
Line, Bank may from time to time up to and including December 12,
1999, issue letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided,
however, that the form and substance of each Letter of Credit shall
be subject to approval by Bank in its sole discretion; and provided
further that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed the difference between (a)
the Line, minus (b) the aggregate unpaid principal amount of all
Loans, minus (c) the amount of all drawings under any Letter of
Credit for which Bank has not been reimbursed. No Letter of Credit
shall have an expiry subsequent to December 11, 2000 or 364 or more
days after the issuance date; provided Borrower may request that
Bank issue Letters of Credit having an expiry after December 11,
2000 or an expiry 364 or more days after the issuance date
("Extended Expiry LC"), if the undrawn amount of such Extended
Expiry LC plus the aggregate undrawn amount of all other Extended
Expiry LCs does not exceed an amount equal to the sum of (a) the
amount of each Collateral Account plus (b) 95% of the cash value of
each Collateral Policy. Each draft paid by Bank under a Letter of
Credit shall be deemed an advance under the Line and shall be repaid
in accordance with the terms of the Line; provided however, that if
the Line is not available for any reason whatsoever, at the time any
draft is paid by Bank, or if advances are not available under the
Line in such amount due to any limitation of borrowing set forth
herein, then the full amount of such drafts shall be immediately due
and payable, together with interest thereon, from the date such
amount is paid by Bank to the date such amount is fully repaid by
Borrower, at that rate of interest applicable to advances under the
Line. In such event, Borrower agrees that Bank, at Bank's sole
discretion may debit any Collateral Account or Borrower's deposit
accounts with Bank or obtain all or any of the cash value of any
Collateral Policy for the amount of such draft. If at any time
prior to December 12, 1999 the sum of (a) the aggregate unpaid
principal of the Loans, plus (b) the aggregate undrawn amount of all
outstanding Letters of Credit exceeds the Line, Borrower shall
immediately pay to Bank the amount of such excess, together with
accrued, unpaid interest on the amount of such excess. If at any
time after December 12, 1999 the aggregate undrawn amount of all
Extended Expiry LCs exceeds the sum of (a) the amount of each
Collateral Account, plus (b) 95% of the cash value of each
Collateral Policy, Borrower shall immediately deliver to Bank, for
deposit into a Collateral Account, an amount in cash equal to such
excess. Letters of Credit shall be priced at a rate of 1.5% per
annum of the face amount of the Letter of Credit, which fee is due
and payable on issuance of the Letters of Credit. Bank shall send
to Borrower notice of Bank's election to pursue any remedy with
respect to the Collateral Policy three days prior to enforcing such
remedy.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Texas and has the
power and authority to own its property and is qualified to conduct its
business in each jurisdiction in which Borrower does business, except to
the extent the failure to obtain such qualifications or to remain in good
standing would not result in a Material Adverse Effect. Each Subsidiary
of Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized
(as indicated on Schedule 1) and has the power and authority to own its
property and is qualified to conduct its business in each jurisdiction in
which it does business, except to the extent the failure to obtain such
qualifications or to remain in good standing would not result in a
Material Adverse Effect.
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and
perform the obligations provided for therein, all of which have been duly
authorized by all proper and necessary corporate action of Borrower. No
consent or approval of any public authority or other third party is
required as a condition to the validity of any Loan Document, and
Borrower and each Subsidiary of Borrower is in compliance with all laws
and regulatory requirements to which it is subject, except to the extent
the failure to comply with such laws or regulatory requirements would not
result in a Material Adverse Effect.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower or any
Subsidiary of Borrower pending or, to the knowledge of Borrower,
threatened before any court or governmental authority, agency or
arbitration authority, except as (i) disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement, or (ii) would
not result in a Material Adverse Effect if adversely determined.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or any Subsidiary of
Borrower and no provision of any existing agreement, mortgage, indenture
or contract binding on Borrower or any Subsidiary of Borrower or
affecting its respective property, which would conflict with or in any
way prevent the execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower and each Subsidiary of Borrower
has good title to its respective assets, and its respective assets are
free and clear of Liens, except those granted to Bank and as disclosed to
Bank in writing prior to the date of this Agreement.
G. Investments. Neither Borrower nor any Subsidiary of Borrower
has any Investments except as described on Schedule 1. Schedule 1 is a
complete and correct description of the name and jurisdiction of
organization of each Subsidiary of Borrower.
<PAGE>
H. Taxes. All taxes and assessments due and payable by Borrower
and each Subsidiary of Borrower have been paid or are being contested in
good faith by appropriate proceedings and Borrower and each Subsidiary of
Borrower have filed all tax returns which it is required to file.
I. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof,
and there has been no material adverse change in Borrower's financial
condition or operations since June 30, 1998. All factual information
furnished by Borrower to Bank in connection with this Agreement and the
other Loan Documents, when taken as a whole, is and will be accurate and
complete on the date as of which such information is delivered to Bank
and is not and will not be incomplete by the omission of any material
fact necessary to make such information, in light of the circumstances
under which they were made, not misleading.
J. Place of Business. Borrower's chief executive office is
located at:
2819 Walnut Hill Lane
Dallas, Texas 75229
K. Environmental. The conduct of Borrower's and each of
Borrower's Subsidiary's business operations and the condition of
Borrower's and each of Borrower's Subsidiary's property does not and will
not violate any federal laws, rules or ordinances for environmental
protection, regulations of the Environmental Protection Agency, any
applicable local or state law, rule, regulation or rule of common law or
any judicial interpretation thereof relating primarily to the environment
or Hazardous Materials.
L. Chase Agreement. Borrower has delivered to Bank a complete and
correct copy of the Chase Agreement and all related documents.
M. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed
to be made at and as of the date hereof and at and as of the date of any
advance under any Loan and the issuance of any Letter of Credit.
4. AFFIRMATIVE COVENANTS. Until full and final payment and
performance of all obligations of Borrower under the Loan Documents,
Borrower will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
<PAGE>
A. Financial Statements and Other Information. Maintain a system
of accounting reasonably satisfactory to Bank and in accordance with GAAP
applied on a consistent basis throughout the period involved, permit
Bank's officers or authorized representatives to visit and inspect
Borrower's books of account and other records at such reasonable times
and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by Bank
for the foregoing purposes. Unless written notice of another location is
given to Bank, Borrower's books and records will be located at Borrower's
chief executive office set forth above. All financial statements called
for below shall be prepared in form and content reasonably acceptable to
Bank and by independent certified public accountants acceptable to Bank.
Bank acknowledges that Grant Thornton, L.P., independent certified
accountants of Borrower on the date hereof, is acceptable to Bank as of
the date hereof.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating
financial statements of Borrower for each fiscal year of Borrower,
within 120 days after the close of each such fiscal year.
ii. Furnish to Bank consolidated and consolidating
financial statements (including a balance sheet and profit and loss
statement) of Borrower for each quarter of each fiscal year of
Borrower, within 60 days after the close of each such period.
iii. Furnish to Bank a Compliance Certificate for (and executed
by an authorized representative of) Borrower concurrently with and
dated as of the date of delivery of each of the financial statements
as required in paragraphs i and ii above, containing (a) a
certification that the financial statements of even date therewith
are true and correct and that the Borrower is not in default under
the terms of this Agreement, and (b) computations and conclusions,
in such detail as Bank may reasonably request, with respect to
compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and
financial condition of Borrower and its Subsidiaries, from time
to time, as Bank may reasonably request.
B. Insurance. Maintain, and cause each Subsidiary of Borrower to
maintain, insurance with responsible insurance companies on such of its
properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, and liability insurance, all to be with such companies and in
such amounts as are satisfactory to Bank and providing for at least 15
days prior notice to Bank of any cancellation thereof. Satisfactory
evidence of such insurance will be supplied to Bank prior to funding
under the Loan(s) or issuance of the first Letter of Credit and 15 days
prior to each policy renewal.
<PAGE>
C. Existence and Compliance. Maintain, and cause each Subsidiary
of Borrower to maintain, its existence, good standing and qualification
to do business, where required and comply with all laws, regulations and
governmental requirements including, without limitation, environmental
laws applicable to it or to any of its property, business operations and
transactions, except in each case, where the failure of such Subsidiary
to comply with the requirements of this section would not result in a
Material Adverse Effect.
D. Adverse Conditions or Events. Promptly advise Bank in writing
of (i) any condition, event or act which comes to its attention that
would or might materially adversely affect Borrower's or any of
Borrower's Subsidiary's financial condition or operations or Bank's
rights under the Loan Documents, (ii) any litigation filed by or against
Borrower or any Subsidiary of Borrower, (iii) any event that has occurred
that would constitute an event of default under any Loan Documents, (iv)
any uninsured or partially uninsured loss through fire, theft, liability
or property damage, and (v) any actual or potential contingent liability
which singly or in the aggregate with all other actual or potential
contingent liabilities could equal or exceed $500,000.
E. Taxes and Other Obligations. Pay, and cause each Subsidiary of
Borrower to pay, all of its taxes, assessments and other material
obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
F. Maintenance. Maintain, and cause each Subsidiary of Borrower
to maintain, all of its tangible property in good condition and repair
and make all necessary replacements thereof, and preserve and maintain
all licenses, trademarks, privileges, permits, franchises, certificates
and the like necessary for the operation of its business.
<PAGE>
G. Environmental. Immediately advise Bank in writing of (i) all
material enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Borrower's or any of
Borrower's Subsidiary's business operations; and (ii) all claims made or
threatened by any third party against Borrower or any Subsidiary of
Borrower relating to damages, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Materials. Borrower shall
immediately notify Bank of any remedial action taken by Borrower or any
Subsidiary of Borrower with respect to Borrower's or any of Borrower's
Subsidiary's material business operations. Borrower will not use or
permit, and will cause each Subsidiary of Borrower to not use or permit,
any other party to use any Hazardous Materials at any of Borrower's or
any of Borrower's Subsidiary's places of business or at any other
property owned by Borrower or any Subsidiary of Borrower except such
materials as are incidental to Borrower's or any of Borrower's
Subsidiary's normal course of business, maintenance and repairs and which
are handled in material compliance with all applicable environmental
laws. Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's or any of Borrower's
Subsidiary's places of business or any other property of Borrower and
each Subsidiary of Borrower at any reasonable times upon three (3) days
prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure
that Borrower and each Subsidiary of Borrower are complying with this
covenant and Borrower shall reimburse Bank on demand for the reasonable
costs of any such environmental investigation and audit. Borrower shall
provide, and shall cause each Subsidiary of Borrower to provide, Bank,
its agents, contractors, employees and representatives with access to and
copies of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed of
by Borrower's and each Subsidiary's of Borrower business operations
within five (5) days of the request written therefore.
5. NEGATIVE COVENANTS. Until full and final payment and
performance of all obligations of Borrower under the Loan Documents,
Borrower will not, and will not permit any Subsidiary of Borrower to,
without the prior written consent of Bank (and without limiting any
requirement of any other Loan Documents):
A. Financial Condition.
i. Borrower shall not permit the ratio of (a) Current Assets
divided by (b) Current Liabilities to be less than 1.0 to 1.0 as at
the last day of each calendar quarter.
ii. Borrower shall not permit Net Income to be less than
$750,000 for the twelve months ending on the last day of any fiscal
quarter of Borrower.
B. Investments. Make an Investment in or to any Person; provided,
Borrower may make Investments in the existing Subsidiaries of Borrower
identified on Schedule 1 if the aggregate of all Investments in such
Subsidiaries does not exceed at any time $2,500,000.
<PAGE>
C. Extensions of Credit. Make any loan or advance to any Person;
provided Borrower may (i) make loans and/or advances to Subsidiaries
under the terms specified in Section "B. Investments" above, and (ii)
advances (not to exceed $50,000 in the aggregate) to employees for moving
and travel expenses, drawing accounts, and similar expenditures in the
ordinary course of Borrower's or its Subsidiary's business.
D. Transfer of Assets or Control. Sell, lease, assign or
otherwise dispose of or transfer any assets, except in the normal course
of its business, or enter into any merger or consolidation; provided,
however, any Subsidiary of Borrower may dissolve or merge or consolidate
with or into Borrower or any other Subsidiary of Borrower.
E. Liens . Grant, suffer or permit any contractual or
noncontractual Lien on any of its assets (other than liens granted under
the Chase Agreement or related agreements to assure performance of
obligations related to letters of credit issued for the account of
Borrower or any of its Subsidiaries), or fail to promptly pay when due
all lawful claims, whether for labor, materials or otherwise; or agree
with any Person to not grant any Lien on any of its assets, except (i)
with respect to any failure to pay a claim, to the extent the failure to
pay such claims would not result in a Material Adverse Effect, and (ii)
as provided in the Chase Agreement.
F. Borrowings. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the debt
for another, or otherwise) other than to Bank, except for normal trade
debts incurred in the ordinary course of Borrower's and each of
Borrower's Subsidiary's business, and except for (i) existing
indebtedness disclosed to Bank in writing and acknowledged by Bank prior
to the date of this Agreement and (ii) indebtedness under or evidenced by
the Chase Agreement and any related promissory notes.
G. Chase Agreement. Amend, modify or restate the Chase Agreement,
or any related agreement, as they exist on December 12, 1998.
H. Character of Business. Change the general character of
business as conducted at the date hereof, or engage in any type of
business not reasonably related to its business as presently conducted.
6. DEFAULT. Borrower shall be in default under this Agreement and
under each of the other Loan Documents if any one or more of the
following shall occur for any reason whatsoever, whether voluntary or
involuntary, by operation of law, or otherwise:
A. Borrower shall fail to pay any principal, interest, fees or
other amounts payable under any Loan Document on the date due;
B. Any representation or warranty made or deemed made by any
Obligor (or any of its officers or representatives) under or in
connection with any Loan Document shall prove to have been incorrect or
misleading in any material respect when made or deemed made;
C. Borrower or any other Obligor shall fail to perform or observe
any term or covenant contained in any Loan Document;
<PAGE>
D. Any Loan Document or provision thereof shall, for any reason,
not be valid and binding on any Obligor or not be in full force and
effect, or shall be declared to be null and void; the validity or
enforceability of any Loan Document shall be contested by any Obligor; or
any Obligor shall deny that it has any or further liability or obligation
under any Loan Document;
E. Any Obligor shall fail to pay any debt (other than debt under
the Loan Documents) or obligations in respect of capital leases in an
aggregate amount of $50,000 or more when due; or any Obligor shall fail
to perform or observe any term or covenant contained in any agreement or
instrument relating to any such debt, when required to be performed or
observed;
F. Any Obligor shall have any final judgment(s) outstanding
against it for the payment of $50,000 or more, and such judgment(s) shall
remain unstayed, in effect, and unpaid for the period of time after which
the judgment holder may and may cause the creation of Liens against or
seizure of any of its property;
G. Any Obligor shall be required under any environmental law
(i) to implement any remedial, neutralization, or stabilization process
or program, the cost of which exceeds $50,000, or (ii) to pay any
penalty, fine, or damages in an aggregate amount of $50,000 or more;
H. Other than with respect to any Loan Document, any Obligor shall
fail to timely and properly observe, keep or perform any term, covenant,
agreement or condition in any other loan agreement, promissory note,
security agreement, deed of trust, deed to secure debt, mortgage,
assignment or other contract securing or evidencing payment of any
indebtedness of any Obligor to Bank or any affiliate or subsidiary of
NationsBank Corporation.
I. The withdrawal of any material owner of Borrower, as determined
by Bank in its sole discretion;
J. The commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor
with or into another entity (except as permitted by Section 5.D.);
K. The insolvency of, the business failure of, the appointment of
a custodian, trustee, liquidator or receiver for or for any of the
property of, the assignment for the benefit of creditors by, or the
filing of a petition under bankruptcy, insolvency or debtor's relief law
or the filing of a petition for any adjustment of indebtedness,
composition or extension by or against any Obligor;
L. The failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or other
information, as Bank shall request from time to time;
M. The entry of a judgment against any Obligor which Bank deems to
be of a material nature, in Bank's sole discretion;
N. The seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any
material property of any Obligor; or
<PAGE>
O. The determination by Bank that a material adverse change
has occurred in the financial condition of any Obligor.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank
shall have all rights, powers and remedies available under each of the
Loan Documents (including Section 11) as well as all rights and
remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of
this Agreement must be in writing delivered to the other party at the
following address:
Borrower:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Paul Willey
Bank:
NationsBank of Texas, N.A.
901 Main Street, 7th Floor
P.O. Box 831000
Dallas, Texas 75283-1000
Attn: Barry Bruce Conrad, II, Vice President
or to such other address as any party may designate by written notice to
the other party. Each such notice, request and demand shall be deemed
given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage
prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank not later than 5 days after demand the full amount of all costs and
expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel if
permitted by applicable law), incurred by Bank in connection with (a)
negotiation and preparation of this Agreement and each of the Loan
Documents, and (b) all other costs and attorneys' fees incurred by Bank
for which Borrower is obligated to reimburse Bank in accordance with the
terms of the Loan Documents.
<PAGE>
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted
to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Bank of
any right preclude any other or future exercise thereof or the exercise
of any other right. Borrower expressly waives any presentment, demand,
protest or other notice of any kind, including but not limited to notice
of intent to accelerate and notice of acceleration. No notice to or
demand on Borrower in any case shall, of itself, entitle Borrower to any
other or future notice or demand in similar or other circumstances.
B. Applicable Law. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal
law.
C. Amendment. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Agreement
is binding upon Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's rights or obligations hereunder shall be
made or be effective without Bank's prior written consent, nor shall it
relieve Borrower of any obligations hereunder. There is no third party
beneficiary of this Agreement.
D. Documents. All documents, certificates and other items
required under this Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
<PAGE>
F. Indemnification. Notwithstanding anything to the contrary
contained in Section 10(G), Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties,
costs or other expenses (including reasonable attorneys' fees and court
costs) arising from or in any way related to any of the transactions
contemplated hereby, including but not limited to actual or threatened
damage to the environment, agency costs of investigation, personal injury
or death, or property damage, due to a release or alleged release of
Hazardous Materials, arising from Borrower's or any of Borrower's
Subsidiary's business operations, any other property owned by Borrower or
any Subsidiary of Borrower or in the surface or ground water arising from
Borrower's or any of Borrower's Subsidiary's business operations, or
gaseous emissions arising from Borrower's or any of Borrower's
Subsidiary's business operations or any other condition existing or
arising from Borrower's or any of Borrower's Subsidiary's business
operations resulting from the use or existence of Hazardous Materials,
whether such claim proves to be true or false. Borrower further agrees
that its indemnity obligations shall include, but are not limited to,
liability for damages resulting from the personal injury or death of an
employee of Borrower or any Subsidiary of Borrower, regardless of whether
Borrower of such Subsidiary of Borrower has paid the employee under the
workmen's compensation laws of any state or other similar federal or
state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage
to any real or personal property of Borrower or any Subsidiary of
Borrower, Bank, and of any third parties. Borrower's obligations under
this paragraph shall survive the repayment of the obligations of Borrower
under the Loan Documents and any deed in lieu of foreclosure or
foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement
or Mortgage securing the obligations of Borrower under the Loan
Documents.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loan and the issuance of each Letter of Credit and shall
continue in full force and effect so long as the Loan or any Letter of
Credit is outstanding or the obligation of Bank to make any advances
under the Line or issue any Letter of Credit or honor any draft under any
Letter of Credit shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE
EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
<PAGE>
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING
THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO
AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN
THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives as
of the date first above written.
BORROWER: BANK:
PEERLESS MFG. CO. NATIONSBANK, N.A. (successor by
merger of NationsBank of Texas,
N.A. into NationsBank, N.A.)
By: By:
Name: Paul Willey Name: Barry Bruce Conrad, II
Title: Chief Financial Officer Title: Vice President
EXHIBIT 10.G
SECOND AMENDED AND RESTATED LOAN AGREEMENT
This Second Amended and Restated Loan Agreement ("Agreement") dated
as of December 12, 1998, by and between Chase Bank of Texas, National
Association ("Bank") and the Borrower described below. This Agreement
amends and restates in its entirety the Amended and Restated Loan
Agreement dated as of January 12, 1998, between Bank and Borrower (the
"Prior Agreement").
In consideration of the Loan or Loans and Letters of Credit
described below and the mutual covenants and agreements contained herein,
and intending to be legally bound hereby, Bank and Borrower agree as
follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
Adjusted LIBOR Rate means, for any Interest Period, LIBOR plus 2%.
Affiliate of any Obligor or of the Bank means any Person that
directly or indirectly controls, is controlled by, or is under common
control with any Obligor or the Bank, respectively. The term "control"
means to possess, directly or indirectly, the power to direct the
management and policies of a Person, whether through the ownership of
voting securities, by contract, or otherwise. A Person that directly or
indirectly owns (legally or beneficially) or has the right to vote 5% or
more of any class of voting stock of another Person "controls" that
Person. Bank is not under any circumstances an Affiliate of any Obligor.
Borrower means, Peerless Mfg. Co., a Texas corporation.
Borrower's Address means, 2819 Walnut Hill Lane, Dallas, Texas
75229.
Borrowing means, a LIBOR Borrowing or a Prime Rate Borrowing.
Business Day means, a day when the main office of Bank is open for
the general conduct of commercial lending business.
Collateral Account means, each deposit account in which Bank has a
perfected, first priority Lien, not subject to any claim of any other
Person.
Compliance Certificate means, a certificate substantially in the
form of Exhibit B.
<PAGE>
Consequential Loss means, any loss, expense, penalty or premium
incurred by the Bank, including any interest paid by the Bank to lenders
of funds borrowed by it to make or carry the Loans, resulting from any
premature payment or termination of any Interest Period or Borrower's
failure to borrow or prepay any LIBOR Borrowing on the date specified by
Borrower, in each case whether voluntary or involuntary. Premature
termination of an Interest Period includes termination resulting from
acceleration of the Obligations. "Consequential Loss" includes any loss,
expense, penalty or premium incurred by the Bank on account of any
reduction in the Bank's margins or spreads between its cost of funds and
the interest earned on the principal of any LIBOR Borrowing terminated or
canceled pursuant to Section 2.G(ii), including an amount equal to the
excess (if any) of (x) interest that would have accrued on the LIBOR
Borrowing during the remainder of the Interest Period had the borrowing
not been terminated or canceled before the end of the Interest Period,
over (y) the interest actually accrued on the principal amount of that
terminated or canceled borrowing for the remainder of the Interest
Period.
Current Assets means, the aggregate amount of all the assets of the
Borrower and its Subsidiaries, on a consolidated basis, assets which
would, in accordance with GAAP, properly be defined as current assets.
Current Liabilities means, the aggregate amount of all current
liabilities of the Borrower and its Subsidiaries, on a consolidated
basis, as determined in accordance with GAAP, but in any event shall
include all liabilities except those having a maturity date which is more
than one year from the date as of which such computation is being made,
plus, without duplication, the amount equal to the aggregate undrawn
amount of all letters of credit issued for the account of Borrower or any
of its Subsidiaries.
Default Rate means, at Bank's discretion up to the Highest Lawful
Rate, or if none, 25% per annum.
Event of Default means, as set forth in Section 6.
Eurodollar Reserve Requirement means, on any day the maximum
aggregate rate at which Bank is required to maintain reserves (including
basic, supplemental, marginal and emergency reserves) against
"Eurocurrency liabilities" (as defined in Federal Reserve Regulation D).
The Eurocurrency Reserve Requirement will be expressed as a decimal
rather than a percentage and will be rounded, if necessary, to the next
highest one hundredth of one percent (.0001). Reserve requirements will
be calculated as required by any Governmental Authority. Each
determination of the Eurodollar Reserve Requirement by Bank will be
conclusive and binding, absent obvious error.
Governmental Authority means, any foreign governmental authority,
the United States of America, any state of the United States and any
political subdivision of any of the foregoing, and any agency,
department, commission, board, bureau, court or other tribunal having
jurisdiction over Bank or any Obligor, or any Subsidiary of Borrower or
their respective property.
<PAGE>
Hazardous Materials means, all materials defined as hazardous
materials or substances under any local, state or federal environmental
laws, rules or regulations, and petroleum, petroleum products, oil and
asbestos.
Highest Lawful Rate means, at any time and with respect to Bank,
the maximum rate of nonusurious interest under applicable law that Bank
may charge the Borrower. The Highest Lawful Rate shall be calculated in
a manner that takes into account any and all fees, payments, and other
charges contracted for, charged, or received in connection with the Loan
Documents that constitute interest under applicable law. Each change in
any interest rate provided for herein based upon the Highest Lawful Rate
resulting from a change in the Highest Lawful Rate shall take effect
without notice to the Borrower at the time of such change in the Highest
Lawful Rate. For purposes of determining the Highest Lawful Rate under
Texas law, the applicable rate ceiling shall be the weekly rate ceiling
described in, and computed in accordance with the Texas Finance Code,
subject to the Bank's right to change such applicable rate ceiling in
accordance with applicable law.
Interest Option means, the Prime Rate or the Adjusted LIBOR Rate.
Interest Payment Dates means, the last day of each calendar
quarter, beginning on December 31, 1998.
Interest Period means, the period of time during which a particular
LIBOR Borrowing is in effect. Each Interest Period will begin on the
date of the LIBOR Borrowing (which will be the last day of the preceding
Interest Period if the amount of the LIBOR Borrowing is a previous LIBOR
Borrowing) and end on the same day of the month 1, 2 or 3 months later,
as selected by Borrower. The Interest Period is subject to the following
limitations: (1) Any Interest Period which would otherwise end on a day
which is not a LIBOR Business Day will end on the next succeeding LIBOR
Business Day, unless the next succeeding LIBOR Business Day falls in
another calendar month, in which case the Interest Period will end on the
next preceding LIBOR Business Day. (2) Any Interest Period which begins
on the last LIBOR Business Day of a calendar month, or on a day for which
there is no corresponding day in the calendar month at the end of such
Interest Period, will end on the last LIBOR Business Day of a calendar
month. (3) Borrower will not select any Interest Period if the amount of
the Loans required to be repaid during that Interest Period would exceed
the amount of the Loans remaining in the Prime Rate Borrowing and in
Interest Periods ending prior to the due date for any such required
repayments. (4) No Interest Period will extend beyond the maturity of
the Note.
Investment means, any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition
of, or a beneficial interest in, capital stock or other securities of any
other Person, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts,
and similar expenditures in the ordinary course of business), or capital
contribution to or investment in any other Person, including without
limitation the incurrence or sufferance of debt or accounts receivable of
any other Person that are not current assets or do not arise from sales
to that other Person in the ordinary course of business.
<PAGE>
Legal Requirement means, any law, ordinance, decree, requirement,
order, judgment, rule, regulation, zoning or land use requirement (or
interpretation of any of the foregoing) of, and the terms of any license
or permit issued by, any Governmental Authority.
LIBOR means, for any Interest Period, (1) the rate of interest
quoted by Bank as the rate offered by Bank (or any affiliate of Bank) to
one or more prominent banks in the London interbank market for Applicable
LIBOR Deposits, divided by (2) 1 minus the Eurodollar Reserve
Requirement. "Applicable LIBOR Deposits" means deposits with Bank (or
any affiliate of Bank) in its (or any affiliate's) London office in U.S.
dollars for delivery on the first day of the Interest Period, maturing on
the last day of the Interest Period and in an amount equal (or as nearly
equal as practicable) to the related LIBOR Borrowing.
LIBOR Borrowing means, a portion of the Loans bearing interest at
the Adjusted LIBOR Rate at a given time.
LIBOR Business Day means, a Business Day on which banks in the
London interbank market generally are open to conduct interbank
transactions in United States dollar deposits.
Lien means, any mortgage, pledge, security interest, encumbrance,
lien, or charge of any kind, including without limitation any agreement
to give or not to give any of the foregoing, any conditional sale or
other title retention agreement, and the filing of or agreement to give
any financing statement or other similar form of public notice under the
laws of any jurisdiction.
Loan means, any loan described in Section 2 hereof (including any
unreimbursed draw under Letters of Credit) and any subsequent loan which
states that it is subject to this Agreement.
Loan Documents means, this Agreement and any and all promissory
notes executed by Borrower in favor of Bank, each application for
issuance of a Letter of Credit and all other documents, instruments,
guarantees, certificates and agreements executed and/or delivered by
Borrower, any guarantor or third party in connection with any Loan or
Letter of Credit.
Material Adverse Effect means, any material adverse effect on
(a) the property, business operations or financial prospects of Borrower
and its Subsidiaries, taken as a whole, (b) the validity or
enforceability of any Loan Document or (c) the timely payment, after
giving effect to any applicable cure periods, of the principal of or
interest on any Loans hereunder or any other amounts payable in
connection herewith.
NationsBank Agreement means, the Loan Agreement of even date
herewith between Borrower and NationsBank of Texas, N.A.
Net Income means, net profit after taxes of the Borrower and its
Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
Net Loss means, net loss after taxes of the Borrower and its
Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
<PAGE>
Obligor means, Borrower, any Subsidiary of Borrower, any indorser or
guarantor of any obligation under any Loan Document and any other Person
liable for or the property of which secures any obligation under any Loan
Document.
Person means, an individual, partnership, joint venture,
corporation, trust, tribunal, unincorporated organization, and
government, or any department, agency, or political subdivision thereof.
Prime Rate means, the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate shall
be otherwise published. The Prime Rate is established by Bank as an
index and may or may not at any time be the best or lowest rate charged
by Bank on any Loan.
Prime Rate Borrowing means, any portion of the Loans bearing
interest at the Prime Rate.
Rate Designation Date means, 10:00 a.m. Houston, Texas time 3 LIBOR
Business Days before the first day of any proposed Interest Period.
Rate Designation Notice is defined in Section 2.D(ii).
Subsidiary means, as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than such stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership, or other entity are at the
time owned, or the management of which is otherwise controlled, directly
or indirectly, through one or more intermediaries, or both by such
Person.
Termination Date means, December 12, 1999.
Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in
effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.I hereof.
2. LOANS.
A. Loans. Until the Termination Date, Bank hereby agrees to make
(or has made) one or more loans to Borrower in the aggregate principal
face amount of $3,500,000 (as such amount may be reduced, the "Line"),
provided, the aggregate unpaid principal of all loans shall not at any
time exceed the difference between (i) the Line, minus (ii) the undrawn
amount of all outstanding Letters of Credit. The obligation to repay the
loans is evidenced by the promissory note of even date herewith (the
promissory note or notes together with any and all renewals, extensions
or rearrangements thereof being hereafter collectively referred to as the
"Note") (a copy of which is attached as Exhibit A).
i. Revolving Credit Feature. The Note provides for a
revolving line of credit under which Borrower may from time to time,
borrow, repay and re-borrow funds until the Termination Date.
<PAGE>
ii. Usage Fee. Borrower will pay a usage fee for the period
from and including the date the Line was established to and
including the maturity date of the Line at a rate per annum of .25%
of the average daily unused portion of the Line (calculated on the
basis of a year of 365 or 366 days as the case may be), with the
accrued and unpaid usage fee being payable on the last day of each
calendar quarter (beginning December 31, 1998) and on the
Termination Date. The Borrower may at any time upon written notice
to the Bank permanently reduce the amount of the Line at which time
the obligation of the Borrower to pay a usage fee shall thereupon
correspondingly be reduced.
iii. Letter of Credit Subfeature. As a subfeature under the
Line, Bank may from time to time up to and including December 11,
1999, issue letters of credit for the account of Borrower (each such
letter of credit and each letter of credit issued by the Bank for
the account of Borrower or one of its Subsidiaries under the Prior
Agreement which is outstanding on the date hereof, a "Letter of
Credit" and collectively, "Letters of Credit"); provided, however,
that the form and substance of each Letter of Credit shall be
subject to approval by Bank in its sole discretion; and provided
further that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed the difference between
(a) the Line, minus (b) the aggregate unpaid principal amount of all
Loans, minus (c) the amount of all drawings under any Letter of
Credit for which Bank has not been reimbursed. No Letter of Credit
shall have an expiry subsequent to December 11, 2000 or 366 or more
days after the issuance date; provided Borrower may request that
Bank issue Letters of Credit having an expiry after December 11,
2000 or an expiry 366 or more days after the issuance date
("Extended Expiry LC"), if (a) the undrawn amount of such Extended
Expiry LC plus the aggregate undrawn amount of all other Extended
Expiry LCs does not exceed by more than $350,000 an amount equal to
the aggregate amount on deposit in the Collateral Accounts (b) the
undrawn amount of any single Extended Expiry LC does not exceed by
more than $50,000 an amount equal to the aggregate amount on deposit
in the Collateral Accounts, and (c) the aggregate undrawn amount of
all Extended Expiry LCs having the same beneficiary does not exceed
by more than $50,000 an amount equal to the aggregate amount on
deposit in the Collateral Accounts; provided further, however, that
Bank, in its sole discretion, reserves the right to require the
Borrower at any time to deliver to Bank, for deposit into a
Collateral Account, an amount in cash up to, but not to exceed, the
amount the aggregate undrawn amount of all the Extended Expiry LCs
exceeds the aggregate amount on deposit in the Collateral Accounts
at such time. Each draft paid by Bank under a Letter of Credit
shall be deemed an advance under the Line and shall be repaid in
accordance with the terms of the Line; provided, however, that if
the Line is not available for any reason whatsoever, at the time any
draft is paid by Bank, or if advances are not available under the
Line in such amount due to any limitation of borrowing set forth
herein, then the full amount of such drafts shall be immediately due
and payable, together with interest thereon, from the date such
amount is paid by Bank to the date such amount is fully repaid by
Borrower, at that rate of interest applicable to advances under the
Line. In such event, Borrower agrees that Bank, at Bank's sole
discretion may debit any Collateral Account or Borrower's deposit
<PAGE>
accounts with Bank for the amount of such draft. If at any time
prior to the Termination Date the sum of (a) the aggregate unpaid
principal of the Loans, plus (b) the aggregate undrawn amount of all
outstanding Letters of Credit exceeds the Line, Borrower shall
immediately pay to Bank the amount of such excess, together with
accrued, unpaid interest on the amount of such excess. If at any
time after the Termination Date the aggregate undrawn amount of all
Extended Expiry LCs exceeds the aggregate amount on deposit in the
Collateral Accounts, at Bank's request, Borrower shall immediately
deliver to Bank, for deposit into a Collateral Account, an amount in
cash up to, but not to exceed, the amount the aggregate undrawn
amount of all the Extended Expiry LCs exceeds the aggregate amount
on deposit in the Collateral Accounts at such time. Letters of
Credit shall be priced at a rate of 1.00% per annum of the face
amount of the Letter of Credit, which fee is due and payable on
issuance of the Letters of Credit.
B. Conditions to Loans and Letters of Credit. Before making any
Loan or issuing any Letter of Credit Bank may require satisfaction of the
following conditions precedent: (1) Bank has received the following, each
duly executed and in form acceptable to Bank: (a) if requested by Bank, a
Request for Loan, substantially in the form of Exhibit C, not later than
one (1) Business Day before the date (which shall also be a Business Day)
of the proposed Loan; (b) such other documents as Bank reasonably
requires; and (c) in the case of Letters of Credit, Banks standard form
Application for the Issuance of an Irrevocable Standby Letter of Credit
in form and substance acceptable to Bank and its legal counsel, duly
executed and delivered by Borrower two (2) Business Days, prior to the
date on which the Letter of Credit is to be issued; and (2) no Event of
Default has occurred and is continuing; and (3) making the Loan or the
issuance of a Letter of Credit is not prohibited by, and will not subject
Bank to any penalty or onerous condition under any legal requirement as
determined by Bank.
C. Repayment of Loans. Borrower shall repay the unpaid principal
amount of all Loans which are outstanding on the Termination Date on the
Termination Date. Accrued and unpaid interest on the outstanding Loans
shall be due and payable on each Interest Payment Date and on the
Termination Date.
<PAGE>
D. Interest.
i. Interest Rates. The Loans will bear interest until due at
the lesser of the Prime Rate or the Highest Lawful Rate. However,
Borrower may elect to have all or any portion of the Loans bear
interest until due at the lesser of the Adjusted LIBOR Rate or the
Highest Lawful Rate, subject to the provisions of this Section 2.
If at any time the Prime Rate or the Adjusted LIBOR Rate exceeds the
Highest Lawful Rate, and thereafter the Prime Rate or the Adjusted
LIBOR Rate, as applicable, is less than the Highest Lawful Rate, the
rate of interest on the affected Borrowing will be the Highest
Lawful Rate until the amount of interest accrued on the affected
Borrowing equals the amount of interest that would have accrued if
the Prime Rate or the Adjusted LIBOR Rate, as applicable, had been
in effect at all times. All amounts due to Bank in connection with
the Loan Documents will bear interest from their respective due
dates until paid at the Default Rate unless the applicable Loan
Document provides otherwise. Interest at the Prime Rate or the
Default Rate will be computed on the basis of a 360 day year for the
actual number of days elapsed, unless that calculation would result
in an effective rate exceeding the Highest Lawful Rate, in which
case interest will be computed on the basis of a 365 or 366 day
year, as the case may be. Interest at the Adjusted LIBOR Rate will
be computed on the basis of a 360 day year for the actual number of
days elapsed, unless that calculation would result in an effective
rate exceeding the Highest Lawful Rate, in which case interest will
be computed on the basis of a 365 or 366 day year, as the case may
be.
ii. Selection of Interest Options. If no Event of Default
exists, Borrower may elect to have the Adjusted LIBOR Rate apply or
continue to apply to all or any part of the Loans for the applicable
Interest Period. A change in Interest Option under this Section 2
is a conversion of the interest rate on part of the Loans, not a new
Loan. In order to request a LIBOR Borrowing, Borrower must give
Bank written or telecopy notice (the "Rate Designation Notice") in
the form of Exhibit D, specifying the amount of the Loan to be
included in the LIBOR Borrowing, the proposed date for the
conversion and the Interest Period or Periods selected by Borrower.
Bank must receive the Rate Designation Notice no later than the
applicable Rate Designation Date. Each Rate Designation Notice is
irrevocable upon receipt by Bank. If a Rate Designation Notice is
not received by Bank before the Rate Designation Date to convert an
expiring Interest Period into a new LIBOR Borrowing, the amount of
the expiring LIBOR Borrowing will become a Prime Rate Borrowing on
expiration of the Interest Period. No more than 5 Interest Periods
may be in effect at any one time. Each LIBOR Borrowing must be at
least $250,000. Principal included in any Borrowing must not be
included in any other Borrowing which exists at the same time. Each
designation or conversion must occur on a LIBOR Business Day.
<PAGE>
E. Capital Adequacy. If Bank determines after the date of this
Agreement that any change in applicable laws, rules or regulations
regarding capital adequacy, or any change in the interpretation or
administration thereof by any appropriate governmental agency, or
compliance with any request or directive to Bank regarding capital
adequacy (whether or not having the force of law) of any such agency,
increases the capital required to be maintained with respect to the Loans
or Note and therefore reduces the rate of return on Bank's capital below
the level Bank could have achieved but for such change or compliance
(taking into consideration Bank's policies with respect to capital
adequacy), then Borrower will pay to Bank from time to time, within 15
days of Bank's request, any additional amount required to compensate Bank
for such reduction. Bank will request any additional amount by
delivering to Borrower a certificate of Bank setting forth the amount
necessary to compensate Bank. The certificate will be conclusive, absent
obvious error. Bank may make any assumptions, and may use any
allocations of costs and expenses and any averaging and attribution
methods, which Bank in good faith finds reasonable.
F. Prepayments. Borrower may prepay the Loans without premium or
penalty, in whole or in part, except as provided in this Section 2. Any
partial prepayment must be at least $250,000. Each partial prepayment
will be applied first to accrued interest on the Note, and the balance to
installments of principal in inverse order of their maturities. Borrower
may make prepayments applied to any Prime Rate Borrowing or to any LIBOR
Borrowing on the last day of the applicable Interest Period on any
Business Day if Borrower gives Bank irrevocable written or telegraphic
notice of the prepayment no later than 12:00 noon, Houston, Texas time,
on the Business Day prior to the date of the prepayment, specifying the
principal amount of the Note to be prepaid and the prepayment date.
If Borrower intends to prepay all or any part of any LIBOR Borrowing
on a day other than the last day of the Interest Period for that LIBOR
Borrowing, Borrower must give Bank at least 3 LIBOR Business Days' prior
irrevocable written or telegraphic notice of such prepayment, specifying
the principal amount to be prepaid, the particular LIBOR Borrowing to
which the prepayment is to be applied and the prepayment date. Borrower
must also pay to Bank, on the last day of the Interest Period, the
Consequential Loss of Bank resulting from the prepayment. After Borrower
gives notice of prepayment of a LIBOR Borrowing, the principal amount
specified in the notice, together with interest on the LIBOR Borrowing to
the date of prepayment, will be due and payable on the specified
prepayment date. No prepayment of a LIBOR Borrowing may reduce the
remaining balance of the LIBOR Borrowing to an amount less than $250,000.
<PAGE>
G. Special Provisions Applicable to LIBOR Borrowings.
i. Options Unlawful. If the adoption of, any change in, or
any change in the interpretation or administration of any applicable
Legal Requirement, or compliance by Bank with any request or
directive (whether or not having the force of law) of any
Governmental Authority (a "Regulatory Change"), makes it unlawful or
impossible for Bank to permit the establishment of or to maintain
any LIBOR Borrowing, then Bank's commitment to permit LIBOR
Borrowings will immediately be canceled; if required by the
Regulatory Change, Bank will immediately convert any affected LIBOR
Borrowing to a Prime Rate Borrowing, and Borrower will pay all
accrued and unpaid interest to date on the amount converted; and
Borrower will pay Bank any amount required to compensate Bank for
any additional cost or expense Bank incurs as a result of the
Regulatory Change. Thereafter, the Loans will bear interest until
maturity at the Prime Rate.
ii. Increased Cost of Borrowings. If, because Bank maintains
any LIBOR Borrowing, any Regulatory Change:
a. subjects Bank (or makes it apparent that Bank is
subject) to any tax (including any United States
interest equalization tax), levy, impost, duty,
charge or fee, other than income and franchise taxes
of the United States and its political subdivisions
(collectively, "Taxes"), or any deduction or
withholding from any payment due under any LIBOR
Borrowing or other amounts due under this Section 2
for any Taxes;
b. changes the basis of taxation of payments due from
Borrower to Bank under any LIBOR Borrowing (other
than by a change in the rate of taxation of the
overall net income of Bank);
c. imposes, modifies, increases or determines to be
applicable any reserve requirement (excluding that
portion of any reserve requirement included in the
calculation of the Eurodollar Reserve Requirement),
special deposit requirement or similar requirement
(including state law requirements and Regulation D)
imposed or determined to be applicable by any
Governmental Authority against assets held by Bank,
or against deposits in or for the account of Bank, or
against loans made by Bank, or against any other
funds, obligations or other property owned or held by
Bank; or
<PAGE>
d. imposes on Bank any other condition regarding any
LIBOR Borrowing; and the Regulatory Change results in
an increase in Bank's cost of making, renewing or
maintaining any LIBOR Borrowing, or a reduction in
the amount of principal or interest received by Bank,
then, upon Bank's demand from time to time, Borrower
will pay to Bank an additional amount specified by
Bank to compensate Bank for the increased costs or
reduced principal and interest. Bank will promptly
notify Borrower of any event which will entitle Bank
to additional amounts under this paragraph. Bank's
determination of the amount of any increased cost or
reduced principal and interest will be conclusive
absent obvious error.
iii. Inadequacy of Pricing and Rate Determination. If Bank
determines in good faith for any reason that: Bank is unable
through its customary practices to determine LIBOR based on
transactions in the London interbank market, or the Adjusted LIBOR
Rate will not adequately and fairly reflect the cost to Bank of
making and maintaining the requested LIBOR Borrowing, then Bank will
notify Borrower of that circumstance and (1) any Rate Designation
Notice previously given by Borrower that has not been implemented as
of the date of Bank's notice will be ineffective, and (2) until Bank
notifies Borrower that the circumstances giving rise to Bank's
notice no longer exist, Bank's obligation to accept or implement any
Rate Designation Notices will be suspended. If the last day of the
Interest Period for any LIBOR Borrowing occurs while Bank's
obligation to accept or implement Rate Designation Notices is
suspended, that LIBOR Borrowing will be converted at the end of the
Interest Period to a Prime Rate Borrowing without any notice to or
from Borrower. Bank's determination of the unavailability or
inadequacy of the Adjusted LIBOR Rate will be conclusive.
If Borrower receives from Bank the notice referred to in the
preceding paragraph, Borrower may, upon 3 LIBOR Business Days' notice to
Bank, either (i) repay in full (but not in part) any LIBOR Borrowing with
respect to which the notice was given, together with any accrued interest
on the affected LIBOR Borrowing, or (ii) convert the affected LIBOR
Borrowing to a Prime Rate Borrowing. However, any such repayment or
conversion will be accompanied by payment of (x) the amount required to
compensate Bank for the increased cost or reduced amount referred to in
the preceding paragraph, (y) all accrued and unpaid interest to the date
of prepayment on the amount repaid or converted and (z) any Consequential
Loss resulting from the repayment or conversion.
iv. Indemnification. Borrower will indemnify Bank against and
hold Bank harmless from any Consequential Loss. This paragraph will
survive payment of the Note. Bank's written statement submitted to
Borrower as to any additional amounts payable pursuant to this
paragraph will be conclusive absent obvious error.
<PAGE>
v. Rate Quotes and Lists of Business Days. If Borrower
requests quotes of the Adjusted LIBOR Rate for different Interest
Periods being considered for election by Borrower, Bank will use
reasonable efforts to provide the requested quotes. However, all
quotes provided will be representative only and will not bind Bank,
nor determine, directly or indirectly, the Adjusted LIBOR Rate or
any component of the Adjusted LIBOR Rate. Bank's failure to provide
any requested quotes will not (1) excuse or extend the time for
performance of any obligation of Borrower or for exercise of any
right, option or election of Borrower or (2) impose any duty or
liability on Bank. If Borrower requests a list of the Business Days
or LIBOR Business Days in any calendar month, Bank will use
reasonable efforts to provide the requested list promptly. However,
any list provided will identify only those days which Bank believes
in good faith at the time the list is prepared will be Business Days
or LIBOR Business Days for the month in question. Bank will have no
liability for any failure to provide, delay in providing, error or
mistake in or omission from, any such quote or list.
vi. Availability of Funds for Repayment. If any required
payment of the Loans exceeds the total of the Prime Rate Borrowing
and all LIBOR Borrowings for which an Interest Period ends on the
date for payment, Borrower must make the remaining required payment
out of other LIBOR Borrowings, and Borrower will be liable for any
Consequential Loss resulting from that payment. If Borrower
notifies Bank (in accordance with the procedures for prepayments) to
which outstanding LIBOR Borrowing the payment should be applied,
Bank will follow that instruction. If Borrower does not so notify
Bank, Bank will select in its discretion which outstanding Borrowing
or Borrowings to pay.
H. Domicile and Funding of Loans. Bank may transfer to and carry
the Loans or any Borrowing for the account of any branch office or
Affiliate of Bank. However, Borrower will deal solely with Bank and
Borrower's obligations will be solely to Bank, whether Bank is acting on
its own behalf or for the account of another branch or Affiliate. All
determinations of the Adjusted LIBOR Rate will be made as if Bank had
actually funded each LIBOR Borrowing through purchasing corresponding
deposits in the London interbank market; however, Bank may fund all or
part of the LIBOR Borrowings in any manner it chooses without affecting
the Adjusted LIBOR Rate determination.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Texas and has the
power and authority to own its property and is qualified to conduct its
business in each jurisdiction in which Borrower does business, except to
the extent the failure to obtain such qualifications would not result in
a Material Adverse Effect. Each Subsidiary of Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is organized (as indicated on Schedule 1)
and has the power and authority to own its property and is qualified to
conduct its business in each jurisdiction in which it does business,
except to the extent the failure to obtain such qualifications would not
result in a Material Adverse Effect.
<PAGE>
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and
perform the obligations provided for therein, all of which have been duly
authorized by all proper and necessary corporate action of Borrower. No
consent or approval of any public authority or other third party is
required as a condition to the validity of any Loan Document, and
Borrower and each Subsidiary of Borrower is in compliance in all material
respects with all laws and regulatory requirements to which it is
subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower or any
Subsidiary of Borrower pending or, to the knowledge of Borrower,
threatened before any court or governmental authority, agency or
arbitration authority, except as (i) disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement or (ii) would
not result in a Material Adverse Effect if adversely determined.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or any Subsidiary of
Borrower and no provision of any existing agreement, mortgage, indenture
or contract binding on Borrower or any Subsidiary of Borrower or
affecting its respective property, which would conflict with or in any
way prevent the execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
F. Ownership of Assets. Borrower and each Subsidiary of Borrower
has good title to its respective assets, and its respective assets are
free and clear of Liens, except those granted to Bank and as disclosed to
Bank in writing prior to the date of this Agreement.
G. Investments. Neither Borrower nor any Subsidiary of Borrower
has any Investments except as described on Schedule 1. Schedule 1 is a
complete and correct description of the name and jurisdiction of
organization of each Subsidiary of Borrower.
H. Taxes. All taxes and assessments due and payable by Borrower
and each Subsidiary of Borrower have been paid or are being contested in
good faith by appropriate proceedings and Borrower and each Subsidiary of
Borrower have filed all tax returns which it is required to file.
I. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof,
and there has been no material adverse change in Borrower's financial
condition or operations since September 30, 1998. All factual
information furnished by Borrower to Bank in connection with this
Agreement and the other Loan Documents, when taken as a whole, is and
will be accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the omission
of any material fact necessary to make such information, in light of the
circumstances under which they were made, not misleading.
<PAGE>
J. Place of Business. Borrower's chief executive office is
located at:
2819 Walnut Hill Lane
Dallas, Texas 75229
K. Environmental. The conduct of Borrower's and each of
Borrower's Subsidiary's business operations and the condition of
Borrower's and each of Borrower's Subsidiary's property does not and will
not violate any federal laws, rules or ordinances for environmental
protection, regulations of the Environmental Protection Agency, any
applicable local or state law, rule, regulation or rule of common law or
any judicial interpretation thereof relating primarily to the environment
or Hazardous Materials.
L. NationsBank Agreement. Borrower has delivered to Bank a
complete and correct copy of the NationsBank Agreement and all related
documents.
M. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed
to be made at and as of the date hereof and at and as of the date of any
advance under any Loan and the issuance of any Letter of Credit.
4. AFFIRMATIVE COVENANTS. Until full and final payment and performance
of all obligations of Borrower under the Loan Documents, Borrower will,
unless Bank consents otherwise in writing (and without limiting any
requirement of any other Loan Document):
A. Financial Statements and Other Information. Maintain a system
of accounting reasonably satisfactory to Bank and in accordance with GAAP
applied on a consistent basis throughout the period involved, permit
Bank's officers or authorized representatives to visit and inspect
Borrower's books of account and other records at such reasonable times
and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by Bank
for the foregoing purposes. Unless written notice of another location is
given to Bank, Borrower's books and records will be located at Borrower's
chief executive office set forth above. All financial statements called
for below shall be prepared in form and content reasonably acceptable to
Bank and by independent certified public accountants acceptable to Bank;
provided, however, Bank hereby (i) acknowledges the adequacy of the form
and content of Borrower's financial statements delivered prior to the
date hereof and (ii) unless the Bank provides the Borrower written notice
otherwise, the Borrower's current independent certified public
accountants are acceptable to the Bank.
In addition, Borrower will:
i. Furnish to Bank consolidated and consolidating financial
statements of Borrower for each fiscal year of Borrower, within 120
days after the close of each such fiscal year.
ii. Furnish to Bank consolidated and consolidating financial
statements (including a balance sheet and profit and loss statement)
of Borrower for each quarter of each fiscal year of Borrower, within
45 days after the close of each such period.
<PAGE>
iii. Furnish to Bank a Compliance Certificate for (and executed
by an authorized representative of) Borrower concurrently with and
dated as of the date of delivery of each of the financial statements
as required in paragraphs i and ii above, containing (a) a
certification that the financial statements of even date therewith
are true and correct and that the Borrower is not in default under
the terms of this Agreement, and (b) computations and conclusions,
in such reasonable detail as Bank may request, with respect to
compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and
financial condition of Borrower and its Subsidiaries, from time to
time, as Bank may reasonably request.
B. Insurance. Maintain, and cause each Subsidiary of Borrower to
maintain, insurance with responsible insurance companies on such of its
properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity.
Satisfactory evidence of such insurance will be supplied to Bank prior to
funding under the Loan(s) or issuance of the first Letter of Credit and
15 days prior to each policy renewal.
C. Existence and Compliance. Maintain, and cause each Subsidiary
of Borrower to maintain, its existence, good standing and qualification
to do business, where required, except in the case of good standing and
qualification, where the failure of Borrower or such Subsidiary to be so
qualified or in good standing would not result in a Material Adverse
Effect, and comply in all material respects with all laws, regulations
and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
D. Adverse Conditions or Events. Promptly advise Bank in writing
of (i) any condition, event or act which comes to its attention that
would reasonably be expected to result in a Material Adverse Effect,
(ii) any litigation filed by or against Borrower or any Subsidiary of
Borrower, which would reasonably be expected to result in a Material
Adverse Effect, if adversely determined, (iii) any event that has
occurred that would constitute an event of default under any Loan
Documents, and (iv) any actual or potential contingent liability which
singly or in the aggregate with all other actual or potential contingent
liabilities could equal or exceed $500,000.
E. Taxes and Other Obligations. Pay, and cause each Subsidiary of
Borrower to pay, all of its taxes, assessments and other material
obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
<PAGE>
F. Environmental. Immediately advise Bank in writing of (i) any
material enforcement, cleanup, remedial, removal, or other governmental
or regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Borrower's or any of
Borrower's Subsidiary's business operations; and (ii) all claims made or
threatened by any third party against Borrower or any Subsidiary of
Borrower relating to damages, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Materials. Borrower will not
use or permit, and will cause each Subsidiary of Borrower to not use or
permit, any other party to use any Hazardous Materials at any of
Borrower's or any of Borrower's Subsidiary's places of business or at any
other property owned by Borrower or any Subsidiary of Borrower except
such materials as are incidental to Borrower's or any of Borrower's
Subsidiary's normal course of business, maintenance and repairs and which
are handled in material compliance with all applicable environmental
laws. Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's or any of Borrower's
Subsidiary's places of business or any other property of Borrower and
each Subsidiary of Borrower at any reasonable times upon three (3) days
prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure
that Borrower and each Subsidiary of Borrower are complying with this
covenant and Borrower shall reimburse Bank on demand for the reasonable
costs of any such environmental investigation and audit. Borrower shall
provide, and shall cause each Subsidiary of Borrower to provide, Bank,
its agents, contractors, employees and representatives with access to and
copies of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or disposed of
by Borrower's and each Subsidiary's of Borrower business operations
within five (5) days of the written request therefore.
5. NEGATIVE COVENANTS. Until full and final payment and performance of
all obligations of Borrower under the Loan Documents, Borrower will not,
and will not permit any Subsidiary of Borrower to, without the prior
written consent of Bank (and without limiting any requirement of any
other Loan Documents):
A. Financial Condition.
i. Borrower shall not permit the ratio of (a) Current Assets
divided by (b) Current Liabilities to be less than 1.0 to 1.0 as at
the last day of each calendar quarter.
ii. Borrower shall not permit
a. Net Income to be less than or equal to $100,000 for
the six months ending on December 31, 1998.
b. Net Income to be less than or equal to $500,000 for
the nine months ending on March 31, 1999.
c. Net Income to be less than or equal to $750,000 for
the twelve months ending on June 30, 1999.
d. Net Income to be less than or equal to $1 for the
three months ending September 30, 1999.
<PAGE>
B. Investments. Make an Investment in or to any Person; provided,
Borrower may make investments in the existing Subsidiaries of Borrower
identified on Schedule 1 if the aggregate of all Investments in such
Subsidiaries (as disclosed on Schedule 1) does not exceed at any time
$2,500,000.
C. Extensions of Credit. Make any loan or advance to any Person;
provided Borrower may (i) make loans and/or advances to Subsidiaries
under the terms specified in Section "B. Investments" above and (ii)
advances (not to exceed $50,000 in the aggregate) to employees for moving
and travel expenses, drawing accounts, and similar expenditures in the
ordinary course of Borrower's or its Subsidiary's business.
D. Transfer of Assets or Control. Sell, lease, assign or
otherwise dispose of or transfer any assets, except in the normal course
of its business, or enter into any merger or consolidation; provided,
however, any Subsidiary of Borrower may dissolve or merge or consolidate
with or into any other Subsidiary of Borrower.
E. Liens. Grant, suffer or permit any contractual Lien on any of
its assets (other than Liens granted under the NationsBank Agreement or
related agreements to assure performance of obligations related to
letters of credit issued for the account of Borrower or any of its
Subsidiaries) except Liens granted under the terms of this Agreement and
the NationsBank Agreement. Fail to promptly pay when due all lawful
claims, whether for labor, materials or otherwise, except to the extent
the failure to pay such claims would not result in a Material Adverse
Effect. Agree with any Person to not grant any Lien on any of its
assets, except as set forth in the NationsBank Agreement.
F. Borrowings. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred payment for the
purchase of assets, as surety or guarantor for the debt for another, or
otherwise) other than to Bank, except for normal trade debts incurred in
the ordinary course of Borrower's and each of Borrower's Subsidiary's
business, and except for (i) existing indebtedness disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement and
(ii) indebtedness under or evidenced by the NationsBank Agreement and any
related promissory notes.
G. NationsBank Agreement. Amend, modify or restate the
NationsBank Agreement, or any related agreement and any related
promissory notes as they exist the date hereof.
H. Character of Business. Change the general character of
business as conducted at the date hereof, or engage in any type of
business not reasonably related to its business as presently conducted.
6. DEFAULT. Borrower shall be in default under this Agreement and
under each of the other Loan Documents if any one or more of the
following (an "Event of Default") shall occur for any reason whatsoever,
whether voluntary or involuntary, by operation of law, or otherwise:
A. Borrower shall fail to pay any interest, fees or other amounts
payable under any of the Loan Documents within three days after date due
or Borrower shall fail to pay any principal under any of the Loan
Documents when due;
<PAGE>
B. Any representation or warranty made or deemed made by any
Obligor (or any of its officers or representatives) under or in
connection with any of the Loan Documents shall prove to have been
incorrect or misleading in any material respect when made or deemed made;
C. Borrower or any other Obligor shall fail to perform or observe
any term or covenant contained in any of the Loan Documents;
D. Any of the Loan Documents or provision thereof shall, for any
reason, not be valid and binding on any Obligor or not be in full force
and effect, or shall be declared to be null and void; the validity or
enforceability of any of the Loan Documents shall be contested by any
Obligor, or any Obligor shall deny that it has any or further liability
or obligation under any of the Loan Documents;
E. The occurrence of any event described in Section 8(b) or (c) of
the Note with respect to Borrower or any Subsidiary of Borrower;
F. Any Obligor shall fail to pay any debt (other than debt under
the Loan Documents) or obligations in respect of capital leases in an
aggregate amount of $50,000 or more when due; or any Obligor shall fail
to perform or observe any term or covenant contained in any agreement or
instrument relating to any such debt when required to be performed or
observed, including, without limitation, any term or covenant contained
in the NationsBank Loan Agreement;
G. Any Obligor shall have any final judgment(s) outstanding
against it for the payment of $50,000 or more, and such judgment(s) shall
remain unstayed, in effect, and unpaid for the period of time after which
the judgment holder may and may cause the creation of Liens against or
seizure of any of its property;
H. Any Obligor shall be required under any environmental law (i)
to implement any remedial, neutralization, or stabilization process or
program, the cost of which exceeds $50,000, or (ii) to pay any penalty,
fine, or damages in an aggregate amount of $50,000 or more;
I. Other than with respect to any of the Loan Documents, any
Obligor shall fail to timely and properly observe, keep or perform any
term, covenant, agreement or condition in any other loan agreement,
promissory note, security agreement, deed of trust, deed to secure debt,
mortgage, assignment or other contract securing or evidencing payment of
any indebtedness of any Obligor to Bank or any affiliate or subsidiary of
the Bank;
J. The withdrawal of any material owner of Borrower, as determined
by Bank in its sole discretion;
K. The commencement of a proceeding against any Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of any Obligor or the merger or consolidation of any Obligor
with or into another entity (except as permitted by Section 5.D);
<PAGE>
L. The insolvency of, the business failure of, the appointment of
a custodian, trustee, liquidator or receiver for or for any of the
property of, the assignment for the benefit of creditors by, or the
filing of a petition under bankruptcy, insolvency or debtor's relief law
or the filing of a petition for any adjustment of indebtedness,
composition or extension by or against any Obligor;
M. The failure of any Obligor to timely deliver such financial
statements, including tax returns, other statements of condition or other
information, as Bank shall request from time to time;
N. The entry of a judgment against any Obligor which Bank deems to
be of a material nature, in Bank's sole discretion;
O. The seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any
material property of any Obligor; or
P. The determination by Bank that a material adverse change has
occurred in the financial condition of any Obligor.
7. REMEDIES UPON DEFAULT. If an Event of Default shall occur, Bank
shall have all rights, powers and remedies available under each of the
Loan Documents (including Section 11) as well as all rights and remedies
available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of
this Agreement must be in writing delivered to the other party at the
following address:
Borrower:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Paul Willey
Bank:
Chase Bank of Texas,
National Association
12875 Josey Lane
Dallas, Texas 75234-6398
Attn: David L. Howard
or to such other address as any party may designate by written notice to
the other party. Each such notice, request and demand shall be deemed
given or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage
prepaid;
B. If sent by any other means, upon delivery.
<PAGE>
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank on
demand the full amount of all costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs
of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement
and each of the Loan Documents, and (b) all other costs and attorneys'
fees incurred by Bank for which Borrower is obligated to reimburse Bank
in accordance with the terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted
to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Bank of
any right preclude any other or future exercise thereof or the exercise
of any other right. Borrower expressly waives any presentment, demand,
protest or other notice of any kind, including but not limited to notice
of intent to accelerate and notice of acceleration. No notice to or
demand on Borrower in any case shall, of itself, entitle Borrower to any
other or future notice or demand in similar or other circumstances.
B. Applicable Law. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Texas and applicable United States federal
law.
C. Amendment. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Agreement
is binding upon Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's rights or obligations hereunder shall be
made or be effective without Bank's prior written consent, nor shall it
relieve Borrower of any obligations hereunder. There is no third party
beneficiary of this Agreement.
D. Documents. All documents, certificates and other items
required under this Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
<PAGE>
F. Indemnification. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED IN SECTION 10(G), BORROWER SHALL INDEMNIFY, DEFEND AND HOLD
BANK AND ITS SUCCESSORS AND ASSIGNS HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, SUITS, LOSSES, DAMAGES, ASSESSMENTS, FINES, PENALTIES,
COSTS OR OTHER EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES AND COURT
COSTS) ARISING FROM OR IN ANY WAY RELATED TO ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO ACTUAL OR THREATENED
DAMAGE TO THE ENVIRONMENT, AGENCY COSTS OF INVESTIGATION, PERSONAL INJURY
OR DEATH, OR PROPERTY DAMAGE, DUE TO A RELEASE OR ALLEGED RELEASE OF
HAZARDOUS MATERIALS, ARISING FROM BORROWER'S OR ANY OF BORROWER'S
SUBSIDIARY'S BUSINESS OPERATIONS, ANY OTHER PROPERTY OWNED BY BORROWER OR
ANY SUBSIDIARY OF BORROWER OR IN THE SURFACE OR GROUND WATER ARISING FROM
BORROWER'S OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS OPERATIONS, OR
GASEOUS EMISSIONS ARISING FROM BORROWER'S OR ANY OF BORROWER'S
SUBSIDIARY'S BUSINESS OPERATIONS OR ANY OTHER CONDITION EXISTING OR
ARISING FROM BORROWER'S OR ANY OF BORROWER'S SUBSIDIARY'S BUSINESS
OPERATIONS RESULTING FROM THE USE OR EXISTENCE OF HAZARDOUS MATERIALS,
WHETHER SUCH CLAIM PROVES TO BE TRUE OR FALSE. BORROWER FURTHER AGREES
THAT ITS INDEMNITY OBLIGATIONS SHALL INCLUDE, BUT ARE NOT LIMITED TO,
LIABILITY FOR DAMAGES RESULTING FROM THE PERSONAL INJURY OR DEATH OF AN
EMPLOYEE OF BORROWER OR ANY SUBSIDIARY OF BORROWER, REGARDLESS OF WHETHER
BORROWER OR SUCH SUBSIDIARY OF BORROWER HAS PAID THE EMPLOYEE UNDER THE
WORKMEN'S COMPENSATION LAWS OF ANY STATE OR OTHER SIMILAR FEDERAL OR
STATE LEGISLATION FOR THE PROTECTION OF EMPLOYEES. THE TERM "PROPERTY
DAMAGE" AS USED IN THIS PARAGRAPH INCLUDES, BUT IS NOT LIMITED TO, DAMAGE
TO ANY REAL OR PERSONAL PROPERTY OF BORROWER OR ANY SUBSIDIARY OF
BORROWER, BANK, AND OF ANY THIRD PARTIES. BORROWER'S OBLIGATIONS UNDER
THIS PARAGRAPH SHALL SURVIVE THE REPAYMENT OF THE OBLIGATIONS OF BORROWER
UNDER THE LOAN DOCUMENTS AND ANY DEED IN LIEU OF FORECLOSURE OR
FORECLOSURE OF ANY DEED TO SECURE DEBT, DEED OF TRUST, SECURITY AGREEMENT
OR MORTGAGE SECURING THE OBLIGATIONS OF BORROWER UNDER THE LOAN
DOCUMENTS.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loans and the issuance of each Letter of Credit and shall
continue in full force and effect so long as the Loans or any Letter of
Credit is outstanding or the obligation of Bank to make any advances
under the Line or issue any Letter of Credit or honor any draft under any
Letter of Credit shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS,
AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN
ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE
WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE
STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF
COMMERCIAL DISPUTES OF J.A.M.S./ ENDISPUTE OR ANY SUCCESSOR THEREOF
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM
TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
<PAGE>
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING
THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE.
ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO
AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN
THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE
PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT, NEITHER THIS EXERCISE
OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
PARTIES.
13. TEXAS FINANCE CODE. Chapter 346 of the Texas Finance Code is
specifically declared by the parties hereto not to be applicable to any
Loan Documents or the transactions contemplated thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives as
of the date first above written.
BORROWER: BANK:
PEERLESS MFG. CO. CHASE BANK OF TEXAS
NATIONAL ASSOCIATION
By: By:
Name: Paul Willey Name: David L. Howard
Title: Chief Financial Officer Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-30-1998
<CASH> 1,662,762
<SECURITIES> 268,065
<RECEIVABLES> 10,805,379
<ALLOWANCES> 769,861
<INVENTORY> 2,341,507
<CURRENT-ASSETS> 16,840,975
<PP&E> 8,335,716
<DEPRECIATION> 6,044,740
<TOTAL-ASSETS> 19,801,153
<CURRENT-LIABILITIES> 5,988,554
<BONDS> 0
0
0
<COMMON> 1,457,492
<OTHER-SE> 12,316,245
<TOTAL-LIABILITY-AND-EQUITY> 19,801,153
<SALES> 20,301,525
<TOTAL-REVENUES> 20,301,525
<CGS> 13,722,263
<TOTAL-COSTS> 13,722,263
<OTHER-EXPENSES> 4,106,864
<LOSS-PROVISION> 25,200
<INTEREST-EXPENSE> 18,898
<INCOME-PRETAX> 1,156,788
<INCOME-TAX> 445,217
<INCOME-CONTINUING> 711,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711,571
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
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