<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended: May 31, 1996
( ) 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 0-2733
AZTEC MANUFACTURING CO.
(Exact name of registrant as specified in its charter)
TEXAS 75-0948250
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
400 North Tarrant, Crowley, Texas 76036
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 297-4361
--------------------------
NONE
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of outstanding of each of the issuer's classes of common
stock, as of the close of the period covered by this report.
Outstanding at May 31, 1996
Common Stock, $1.00 Par Value 5,850,489
----------------------------- ---------------------------
Class Number of Shares
<PAGE>
AZTEC MANUFACTURING CO.
<TABLE>
<CAPTION>
INDEX
-----
<S> <C> <C>
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
May 31, 1996 and February 29, 1996 3
Consolidated Condensed Statements of Income
Periods Ended May 31, 1996 and May 31, 1995 4
Consolidated Condensed Statements of Cash Flow
Periods Ended May 31, 1996 and May 31, 1995 5
Notes to Consolidated Condensed Financial
Statements 6
Computation of Income per Common Share 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. Other Information
-----------------
Item 2. Changes in Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
EXHIBIT 10-P Loan Agreement with Bank of America 12-64
</TABLE>
Page 2
<PAGE>
ITEM I. FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
5/31/96 2/29/96
ASSETS UNAUDITED AUDITED
- ---------------------------------------- --------------- --------------
<S> <C> <C>
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 167,156 $ 416,223
ACCOUNTS RECEIVABLE (NET OF ALLOWANCE) 9,095,189 9,483,471
INVENTORIES:
RAW MATERIALS 4,582,768 4,934,538
WORK-IN-PROCESS 1,177,708 991,197
FINISHED GOODS 741,932 746,813
PREPAID EXPENSES AND OTHER 115,556 192,047
--------------- --------------
TOTAL CURRENT ASSETS $ 15,880,309 $ 16,764,289
PROPERTY, PLANT AND EQUIPMENT, NET 16,778,683 16,824,952
PROPERTY HELD FOR SALE, NET 1,483,562 1,504,756
INTANGIBLE ASSETS, NET 7,207,136 7,292,973
OTHER ASSETS 234,340 234,340
--------------- --------------
TOTAL ASSETS $ 41,584,030 $ 42,621,310
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------
CURRENT LIABILITIES
LONG TERM DEBT DUE WITHIN ONE YEAR $ 1,558,926 $ 1,558,926
ACCOUNTS PAYABLE 4,165,513 4,077,754
ACCRUED LIABILITIES 4,007,799 3,248,920
--------------- --------------
TOTAL CURRENT LIABILITIES $ 9,732,238 $ 8,885,600
LONG-TERM DEBT DUE AFTER ONE YEAR 6,389,711 9,516,472
DEFERRED INCOME TAX 1,058,993 1,058,993
SHAREHOLDERS' EQUITY:
COMMON STOCK, $1 PAR VALUE
SHARES AUTHORIZED - 25,000,000
SHARES ISSUED - 5,850,489 and 5,772,895 5,850,489 5,772,895
CAPITAL IN EXCESS OF PAR VALUE 9,505,563 9,283,268
RETAINED EARNINGS 9,773,167 8,830,213
LESS COMMON STOCK HELD IN TREASURY
(232,362 SHARES AT COST) (726,131) (726,131)
--------------- --------------
TOTAL SHAREHOLDERS EQUITY 24,403,088 23,160,245
--------------- --------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 41,584,030 $ 42,621,310
=============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 3
<PAGE>
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
5/31/96 5/31/95
UNAUDITED UNAUDITED
-------------- --------------
<S> <C> <C>
NET SALES $ 14,235,597 $ 12,068,508
COSTS AND EXPENSES:
COST OF SALES 10,217,480 9,120,235
SELLING/G & A EXPENSE 2,054,695 1,801,295
INTEREST EXPENSE 228,214 288,191
OTHER (INCOME) EXPENSE 157,983 (74,498)
RESEARCH & DEVELOPMENT 18,672 16,738
-------------- --------------
$ 12,677,044 $ 11,151,961
-------------- --------------
INCOME BEFORE INCOME TAXES 1,558,553 916,547
PROVISION FOR INCOME TAXES 615,511 362,167
-------------- --------------
NET INCOME $ 943,042 $ 554,380
============= ==============
INCOME PER SHARE:
INCOME PER SHARE - PRIMARY 0.17 0.10
INCOME PER SHARE - FULLY DILUTED $ 0.16 $ 0.10
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 4
<PAGE>
AZTEC MANUFACTURING CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDING
5/31/96 5/31/95
UNAUDITED UNAUDITED
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 943,042 $ 554,380
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATIONS:
PROVISION FOR BAD DEBTS 115,253 74,500
AMORTIZATION AND DEPRECIATION 656,065 522,645
GAINS ON SALE OF PROPERTY 1,310 0
INCREASE (DECREASE) FROM CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 273,029 1,976,852
INVENTORIES 170,140 54,589
PREPAID EXPENSE 76,491 11,627
OTHER ASSETS (587) 0
ACCOUNTS PAYABLE 87,759 (624,031)
ACCRUED LIABILITIES 758,880 152,674
-------------- --------------
NET CASH PROVIDED BY OPERATIONS 3,081,382 2,723,236
-------------- --------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
PURCHASE OF PROPERTY/PLANT/EQUIPMENT (503,488) (453,314)
-------------- --------------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES (503,488) (453,314)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
EXERCISE OF STOCK OPTIONS 299,888 7,950
CHANGE IN REVOLVING LOAN (2,747,862) (1,935,642)
PAYMENTS ON LONG TERM NOTES (378,899) (347,232)
DIVIDENDS PAID (88) (114,825)
-------------- --------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (2,826,961) (2,389,749)
-------------- --------------
(DECREASE) IN CASH & CASH EQUIVALENTS (249,067) (119,827)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 416,223 192,764
-------------- --------------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 167,156 $ 72,937
============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
Page 5
<PAGE>
AZTEC MANUFACTURING CO.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
Summary of Significant Accounting Policies
------------------------------------------
1. A summary of the Company's significant accounting policies is presented on
Page 11 of its 1996 Annual Shareholders' Report.
2. In the opinion of Management of the Company, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position of the Company as of May 31, 1996, and the results
of operations and cash flows for the three-month periods ended May 31,
1996 and May 31, 1995.
3. The Company arranged a new credit facility with a new lender effective
July 1, 1996. The arrangement is discussed in Management's Discussion and
Analysis of Financial Conditions. The facility included a $10 million term
note for 6 years at a fixed rate of 7.86 percent and a $10 million
revolving note for 3 years at LIBOR plus 1 percent.
4. The Company purchased all of the stock of Arkansas Galvanizing in February
1996 for approximately $4.2 million in cash and the assumption of
approximately $0.8 million in liabilities. The acquisition was accounted
for under the purchase method of accounting.
Page 6
<PAGE>
AZTEC MANUFACTURING CO.
Computation of Income Per Common Share
--------------------------------------
<TABLE>
<CAPTION>
------------------------------------------
THREE MONTHS ENDING
------------------------------------------
MAY 31, 1996 MAY 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Income Applicable to Common Shares $ 943,042 $ 554,380
- --------------------------------------------------------------------------------
Weighted Average Common And Common 5,582,926 5,743,910
Equivalent Shares Outstanding
- --------------------------------------------------------------------------------
Income per Common Share: Primary $.17 $.10
Income per Common Share: Fully Diluted $.16 $.10
- --------------------------------------------------------------------------------
Cash Dividend $- 0 - $- 0 -
- --------------------------------------------------------------------------------
</TABLE>
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash provided by operations for the three-month period ending May 31, 1996
was $3,081,000 compared to $2,723,236 during the same period in 1995. Working
capital on May 31, 1996, was $6,148,000, with a current ratio of 1.63 to 1.
Uses of cash during the period ended May 31, 1996 included the purchase of
equipment in the amount of $503,000 and the repayment of bank debt in the amount
of $3,127,000.
The Company arranged a new credit facility with a new lender effective July 1,
1996. This agreement is made up of a three year $10,000,000 revolving line of
credit and a six year $10,000,000 term note. The revolving line of credit will
be used for future acquisitions and working capital. The term note will be
used to repay the $8,000,000 total outstanding under the former facility, with
the balance available for future acquisitions and working capital purposes.
The Company's primary sources of liquidity and capital resources in the near
term will consist of cash flow from operations and available borrowings under
the Company's new credit facility mentioned above. After July 1, 1996, the
Company's current availability under the credit facility will be approximately
$10,000,000.
RESULTS OF OPERATIONS
---------------------
Consolidated net sales for the period ending May 31, 1996 as compared to the
same period in 1995 were up approximately $2,167,000, an 18 percent increase.
Net sales in the Electrical Products Segment, as compared to the same period in
1995, were flat. Net sales in the Company's Galvanizing Segment were up 49
percent over the same period in 1995, due to the addition of Arkansas
Galvanizing, as well as increased overall volumes of production. Net sales in
the Oil Field Products Segment were up as compared to the same period in 1995,
by 39 percent. This increase in revenue was attributable to unexpectedly higher
prices of crude oil and natural gas which stimulated drilling activity.
Consolidated operating income (net sales less cost of sales) for the period
ending May 31, 1996, as compared to the same period in 1995, was up 36 percent.
Gross operating income in the Electrical Products Segment was up due to
operating cost efficiencies previously instituted by management. Gross
operating income in the Galvanizing Segment was up 41 percent over the same
period last year due to the addition of Arkansas Galvanizing as well as
increased volumes in overall production. The Oil Field Products Segment showed
a lower gross operating loss as compared to the same period in 1995.
General corporate expenses for the period ending May 31, 1996, as compared to
the same period in 1995, were up due to higher accruals for employee benefits
and profit sharing expense.
Interest expense was lower for the period ending May 31, 1996, as compared to
1995, due to reduced debt and lower interest rates.
Page 8
<PAGE>
PART II. OTHER INFORMATION
AZTEC MANUFACTURING CO.
Item 2. Changes in Securities
- ------------------------------
Title of Class - Common Stock, $1 par value
<TABLE>
<CAPTION>
Number of Common Stock Capital in
Shares $1 Par Value Excess of Par
-------- -------------- --------------
<S> <C> <C> <C>
Balance at February 29, 1996 5,772,895 $5,772,895 $9,283,268
Exercise of Stock Options 77,594 $ 77,594 $ 222,295
Balance at May 31, 1996 5,850,489 $5,850,489 $9,505,563
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(A) Exhibits - The following exhibit is filed as part of this report:
10 - P Loan agreement with Bank of America for $20 million.
(B) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended May 31, 1996.
All other schedules and compliance information called for by the instructions
for Form 10-Q have been omitted since the required information is not present or
not present in amounts sufficient to require submission.
Page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AZTEC MANUFACTURING CO.
----------------------------------
(Registrant)
Date: June 28, 1996 /s/Dana Perry
----------------------- ---------------------------------
Dana Perry, Vice President for Finance
Chief Financial Officer
Page 10
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Description Numbered Page
- ------- ----------- -------------
10 - P Loan agreement with Bank of America
Incorporated
Page 11
<PAGE>
EXHIBIT 10-P
================================================================================
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
between
BANK OF AMERICA, TEXAS, N.A.
and
AZTEC MANUFACTURING CO.
dated
28 June 1996
================================================================================
<PAGE>
TABLES OF CONTENTS
Page
----
1. DEFINITIONS .......................................................... 1
2. LOAN AMOUNTS AND TERMS................................................ 4
2.1 Line of Credit Amount ..................................... 4
2.2 Availability Period ....................................... 4
2.3 Conditions to Each Extension of Credit .................... 4
2.4 Repayment Terms ........................................... 4
2.5 Letters of Credit ......................................... 4
2.6 Term Loan ................................................. 5
2.7 Availability Period ....................................... 5
2.8 Purpose ................................................... 5
2.9 Term Loan Repayment Terms; Prepayment ..................... 5
2.10 Interest Rate ............................................. 6
2.11 Optional Interest Rates; Payment of Interest .............. 6
2.12 Additional Costs; Acknowledgment of Prepayment Fees ....... 7
2.13 Long Term Rate............................................. 7
2.14 Libor Rate................................................. 8
3. FEES, EXPENSES AND DEPOSITS ......................................... 10
3.2 Expenses .................................................. 10
3.3 Deposits Accounts ......................................... 10
3.4 No Excess Fees ............................................ 11
4. COLLATERAL ........................... ............................. 11
4.1 Personal Property ......................................... 11
4.2 Personal Property Supporting Guaranty ..................... 11
4.3 Additional Property Upon Default .......................... 11
5. DISBURSEMENTS, PAYMENTS AND COSTS ................................... 12
5.1 Requests for Credit ....................................... 12
5.2 Disbursements and Payments ................................ 12
5.3 Direct Debit (Pre-Billing) ................................ 12
5.4 Banking Days .............................................. 13
5.5 Taxes ..................................................... 13
5.6 Additional Costs .......................................... 13
5.7 Interest Calculation ...................................... 14
5.8 Default Rate .............................................. 14
5.9 Overdrafts ................................................ 14
i
<PAGE>
6. CONDITIONS .......................................................... 14
6.1 Authorizations ............................................ 14
6.2 Security Agreements ....................................... 14
6.3 Evidence of Priority ...................................... 14
6.4 Consent to Removal ........................................ 14
6.5 Insurance ................................................. 15
6.6 Environmental Questionnaire ............................... 15
6.7 Guaranty .................................................. 15
6.8 Legal Opinion ............................................. 15
6.9 Existence, Good Standing, and Foreign Qualification ....... 15
6.10 Other Items................................................ 15
7. REPRESENTATIONS AND WARRANTIES ..................................... 15
7.1 Organization of Borrower .................................. 15
7.2 Authorization ............................................. 15
7.3 Enforceable Agreement ..................................... 15
7.4 Good Standing ............................................. 15
7.5 No Conflicts .............................................. 16
7.6 Financial Information ..................................... 16
7.7 Lawsuits .................................................. 16
7.8 Collateral ................................................ 16
7.9 Permits, Franchises ....................................... 16
7.10 Other Obligations ......................................... 16
7.11 Income Tax Returns ........................................ 16
7.12 No Event of Default ....................................... 16
7.13 Merchantable Inventory..................................... 16
7.14 ERISA Plans ............................................... 17
8. COVENANTS ........................................................... 18
8.1 Use of Proceeds............................................ 18
8.2 Financial Information...................................... 18
8.3 Quick Ratio................................................ 19
8.4 Tangible Net Worth......................................... 19
8.5 Debt to Tangible Net Worth................................. 19
8.6 Cash Flow Ratio............................................ 19
8.7 Other Debts................................................ 19
8.8 Other Liens................................................ 20
8.9 Capital Expenditures....................................... 20
8.10 Dividends.................................................. 20
8.11 Treasury Stock............................................. 20
8.12 Loans to Officers.......................................... 20
8.13 Notices to Bank............................................ 21
8.14 Books and Records.......................................... 21
8.15 Audits..................................................... 21
ii
<PAGE>
8.16 Compliance with Laws....................................... 21
8.17 Maintenance of Properties.................................. 21
8.18 Preservation of Rights..................................... 21
8.19 Perfection of Liens........................................ 21
8.20 Cooperation................................................ 21
8.21 Insurance.................................................. 21
(a) Insurance Covering Collateral............... 21
(b) General Business Insurance.................. 22
(c) Evidence of Insurance....................... 22
8.22 Additional Negative Covenants.............................. 22
8.23 ERISA Plans................................................ 23
9. HAZARDOUS WASTE INDEMNIFICATION...................................... 23
9.1.............................................................. 23
INDEMNIFICATION...................................................... 23
9.2 Representation and Warranty Regarding Hazardous
Substances................................................ 24
9.3 Compliance Regarding Hazardous Substances.................. 24
9.4 Notices Regarding Hazardous Substances..................... 24
9.5 Site Visits, Observations and Testing...................... 24
9.6 Continuation of Indemnity.................................. 25
10. DEFAULT............................................................. 25
10.1 Failure to Pay............................................. 25
10.2 Lien Priority.............................................. 25
10.3 False Information.......................................... 25
10.4 Bankruptcy................................................. 26
10.5 Receivers.................................................. 26
10.6 Lawsuits................................................... 26
10.7 Judgments.................................................. 26
10.8 Government Action.......................................... 26
10.9 Material Adverse Change.................................... 26
10.10 Cross-default.............................................. 26
10.11 Default under Guaranty or Subordination Agreement.......... 26
10.12 Other Bank Agreements...................................... 26
10.13 ERISA Plans................................................ 26
10.14 Other Breach Under Agreement............................... 27
10.15 Change of Control.......................................... 27
10.16 Change in Management....................................... 27
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS............................. 27
11.1 GAAP....................................................... 27
11.2 Governing Law.............................................. 27
11.3 Successors and Assigns..................................... 27
11.4 ARBITRATION................................................ 27
iii
<PAGE>
11.5 Severability; Waivers...................................... 29
11.6 Costs...................................................... 29
11.7 Attorneys' Fees............................................ 29
11.8 Indemnification............................................ 29
11.9 Notices.................................................... 29
11.10 Headings................................................... 29
11.11 Counterparts............................................... 29
11.12 Usury Laws................................................. 30
11.13 NO ORAL AGREEMENTS......................................... 30
INDEX TO EXHIBITS
-----------------
Exhibit A Borrowing Certificate
Exhibit B Borrowing Base Certificate
INDEX TO SCHEDULES
------------------
Schedule 7.8 Liens encumbering Collateral
Schedule 8.7 Existing Debt
Schedule 8.8 Existing Liens
iv
<PAGE>
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)
This Agreement ("Agreement") dated as of June 28, 1996, is between Bank
---------
of America, Texas, N.A. (the "Bank") and Aztec Manufacturing Co. (the
----
"Borrower").
- ---------
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this Agreement, the
following terms have the meanings indicated for the purposes of this Agreement:
1.1 "Borrowing Base" means the lesser of:
--------------
(a) Ten Million Dollars ($10,000,000.00), or
(b) the sum of:
(i) Eighty percent (80%) of the balance due on Acceptable
Receivables, plus
(ii) Fifty percent (50%) of the value of Acceptable
Inventory consisting of raw materials (excluding the inventory of
zinc) and finished goods; plus
(iii) Sixty percent (60%) of the value of Acceptable
Inventory consisting of raw zinc.
In determining the value of Acceptable Inventory to be included in the Borrowing
Base, the Bank will use the lowest of (i) a Pledging Party's cost as determined
in accordance with generally accepted accounting principles applied on a
consistent basis, (ii) a Pledging Party's estimated market value, or (iii) the
Bank's independent determination of the resale value of such inventory in such
quantities and on such terms as the Bank deems appropriate.
1.2 "Acceptable Receivable" means an account receivable which satisfies
---------------------
the following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by a Pledging Party in the ordinary course of the
Pledging Party's business.
(b) There are no conditions which must be satisfied before the
Pledging Party is entitled to receive payment of the account. Accounts
arising from COD sales, consignments or guaranteed sales are not acceptable.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 1
<PAGE>
(c) The debtor upon the account does not claim any defense to
payment and has not asserted any counterclaims against the Pledging Party.
(d) The account represents a genuine obligation of the debtor for
goods sold and accepted by the debtor, or for services performed for and
accepted by the debtor.
(e) The Pledging Party has sent an invoice to the debtor in the
amount of the account.
(f) The account is owned by the Pledging Party free of any title
defects or any liens or interests of others except the security interest in
favor of the Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of any
Pledging Party, or an entity which has common officers or directors
with any Pledging Party.
(ii) the United States government or any agency or department
of the United States government unless the Bank agrees in writing
to accept the account and the Pledging Party complies with the
procedures in the Federal Assignment of Claims Act of 1940 with
respect to the account.
(iii) any state, county, city, town or municipality unless no
law or contractual provision exists restricting the applicable
Pledging Party's right to assign the applicable account or the
applicable Pledging Party has complied with the requirements of
such law or contractual provision permitting the assignment to the
Bank.
(iv) any person or entity located in a foreign country
unless the account is supported by a letter of credit issued by a
bank acceptable to the Bank.
(v) any person or entity to whom the Pledging Party is
obligated for goods purchased by the Pledging Party or for services
performed for the Pledging Party. This will not exclude accounts
upon which any such debtor is obligated to the extent that the
accounts exceed the amount of the Pledging Party's obligation to
such debtor.
(h) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within the ninety (90) day period
starting on its invoice date;
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 2
<PAGE>
(ii) The debtor obligated upon the account suspends
business, makes a general assignment for the benefit of creditors,
or fails to pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor
obligated upon the account under any bankruptcy law or any other
law or laws for the relief of debtors;
(i) The account, when added to all other accounts that are
obligations of the same debtor, does not cause that debtor's total
obligations to all Pledging Parties to exceed 20% of the balance due on
all of the Pledging Parties accounts, but if it does cause the debtor's
total obligations to the Pledging Parties to exceed such 20%, only the
amount of excess shall be excluded from the "Acceptable Receivables".
----------------------
(j) The account is not the obligation of a debtor who is in
default (as defined above) on 25% or more of the accounts upon which such
debtor is obligated, such 25% calculated based on the dollar amount of
all such accounts.
(k) The account does not arise from the sale of goods which
remain in a Pledging Party's possession or under a Pledging Party's
control.
(l) The account does not arise from the sale of minerals
(including oil and gas) at the wellhead or minehead.
(m) The account is not evidenced by a promissory note or
chattel paper.
1.3 "Acceptable Inventory" means inventory which satisfies the
--------------------
following requirements:
(a) The inventory is owned by a Pledging Party free of any
title defects or any liens or interests of others except the security
interest in favor of the Bank.
(b) The inventory is permanently located at locations which a
Pledging Party has disclosed to the Bank and which are acceptable to the
Bank. If the inventory is covered by a negotiable document of title (such
as a warehouse receipt) that document must be delivered to the Bank.
Inventory which is in transit is not acceptable unless it is covered by a
commercial letter of credit and the seller of the inventory is required to
present shipping or title documents as a condition to obtaining payment.
(c) The inventory is held for sale in the ordinary course of a
Pledging Party business and is of good and merchantable quality. Inventory
which is obsolete, unsalable,
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 3
<PAGE>
damaged, defective or discontinued or which has been returned by the
buyer, is not acceptable. Display items and packing and shipping
materials are not acceptable.
(d) The inventory is not placed on consignment.
(e) The inventory is otherwise acceptable to the Bank.
1.4 "Pledging Party" means Borrower and each of its subsidiaries who
--------------
has executed a security agreement in favor of Bank pledging to the Bank such
subsidiaries accounts, inventory, equipment and other related assets.
2. LOAN AMOUNTS AND TERMS
2.1 Line of Credit Amount.
---------------------
(a) During the availability period described below, the Bank
will provide a line of credit to the Borrower. The amount of the line of
credit is equal to the amount of the Borrowing Base.
(b) This is a revolving line of credit for advances with a
within line facility for letters of credit. During the availability
period, the Borrower may repay principal amounts and reborrow them.
(c) Each advance must be for at least One Hundred Thousand
Dollars ($100,000.00) or an integral multiple thereof, or for the amount
of the remaining available line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts of any letters
of credit, including amounts drawn on letters of credit and not yet
reimbursed, to exceed the Borrowing Base. If on any day such outstandings
exceed the Borrowing Base, then within five (5) days of such day the
Borrower will pay the excess to the Bank. The Bank may apply payments
received from the Borrower under this Paragraph to the obligations of the
Borrower to the Bank in the order and the manner as the Bank, in its
discretion, may determine.
2.2 Availability Period. The line of credit is available between the
-------------------
date of this Agreement and July 1, 1999 (the "Expiration Date") unless the
---------------
Borrower is in default.
2.3 Conditions to Each Extension of Credit. Before each extension of
--------------------------------------
credit under the line of credit, including the first, the Borrower will deliver
a Borrowing Certificate in the form of Exhibit A hereto completed in a manner
satisfactory to the Bank by telecopy at the telecopy number set forth on the
signature pages hereto.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 4
<PAGE>
2.4 Repayment Terms. The Borrower will repay in full all principal and
---------------
any unpaid interest or other charges outstanding under this line of credit no
later than the Expiration Date.
2.5 Letters of Credit. This line of credit may be used for financing
-----------------
standby letters of credit with a maximum maturity not to extend beyond the
Expiration Date. The amount of the letters of credit outstanding at any one
time (including amounts drawn on letters of credit and not yet reimbursed) may
not exceed Seven Hundred Fifty Thousand Dollars ($750,000.00). The Borrower
agrees:
(a) any sum drawn under a letter of credit may, at the option
of the Bank, be added to the principal amount outstanding under the line
of credit pursuant to this Agreement. Such amount will bear interest and
be due as described elsewhere in this Agreement;
(b) if there is a default under this Agreement, to immediately
prepay and make the Bank whole for any outstanding letters of credit;
(c) the issuance of any letter of credit and any amendment to
a letter of credit is subject to the Bank's written approval and must be
in form and content satisfactory to the Bank and in favor of a beneficiary.
(d) to sign the Bank's form Application and Agreement for
Standby Letter of Credit in connection with and as a condition to the
issuance of each letter of credit;
(e) to pay any issuance and/or other fees that the Bank
notifies the Borrower will be charged for issuing and processing letters
of credit for the Borrower;
(f) to allow the Bank to automatically charge its checking
account for applicable fees, discounts, and other charges arising or
accrued in respect of the Letters of Credit; and
(g) to pay the Bank a non-refundable fee equal to 1% per
annum of the outstanding undrawn amount of each standby letter of credit,
payable quarterly in advance, calculated on the basis of the face amount
outstanding on the day the fee is calculated.
2.6 Term Loan. The Bank agrees to provide a term loan to the Borrower
---------
in the amount of Ten Million Dollars ($10,000,000.00) (the "Term Commitment").
---------------
2.7 Availability Period. The Term Commitment is available in one
-------------------
disbursement from the Bank between the date of this Agreement and June 30, 1996.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 5
<PAGE>
2.8 Purpose. The term loan shall be used to refinance existing
-------
indebtedness, to finance capital expenditures previously made and for working
capital.
2.9 Term Loan Repayment Terms; Prepayment.
-------------------------------------
(a) The Borrower will repay the principal amount of the term
loan in seventy-one (71) successive monthly installments of One Hundred
Thirty-Eight Thousand Eight Hundred Eighty-Nine Dollars ($138,889.00)
starting August 1, 1996. On July 1, 2002, the Borrower will repay the
remaining principal balance of the term loan.
(b) The Borrower may prepay the term loan in full or in part
at any time in an amount not less than One Hundred Thousand Dollars
($100,000.00) or an integral multiple thereof. The prepayment will be
applied to the most remote installment of principal due under this
Agreement.
2.10 Interest Rate. Unless the Borrower elects an optional interest
-------------
rate as described below, the interest rate for the loans made hereunder is the
lesser of (a) the maximum lawful rate of interest permitted under applicable
usury laws, now or hereafter enacted (the "Maximum Rate") or (b) the rate that
------------
is equal to the Bank's Reference Rate. Notwithstanding the foregoing, if at any
time the Reference Rate shall exceed the Maximum Rate and thereafter the
Reference Rate shall become less than the Maximum Rate, the rate of interest
payable shall be the Maximum Rate until the Bank shall have received the amount
of interest it otherwise would have received if the interest payable had not
been limited by the Maximum Rate during the period of time the Reference Rate
exceeded the Maximum Rate. The "Reference Rate" is the rate of interest publicly
--------------
announced from time to time by the Bank in Irving, Texas, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. The Bank may price
loans to its customers at, above, or below the Reference Rate. Any change in the
Reference Rate shall take effect at the opening of business on the day specified
in the public announcement of a change in the Bank's Reference Rate. Borrower
and Bank agree that Tex. Rev. Civ. Stat. Ann. art. 5069 Ch. 15 (which regulates
certain revolving loan accounts and revolving tri-party accounts) shall not
apply to the line of credit under this Agreement. To the extent that the line of
credit under this Agreement is deemed an open end account as such term is
defined in Article 5069-1.01(f) of the Texas Revised Civil Statutes, as amended,
the Bank retains the right to modify the interest rate in accordance with
applicable law. Borrower represents and warrants to Bank and to all other owners
and holders of any indebtedness evidenced hereby that all loans evidenced by
this Agreement are for business, commercial or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms are
used or defined in Texas Revised Civil Statutes, Article 5069-1.04, Texas Credit
Code and Regulation Z promulgated by the Board of Governors of the Federal
Reserve System and under Titles I and V of the Consumer Credit Protection Act.
In no event shall the provisions of Tex. Rev. Civ. Stat. Ann. arts. 5069-2.01
through 5069-8.06, or 5069-15.01 through 5069-15.11, be applicable to the loans
evidenced hereby. To the extent that Texas
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 6
<PAGE>
law determines the maximum lawful rate of interest, such rate shall be
determined by utilizing the indicated rate (weekly) ceiling from time to time in
effect pursuant to Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended.
2.11 Optional Interest Rates; Payment of Interest. Instead of the
--------------------------------------------
Reference Rate, the Borrower may elect to have all or portions of each loan bear
interest at the rate(s) described below during an interest period agreed to by
the Bank and the Borrower; provided, however, that the Borrower shall not have
-------- -------
the option or right to elect to have all or any portion of a loan bear interest
at the rate described below when such rate exceeds the Maximum Rate. Each
interest rate is a rate per year. Interest (calculated based on the Reference
Rate or at the optional rates described below) will be paid on the first day of
each month commencing August 1, 1996 and on the last day of each interest
period. At the end of any interest period, the interest rate will revert to the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
2.12 Additional Costs; Acknowledgment of Prepayment Fees. The Borrower
---------------------------------------------------
acknowledges that prepayment of all or any portion of the advances bearing
interest at an optional interest rate may result in the Bank incurring
additional costs, expenses and/or liabilities. The Borrower therefore agrees to
pay the prepayment fees described herein if all or any portion of the optional
interest rate advances are prepaid. The Borrower further acknowledges that the
Bank's willingness to offer an optional interest rate to the Borrower is
sufficient and independent consideration for this agreement to pay the fee.
2.13 Long Term Rate. The Borrower may elect to have all or portions of
--------------
the principal balance of the term loan bear interest at a rate equal to the
lesser of (a) the Maximum Rate or (b) the Long Term Rate, subject to the
following requirements:
(a) The interest period during which the Long Term Rate will
be in effect will be for the remaining term of the term loan.
(b) The "Long Term Rate" means a fixed interest rate equal to
--------------
the Bank's Cost of Funds Rate in existence at the time the Long Term Rate
is selected plus one and one-quarter percent (1.25%). "Cost of Funds Rate"
------------------
means the rate then quoted by the Bank at which the Bank can acquire United
States dollars in any domestic market for a period equal to the applicable
interest period and in an amount of the term loan subject thereto, adjusted
for such reserves as the Bank may deem appropriate.
(c) Each Long Term Rate portion will be for an amount not
less than Two Hundred Fifty Thousand Dollars ($250,000.00).
(d) Any portion of the term loan bearing interest at the Long
Term Rate will not be converted to a different rate during the applicable
interest period.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 7
<PAGE>
(e) The Borrower may prepay the Long Term Rate portion in
whole or in part in the minimum amount of One Hundred Thousand Dollars
($100,000.00). The Borrower will give the Bank irrevocable written notice
of the Borrower's intention to make the prepayment, specifying the date and
amount of the prepayment. The notice must be received by the Bank at least
5 banking days in advance of the prepayment. All prepayments of principal
on the Long Term Rate portion will be applied on the most remote principal
installment or installments of the term loan then unpaid.
(f) Each prepayment of a Long Term Rate portion will be
accompanied by payment of all accrued interest on the amount of the
prepayment and a prepayment fee (as calculated by the Bank in its
discretion) to be equal to the present value of the amount (if any) by
which:
(i) the additional interest which would have been
payable on the amount prepaid had it not been prepaid exceeds
(ii) the amount of interest which would accrue on the
amount paid if it were reinvested from the date of prepayment
through its original maturity at a then prevailing rate equal to
the interest rate yield on like term U.S. Government Treasury
securities determined by the Bank based on information from
either the Telerate or Reuters information services, The Wall
--------
Street Journal, or other information sources the Bank deems
--------------
appropriate.
The Bank is under no obligation to actually reinvest any prepayment.
(g) If at any time during any applicable interest period the
Long Term Rate shall exceed the Maximum Rate and thereafter the Long Term
Rate shall become less than the Maximum Rate, the rate of interest payable
shall be the Maximum Rate until the Bank shall have received the amount of
interest it otherwise would have received if the interest payable had not
been limited by the Maximum Rate during the period of time the Long Term
Rate exceeded the Maximum Rate.
2.14 Libor Rate. The Borrower may elect to have all or portions of the
----------
principal balance of either loan bear interest at the rate equal to the lesser
of (i) the Maximum Rate or (ii) the Libor Rate plus (i) one percent (1%) with
respect to the line of credit or (ii) one and one-quarter percent (1.25%) with
respect to the term loan (the "Eurodollar Rate"), subject to the following
---------------
requirements:
(a) The interest period during which the Eurodollar Rate will
be in effect will be (i) 1, 2, 3 or 6 months with respect to the line of
credit or (ii) 1, 2, 3, 6 or 12 months with respect to the term loan. The
last day of the interest period will be determined by the Bank using the
practices of the London interbank market.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 8
<PAGE>
(b) Each Eurodollar Rate portion under a loan will be for an
amount not less than Five Hundred Thousand Dollars ($500,000.00) or an
integral multiple thereof.
(c) The Borrower shall irrevocably request a Eurodollar Rate
portion no later than 9:00 a.m. San Francisco time two (2) banking days
before the commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the
----------
following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded
-----------
upward to the nearest 1/16th of one percent) at which the Bank's
London Branch, London, Great Britain, would offer U.S. dollar
deposits for the applicable interest period to other major banks in
the London interbank market at approximately 11:00 a.m. London time
two (2) banking days prior to the commencement of the interest
period.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be maintained
by member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The percentage
will be expressed as a decimal, and will include, but not be
limited to, marginal, emergency, supplemental, special, and other
reserve percentages.
(e) The Borrower may not elect an Eurodollar Rate with respect
to any portion of the principal balance of either loan which is scheduled
to be repaid before the last day of the applicable interest period.
(f) Any portion of the principal balance of a loan already
bearing interest at the Eurodollar Rate will not be converted to a
different rate during its interest period.
(g) Each prepayment of an Eurodollar Rate portion will be
accompanied by the amount of accrued interest on the amount prepaid, and
a prepayment fee equal to the amount (if any) by which
(i) the additional interest which would have been
payable on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 9
<PAGE>
(ii) the interest which would have been recoverable by
the Bank by placing the amount prepaid on deposit in the London
interbank market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such portion.
(h) The Bank will have no obligation to accept an election
for an Eurodollar Rate portion if any of the following described events
has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Eurodollar Rate
portion are not available in the London interbank market; or
(ii) The Eurodollar Rate does not accurately reflect the
cost of an Eurodollar Rate portion.
(i) If at any time during any applicable interest period the
Eurodollar Rate shall exceed the Maximum Rate and thereafter the Eurodollar
Rate shall become less than the Maximum Rate, the rate of interest payable
shall be the Maximum Rate until the Bank shall have received the amount of
interest it otherwise would have received if the interest payable had not
been limited by the Maximum Rate during the period of time the Eurodollar
Rate exceeded the Maximum Rate.
3. FEES, EXPENSES AND DEPOSITS
3.1 Unused commitment fee. Subject to the provisions of Section 11.12
---------------------
hereof, the Borrower agrees to pay a fee on any difference between Ten Million
Dollars ($10,000,000) and the amount of the line of credit it actually uses,
determined by the average loan balance maintained during the specified period.
The fee will be calculated at one-quarter of one percent (0.25%) per year. This
fee is due on October 1, 1996 and on the first day of each following January,
April, July and October until the Expiration Date.
3.2 Expenses.
--------
(a) The Borrower agrees to repay the Bank within ten (10) days
of the receipt of the Bank's written notice for expenses that include,
but are not limited to, filing, recording and search fees, appraisal fees,
title report fees, documentation fees, and any other similar fees. The
Bank's written notice shall be accompanied by documentation evidencing
the amount and nature of such expenses.
(b) The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement
or instrument required by this Agreement. Expenses include, but are not
limited to, reasonable attorneys' fees (not to
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 10
<PAGE>
exceed $35,000.00 for the initial closing of the transaction contemplated
hereby and the initial preparation of this Agreement) plus out-of-pocket
costs and expenses incurred by the Bank's attorneys.
(c) The Borrower agrees to reimburse the Bank for the cost of
periodic audits of the collateral securing this Agreement; provided that,
prior to the occurrence of a default, such audits are not conducted more
than once a year and the costs of such audits do not exceed $2,500 plus all
out-of-pocket expenses of the Bank. The audits may be performed by
employees of the Bank or by independent auditors.
3.3 Deposits Accounts. The Borrower acknowledges that the interest
-----------------
rates and other fees provided by the Bank to the Borrower hereunder have been
provided to the Borrower based on the Bank's understanding that by December 1,
1996, the Borrower and each Guarantor (as hereafter defined in Section 4.2) have
agreed to move all of their deposit accounts to the Bank. Borrower and Guarantor
acknowledge that but for such agreement, the rates and fees changed hereunder
would be higher. If by December 1, 1996 the deposit accounts of Borrower and
the Guarantors are not held with the Bank, the Borrower acknowledges that the
Bank may automatically and with 5 days written notice to Borrower, increase the
interest rates and fees hereunder to an amount that will compensate the Bank for
the fact that such deposit accounts are not held at the Bank.
3.4 No Excess Fees. Notwithstanding anything to the contrary in this
--------------
Section 3, in no event shall any sums payable under this Section 3 (to the
extent, if any, constituting interest under any applicable laws), together with
all amounts constituting interest under applicable laws and payable in
connection with the credit evidenced hereby, exceed the Maximum Rate or the
maximum amount of interest permitted to be charged, taken, reserved, received or
contracted for under applicable usury laws.
4. COLLATERAL
4.1 Personal Property. The Borrower's obligations to the Bank under
-----------------
this Agreement will be secured by all equipment, fixtures, inventory, accounts,
receivables and related assets the Borrower now owns or will own in the future,
as further defined in a security agreement executed by the Borrower. In
addition, all collateral securing this Agreement shall also secure all other
present and future obligations of the Borrower to the Bank. All collateral
securing any other present or future obligations of the Borrower to the Bank
shall also secure this Agreement.
4.2 Personal Property Supporting Guaranty. The obligations of Aztec
-------------------------------------
Industries, Inc., Aztec Industries, Inc. - Moss Point, Automatic Processing,
Incorporated, The Calvert Company, Inc., Gulf Coast Galvanizing, Inc., Arkgalv,
Inc., Arbor-Crowley, Inc., Aztec Group Company, Aztec Holdings, Inc., Aztec
Manufacturing Partnership, Ltd., Aztec Manufacturing-Waskom Partnership, Ltd.,
Rig-A-Lite Partnership, Ltd., Atkinson Industries, Inc., and Arizona
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 11
<PAGE>
Galvanizing, Inc. (the "Guarantors") to the Bank will be secured by all
----------
equipment, fixtures, inventory, accounts, receivables and related assets the
Guarantors now own or will own in the future, as further defined in the security
agreement executed by the Guarantors.
4.3 Additional Property Upon Default. If a default (as described in
--------------------------------
Section 10) or any event that with the giving of notice or lapse of time or both
would be such a default occurs, within twenty (20) days of the request of the
Bank, Borrower shall grant liens and security interest (and cause each Guarantor
to grant liens and security interest) to Bank to secure all present and future
obligations of the Borrower and Guarantors, respectively, in all real and
personal property of Borrower and each Guarantor in which the Bank does not
already have a lien pursuant to such documentation as the Bank may request
(including, without limitation, deeds of trust, security agreements, pledge
agreements, and financing statements) and, in connection with the foregoing,
Borrower shall, and shall cause each Guarantor to, provide such other
documentation as the Bank may reasonably require including surveys,
environmental audits, title insurance policies, exception documents, lien
waivers or subordinations and appraisals.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will
-------------------
be made in writing by means of a Borrowing Certificate in the form of Exhibit A
hereto.
5.2 Disbursements and Payments. Each disbursement by the Bank and each
--------------------------
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the
Bank from time to time;
(b) made for the account of the Bank's branch selected by the Bank
from time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank; and
(d) evidenced by records kept by the Bank. In addition, the Bank
may, at its discretion, require the Borrower to sign one or more promissory
notes.
5.3 Direct Debit (Pre-Billing).
--------------------------
(a) The Borrower agrees that the Bank will debit the Borrower's
deposit account number 2605100154 (the "Designated Account") on the date
------------------
each payment of principal, interest or any fees from the Borrower become
due (the "Due Date"). If the
--------
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 12
<PAGE>
Due Date is not a banking day, the Designated account will be debited on
the next banking day.
(b) Approximately 15 days prior to each Due Date, the Bank will mail
to the Borrower a statement of the amounts that will be due on that Due
Date (the "Billed Amount"). The calculation will be made on the assumption
-------------
that no new extensions of credit or payments will be made between the date
of the billing statement and the Due Date, and that there will be no
changes in the application interest rate.
(c) The Bank will debit the Designated Account for the Billed
Amount, regardless of the actual amount due on that date (the "Accrued
-------
Amount"). If the Billed Amount debited to the Designated Account differs
------
from the Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount,
the Billed Amount for the following Due Date will be increased by
the amount of the discrepancy. The Borrower will not be in default
by reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount,
the Billed Amount for the following Due Date will be decreased by
the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding.
The Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated
Account to cover each debit. If there are insufficient funds in the
Designated Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
5.4 Banking Days. Unless otherwise provided in this Agreement, a
------------
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in Texas. For amounts bearing interest at a Eurodollar Rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in Texas and Bank of America, National Trust and Savings
Association is open for business in California and dealing in the London
interbank market for dollar deposits. All payments and disbursements which
would be due on a day which is not a banking day will be due on the next banking
day. All payments received on a day which is not a banking day will be applied
to the credit on the next banking day.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 13
<PAGE>
5.5 Taxes. The Borrower will not deduct any taxes from any payments it
-----
makes to the Bank. If any government authority imposes any taxes on any
payments made by the Borrower, the Borrower will pay the taxes and will also pay
to the Bank, at the time interest is paid, any additional amount which the Bank
specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed. Upon request by the Bank, the
Borrower will confirm that it has paid the taxes by giving the Bank official tax
receipts (or notarized copies) within 30 days after the due date. However, the
Borrower will not pay the Bank's net income taxes.
5.6 Additional Costs. Subject to the provisions of Section 11.12
----------------
hereof, the Borrower will pay the Bank, on demand, for the Bank's costs or
losses arising from any statute or regulation, or any request or requirement of
a regulatory agency which is applicable to all national banks or a class of all
national banks. The costs and losses will be allocated to the loan in a manner
determined by the Bank, using any reasonable method. The costs include the
following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
Notwithstanding the foregoing, (A) the Bank shall notify the Borrower after
(i) an event has occurred which resulted in it incurring any such costs or
losses and (ii) the Bank has determined to charge Borrower for such costs or
losses, (B) Borrower will have no obligation to pay the Bank any such costs or
losses which arose for periods prior to the date which is thirty (30) days prior
to the date on which the Borrower received the notice from the Bank, and (C) in
no event shall any sum payable under this Section 5.7 (to the extent, if any,
constituting interest under applicable laws), together with all amounts
constituting interest under applicable laws and payable in connection with the
credit evidenced hereby, exceed the Maximum Rate or the maximum amount permitted
to be charged, taken, reserved, received or contracted for by any applicable
usury laws.
5.7 Interest Calculation. Except as otherwise stated in this Agreement,
--------------------
all interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
5.8 Default Rate. Upon the occurrence and during the continuation of
------------
any default under this Agreement, advances under this Agreement will, at the
option of the Bank, bear interest at the lesser of (a) the Maximum Rate or (b) a
rate per annum which is two (2) percentage points higher than the Reference Rate
(the "Default Rate").
------------
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 14
<PAGE>
5.9 Overdrafts. At the Bank's sole option in each instance, the Bank
----------
may make advances under this Agreement to prevent or cover an overdraft on any
account of the Borrower with the Bank. Each such advance will accrue interest
from the date of the advance or the date on which the account is overdrawn,
whichever occurs first, at the Reference Rate.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable
to the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
6.1 Authorizations. Evidence that the execution, delivery and
--------------
performance by the Borrower and each Guarantor of this Agreement and any
instrument or agreement required under this Agreement have been duly authorized.
6.2 Security Agreements. Signed original security agreements,
-------------------
assignments, financing statements and fixture filings (together with collateral
in which the Bank requires a possessory security interest), which the Bank
requires.
6.3 Evidence of Priority. Evidence that security interests and liens in
--------------------
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing; provided that, except
as provided in the security agreements executed by the Borrower and Guarantors,
no title documents for motor vehicles need to show the Bank's interests.
6.4 Consent to Removal. For any personal property collateral located on
------------------
real property which is subject to a mortgage or deed of trust or which is not
owned by the Borrower, a Consent to Removal from the owner of the real property
and the holder of any mortgage or deed of trust must be received in a form
acceptable to the Bank.
6.5 Insurance. Evidence of insurance coverage, as required in the
---------
"Covenants" section of this Agreement.
6.6 Environmental Questionnaire. A completed Bank form Environmental
---------------------------
Questionnaire and Disclosure Statement.
6.7 Guaranty. A Guaranty signed by each of the Guarantors, in a form
--------
acceptable to the Bank.
6.8 Legal Opinion. A written opinion from the Borrower's legal counsel,
-------------
covering such matters as the Bank's legal counsel, Jenkens & Gilchrist, a
Professional Corporation, may require. The legal counsel and the terms of the
opinion must be acceptable to the Bank.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 15
<PAGE>
6.9 Existence, Good Standing, and Foreign Qualification. Certificates
---------------------------------------------------
of existence, good standing, and foreign qualification for the Borrower and each
Guarantor from its state of incorporation or organization and from any other
state in which the Borrower or such Guarantor is required to qualify to conduct
its business.
6.10 Other Items. Any other items that the Bank, or its legal counsel
-----------
may reasonably request.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in
full, the Borrower makes the following representations and warranties and the
representations and warranties contained in Section 9 hereof. Each request for
an extension of credit constitutes a renewed representation:
7.1 Organization of Borrower. The Borrower is a corporation duly
------------------------
incorporated and validly existing under the laws of the state of its
incorporation.
7.2 Authorization. This Agreement, and any instrument or agreement
-------------
required hereunder, are within the Borrower's powers, have been duly authorized,
and do not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
---------------------
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
7.4 Good Standing. In each state in which the Borrower does business,
-------------
it is properly licensed, in good standing, and, where required, in compliance
with fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law,
------------
agreement, or obligation by which the Borrower is bound.
7.6 Financial Information. All financial and other information that has
---------------------
been or will be supplied to the Bank, including the Borrower's financial
statement dated as of February 29, 1996, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and each Guarantor's) financial condition.
(b) in form and content required by the Bank.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 16
<PAGE>
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the Borrower
or any Guarantor.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending
--------
or threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan.
7.8 Collateral. All collateral required in this Agreement is owned by
----------
the grantor of the security interest free of any title defects or any liens or
interests of others, except those which are listed on Schedule 7.8 hereto.
7.9 Permits, Franchises. The Borrower possesses all permits,
-------------------
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged.
7.10 Other Obligations. The Borrower is not in default on any obligation
-----------------
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 Income Tax Returns. The Borrower has no knowledge of any pending
------------------
assessments or adjustments of its income tax for any year.
7.12 No Event of Default. There is no set of circumstances and no event
-------------------
has occurred which is, or with notice or lapse of time or both would be, a
default under this Agreement and each representation or warranty given by
Borrower and each Guarantor in connection with this Agreement is true and
correct.
7.13 Merchantable Inventory. All inventory which is included in the
----------------------
Borrowing Base is of good and merchantable quality and free from material
defects.
7.14 ERISA Plans.
-----------
(a) The Borrower has fulfilled its obligations, if any, under the
minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA
for which the PBGC requires 30 day notice.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 17
<PAGE>
(c) No action by the Borrower to terminate or withdraw from any Plan
has been taken and no notice of intent to terminate a Plan has been filed
under Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
Section 4042 of ERISA, and no event has occurred or condition exists which
might constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as
----
amended from time to time.
(ii) "ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation
----
established pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan
----
maintained or contributed to by the Borrower and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
7.15 Solvency. Borrower and each Guarantor, both individually and on a
--------
consolidated basis: (a) owns and will own assets the fair saleable value of
which are (i) greater than the total amount of its liabilities (including
contingent liabilities) and (ii) greater than the amount that will be required
to pay probable liabilities of then existing debts as they become absolute and
matured considering all financing alternatives and potential asset sales
reasonably available to it; (b) has capital that is not unreasonably small in
relation to its business as presently conducted; and (c) does not intend to
incur and does not believe that it will incur debts beyond its ability to pay
such debts as they become due.
7.16 Benefit Received. Borrower and each Guarantor will receive
----------------
reasonably equivalent value in exchange for the obligations incurred under the
documents to which each is a party. Borrower and each Guarantor will derive
substantial benefit from the consummation of the transaction contemplated hereby
in an amount at least equal to its obligations under such documents to which it
is a party.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement
and until the Bank is repaid in full:
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 18
<PAGE>
8.1 Use of Proceeds. To use the proceeds of the line of credit only for
---------------
the general working capital needs of the Borrower and its subsidiaries and to
finance acquisitions permitted hereby.
8.2 Financial Information. To provide the following financial
---------------------
information and statements and such additional information as requested by the
Bank from time to time:
(a) Within ninety (90) days of the Borrower's fiscal year end, the
Borrower's and its subsidiaries' annual financial statements. These
financial statements must be audited (with an unqualified opinion) by a
Certified Public Accounting firm acceptable to the Bank. The audited
statements shall be prepared on a consolidated basis. Within ninety (90)
days of the Borrower's fiscal year end, the Borrower's internally prepared
annual financial statement on a consolidated and consolidating basis.
(b) Within forty-five days of the period's end, the Borrower's and
its subsidiaries' quarterly financial statements. These financial
statements may be prepared by the Borrower. The statements shall be
prepared on a consolidated basis.
(c) Copies of the Borrower's Form 10-K Annual Report, Form 10-Q
Quarterly Report and Form 8-K current Report within 10 days after the date
of filing with the Securities and Exchange Commission.
(d) A borrowing base certificate in substantially the form of
Exhibit B hereto setting forth the respective amounts of Acceptable
Receivables and Acceptable Inventory as of the last day of each month
within thirty (30) days after each month end and statements showing an
aging and reconciliation of the Borrower's receivables within thirty (30)
days after the end of each month.
(e) Annual operating forecasts of the Borrower and its subsidiaries
prepared on a consolidated and consolidating basis and delivered to the
Bank by May 31 of each year.
(f) Promptly upon the Bank's request, such other statements, lists
of property and accounts, budgets, forecasts or reports as to the Borrower
and as to each Guarantor as the Bank may request.
8.3 Quick Ratio. To maintain on a consolidated basis a ratio of Quick
-----------
Assets to Current Liabilities of at least 0.5:1.0. As used herein, the term
"Quick assets" means cash, short-term cash investments, net trade receivables,
- -------------
and marketable securities not classified as long-term investments. As used
herein, the term "Current Liabilities" means current liabilities plus any amount
-------------------
of the line of credit which would otherwise not be included in current
liabilities.
8.4 Tangible Net Worth. To maintain on a consolidated basis Tangible
------------------
Net Worth equal to at least Sixteen Million Dollars ($16,000,000.00). As used
herein, the term "Tangible
--------
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 19
<PAGE>
Net Worth" means the gross book value of the Borrower's assets (excluding
- ---------
goodwill, patents, trademarks, trade names, organization expense, treasury
stock, unamortized debt discount and expense, deferred research and development
costs, deferred marketing expenses, and other like intangibles, and monies due
from affiliates, officers, directors or shareholders of the Borrower) less total
liabilities, including but not limited to accrued and deferred income taxes, and
any reserves against assets.
8.5 Debt to Tangible Net Worth. To maintain on a consolidated basis a
--------------------------
ratio of Total Liabilities to Tangible Net Worth not exceeding 1.75:1.0. As
used herein, the term "Total Liabilities" means the sum of current liabilities
-----------------
plus long term liabilities.
8.6 Cash Flow Ratio. To maintain on a consolidated basis a Cash Flow
---------------
Ratio of at least 1.6:1.0. As used herein, the term "Cash Flow Ratio" means the
---------------
ratio of Cash Flow to the current portion of long term debt plus interest
expense. "Cash Flow" is defined as net income from operations (before
---------
extraordinary or nonrecurring gains or losses), after taxes, plus depreciation,
amortization and other non-cash charges, plus interest expense, minus dividends.
This ratio will be calculated at the end of each fiscal quarter, using the
results of that quarter and each of the 3 immediately preceding quarters. The
current portion of long term debt will be measured as of the last day of the
fiscal quarter preceding the date of calculation.
8.7 Other Debts. Not, and not permit any Guarantor, to have outstanding
-----------
or incur any direct or contingent debts or lease obligations (other than those
to the Bank), or become liable for the debts of others without the Bank's
written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade
credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Existing debt and lease obligations disclosed on Schedule 8.7.
(e) Additional debts and lease obligations for the acquisition of
fixed or capital assets, not to exceed One Million Dollars ($1,000,000.00)
in the aggregate outstanding at any time.
(f) Debt arising from lawsuits and judgments that do not otherwise
constitute a default hereunder.
8.8 Other Liens. Not, and not permit any Guarantor, to create, assume,
-----------
or allow any security interest or lien (including judicial liens) on property
the Borrower or any Guarantor now or later owns, except:
(a) Security interests and liens in favor of the Bank.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 20
<PAGE>
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed on
Schedule 8.8 hereto.
(d) Liens granted as purchase money security interests in equipment
acquired after the date of this Agreement, provided that the obligations
incurred otherwise meet the requirements of Section 8.7(e) and such liens
only encumber the equipment acquired.
8.9 Capital Expenditures. Not, and not permit any Guarantor, without
--------------------
the Bank's prior written consent, to spend or incur obligations (including the
total amount of any capital leases) for more than Four Million Dollars
($4,000,000.00) in the aggregate for Borrower and all Guarantors in any single
fiscal year to acquire fixed or capital assets, excluding from such aggregate
amount any such expenditures financed pursuant to Section 8.7(d).
8.10 Dividends. Not to declare or pay any dividends on any of its
---------
shares, except (a) annual dividends not in excess of fifty percent (50%) of net
income for any year as long as no default exists or would result therefrom, or
(b) payable in capital stock of the Borrower.
8.88 Treasury Stock. Not to purchase, redeem, or otherwise acquire for
--------------
value any of its shares, or create any sinking fund in relation thereto;
provided that, Borrower may purchase or otherwise acquire for value its shares
for an aggregate purchase price not to exceed in any fiscal year the sum of (a)
Two Hundred Fifty Thousand Dollars ($250,000.00) plus (b) the proceeds of any
key man life insurance policy provided for the purpose of funding the repurchase
of its shares.
8.12 Loans to Officers. Not, and not permit any Guarantor, to make any
-----------------
loans, advances or other extensions of credit to any of its executives,
officers, directors, shareholders or affiliates (or any relatives of any of the
foregoing) in an aggregate amount exceeding Two Hundred Fifty Thousand Dollars
($250,000) for Borrower and the Guarantors in the aggregate for the entire term
of this Agreement; provided that, in addition to the foregoing, Borrower may
make advances to the Guarantors from proceeds of the line of credit hereunder in
an amount for each Guarantor not to exceed at anytime outstanding the value of
such Guarantor's assets included in the Borrowing Base.
8.13 Notices to Bank. To promptly notify the Bank in writing of:
---------------
(a) any lawsuit containing a claim or seeking damages over One
Hundred Thousand Dollars ($100,000) against the Borrower or any Guarantor;
(b) any substantial dispute between the Borrower or any Guarantor
and any government authority;
(c) any failure to comply with or default under this Agreement; and
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 21
<PAGE>
(d) any material adverse change in the Borrower's or any Guarantor's
financial condition or operations.
8.14 Books and Records. To maintain adequate books and records.
-----------------
8.15 Audits. To allow the Bank and its agents to inspect the Borrower's
------
and the Guarantors' properties and examine, audit and make copies of books and
records at any reasonable time. If any of the Borrower's or any Guarantor's
properties, books or records are in the possession of a third party, the
Borrower authorizes the third party to permit the Bank or its agents to have
access to perform inspections or audits and to respond to the Bank's requests
for information concerning such properties, books and records.
8.16 Compliance with Laws. To comply with the laws (including any
--------------------
fictitious name statute), regulations, and orders of any government body with
authority over the Borrower's or any Guarantor's business.
8.17 Maintenance of Properties. To make any repairs, renewals, or
-------------------------
replacements to keep the Borrower's or any Guarantor's properties in good
working condition.
8.18 Preservation of Rights. To maintain and preserve all rights,
----------------------
privileges, and franchises the Borrower or any Guarantor now has.
8.19 Perfection of Liens. To help the Bank perfect and protect its
-------------------
security interests and liens, and reimburse it for related costs it incurs to
protect its security interests and liens.
8.20 Cooperation. To take any action reasonably requested by the Bank to
-----------
carry out the intent of this Agreement.
8.21 Insurance.
---------
(a) Insurance Covering Collateral. To maintain, and cause the
-----------------------------
Guarantor's to maintain, all risk property damage insurance policies
covering the tangible property comprising the collateral. Each insurance
policy must be for the full replacement cost of the collateral and include
a replacement cost endorsement. The insurance must be issued by an
insurance company acceptable to the Bank and must include a lender's loss
payable endorsement in favor of the Bank in a form acceptable to the Bank.
(b) General Business Insurance. To maintain, and to cause each
--------------------------
Guarantor to maintain, insurance as is usual and customary for similarly
situated businesses in the Borrower's industry.
(c) Evidence of Insurance. Upon the request of the Bank, to deliver
---------------------
to the Bank a copy of each insurance policy, or, if permitted by the Bank,
a certificate of insurance listing all insurance in force.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 22
<PAGE>
8.22 Additional Negative Covenants. Not to, and not to permit any
-----------------------------
Guarantor to, without the Bank's written consent (which consent will not be
unreasonably withheld, with such reasonableness to be determined based on the
Bank's business perspective):
(a) engage in any business activities substantially different from
the Borrower's or any Guarantor's present business.
(b) liquidate or dissolve the Borrower's or any Guarantor's
business.
(c) enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination or purchase or acquire all or substantially
all the assets of another business, except for such transaction if (i) the
Borrower or applicable Guarantor is the surviving entity; (ii) no default
exists hereunder or would result therefrom and before, and after giving
effect to, the proposed acquisition, the representations and warranties set
forth herein shall be true and correct; (iii) Borrower delivers to the Bank
an Environmental Questionnaire and Disclosure Statement in form and
disclosing such information as is acceptable to the Bank relating to the
assets or entity to be acquired prior to the acquisition; and (iv) the
aggregate cash consideration paid in connection with all such transactions
does not exceed Five Million Dollars ($5,000,000) for Borrower and the
Guarantors in the aggregate during the entire term of this Agreement.
(d) sell, lease, or otherwise dispose of all or a substantial part
of the Borrower's or any Guarantor's business or the Borrower's or any
Guarantor's assets except assets with a fair market value that does not
exceed in the aggregate for Borrower and all Guarantors an amount equal to
Five Hundred Thousand Dollars ($500,000.00) in any calendar year; provided,
however, the Borrower's sale of its Houston real property and related
assets will not be included for purposes of the Five Hundred Thousand
Dollars ($500,000.00) limitation and such property may be sold or otherwise
disposed of free of the restrictions set forth in this paragraph.
(e) sell or otherwise dispose of any assets for less than fair
market value or enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
(f) voluntarily suspend its business for more than three (3) days in
any thirty (30) day period.
(g) make any capital contribution to or investment in, or purchase
or own any stock, bonds, notes, debentures, or other securities of any
entity, except:
(i) readily marketable direct obligations of the United
States of America;
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 23
<PAGE>
(ii) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition of any commercial
bank operating in the United States having capital and surplus in
excess of $50,000,000.00;
(iii) other debt securities if at the time of purchase such
debt securities are rated in one of the two highest rating
categories of Standard and Poor's Corporation or Moody's Investors
Service; and
(iv) the Borrower may repurchase its own shares in
accordance with the permissions set out in Section 8.11.
8.23 ERISA Plans. As relates to the Borrower or any Guarantor, to give
-----------
prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of
ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan
or the filing of any notice of intent to terminate under Section 4041 of
ERISA.
(c) Any notice of noncompliance made with respect to a Plan under
Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under
Section 4042 of ERISA.
9. HAZARDOUS WASTE INDEMNIFICATION.
9.1 INDEMNIFICATION. THE BORROWER WILL INDEMNIFY AND HOLD HARMLESS THE
---------------
BANK FROM ANY LOSS OR LIABILITY DIRECTLY OR INDIRECTLY ARISING OUT OF THE USE,
GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE,
DISCHARGE, DISPOSAL OR PRESENCE OF A HAZARDOUS SUBSTANCE. THIS INDEMNITY WILL
APPLY WHETHER THE HAZARDOUS SUBSTANCE IS ON, UNDER OR ABOUT THE BORROWER'S OR
ANY GUARANTOR'S PROPERTY OR OPERATIONS OR PROPERTY LEASED TO THE BORROWER OR ANY
GUARANTOR. THE INDEMNITY INCLUDES BUT IS NOT LIMITED TO ATTORNEYS' FEES
(INCLUDING THE REASONABLE ESTIMATE OF THE ALLOCATED COST OF IN-HOUSE COUNSEL AND
STAFF). THE INDEMNITY EXTENDS TO THE BANK, ITS PARENT, SUBSIDIARIES AND ALL OF
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS, ATTORNEYS AND ASSIGNS.
FOR PURPOSES OF THIS AGREEMENT, THE TERM "HAZARDOUS SUBSTANCES" MEANS ANY
SUBSTANCE WHICH IS OR BECOMES DESIGNATED AS "HAZARDOUS" OR "TOXIC" UNDER ANY
FEDERAL, STATE OR LOCAL LAW. THIS
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 24
<PAGE>
INDEMNITY WILL SURVIVE REPAYMENT OF THE BORROWER'S OBLIGATIONS TO THE BANK.
9.2 Representation and Warranty Regarding Hazardous Substances. Prior
----------------------------------------------------------
to entering into this Agreement, the Borrower has researched and inquired into
the previous uses and ownership of all property constituting its or its
subsidiaries' real property. Based on that due diligence, the Borrower
represents and warrants that to the best of its knowledge, no hazardous
substance has been disposed of or released or otherwise exists in, on, under or
onto the Borrower's or any of its subsidiaries' real property, except as the
Borrower has disclosed to the Bank in writing pursuant to the Environmental
Questionnaire and Disclosure Statement prepared by the Borrower.
9.3 Compliance Regarding Hazardous Substances. The Borrower and each of
-----------------------------------------
its subsidiaries has complied, and will comply with all laws, regulations and
ordinances governing or applicable to hazardous substances as well as the
recommendations of any qualified environmental engineer or other expert which
apply or pertain to such real property or the operations of the Borrower and its
subsidiaries.
9.4 Notices Regarding Hazardous Substances. Until full repayment of the
--------------------------------------
loan, the Borrower will promptly notify the Bank if it knows, suspects or
believes there may be any hazardous substance in or around its or any of its
subsidiaries' real property, or in the soil, groundwater or soil vapor on or
under such real property, or that the Borrower, any subsidiary or any of their
real property may be subject to any threatened or pending investigation by any
governmental agency under any law, regulation or ordinance pertaining to any
hazardous substance.
9.5 Site Visits, Observations and Testing. The Bank and its agents and
-------------------------------------
representatives will have the right at any reasonable time to enter and visit
the Borrower's or any of its subsidiaries' real property and any other place
where any property is located for the purposes of observing such real property,
taking and removing soil or groundwater samples, and conducting tests on any
part of the real property. The Bank is under no duty, however, to visit or
observe such real property or to conduct tests, and any such acts by the Bank
will be solely for the purposes of protecting the Bank's security and preserving
the Bank's rights under this Agreement. No site visit, observation or testing
by the Bank will result in a waiver of any default of the Borrower or impose any
liability on the Bank. In no event will any site visit, observation or testing
by the Bank be a representation that hazardous substances are or are not present
in, on or under any real property, or that there has been or will be compliance
with any law, regulation or ordinance pertaining to hazardous substances or any
other applicable governmental law. Neither the Borrower, its subsidiaries, nor
any other party is entitled to rely on any site visit, observation or testing by
the Bank. The Bank owes no duty of care to protect the Borrower, its
subsidiaries, or any other party against, or to inform the Borrower, its
subsidiaries, or any other party of, any hazardous substances or any other
adverse condition affecting the real property. The Bank will disclose to the
Borrower upon its request, any report or findings made as a result of, or in
connection with, any site visit, observation or testing by any third party
engaged by the
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 25
<PAGE>
Bank unless such reports or findings are protected by attorney client privilege.
As provided above, the Borrower shall have no right to rely on any such report
or finding and the Bank will not incur any liability to Borrower or any other
party for an matter disclosed in such report or finding. In each instance, the
Bank will give the Borrower or such subsidiary reasonable notice before entering
its real property or any other place the Bank is permitted to enter under this
Paragraph. The Bank will make reasonable efforts to avoid interfering with the
Borrower's and its subsidiaries' use of their respective real property or any
other property in exercising any rights provided in this paragraph.
9.6 Continuation of Indemnity. The Borrower's indemnity obligations to
-------------------------
the Bank under Section 9.1, shall survive termination of this Agreement and
repayment of the Borrower's obligations to the Bank under this Agreement, and
shall also survive as unsecured obligations after any acquisition by the Bank of
the collateral securing this Agreement, including any real property or any part
of it, by foreclosure or any other means.
10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: (i) declare the Borrower in default, (ii) stop making any additional
credit available to the Borrower, (iii) exercise any and all rights and remedies
as may be available to the Bank under the terms of any collateral documents,
security instruments, debt instruments or any other document or instrument
executed in connection herewith or in any way related hereto, (iv) exercise any
and all rights and remedies as may be available to the Bank at law or in equity,
and (v) declare the entire debt created and evidenced hereby to be immediately
due and payable in full, whereupon the entire unpaid principal indebtedness
evidenced hereby, and all accrued unpaid interest thereon, shall at once mature
and become due and payable without presentment, demand, protest, grace or notice
of any kind (including, without limitation, notice of intent to accelerate,
notice of acceleration or notice of protest), all of which are hereby severally
waived by the Borrower. If a bankruptcy petition is filed with respect to the
Borrower, the entire debt outstanding under this Agreement will automatically be
immediately due.
10.1 Failure to Pay. The Borrower fails to make a principal or interest
--------------
payment under this Agreement when due or shall fail to make any other payment
under this Agreement within ten (10) days of the date due.
10.2 Lien Priority. The Bank fails to have an enforceable first lien
-------------
(except for any prior liens set forth on Schedule 7.8) on or security interest
in any property given as security for the loans to be advanced to the Borrower
pursuant to this Agreement.
10.3 False Information. The Borrower or any Guarantor has given the Bank
-----------------
materially false or materially misleading information or representations.
10.4 Bankruptcy. The Borrower or any Guarantor files a bankruptcy
----------
petition, a bankruptcy petition is filed against the Borrower or any
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 26
<PAGE>
Guarantor, or the Borrower or any Guarantor makes a general assignment for the
benefit of creditors. The default will be deemed cured if any bankruptcy
petition filed against the Borrower or any Guarantor is dismissed within a
period of sixty (60) days after the filing; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrower during
that period.
10.5 Receivers. A receiver or similar official is appointed for the
---------
Borrower's or any Guarantor's business, or the business is terminated.
10.6 Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or
--------
more trade creditors against the Borrower or any Guarantor in an aggregate
amount of Five Hundred Thousand Dollars ($500,000) or more in excess of any
insurance coverage.
10.7 Judgments. Any judgments or arbitration awards are entered against
---------
the Borrower or any Guarantor, or the Borrower or any Guarantor enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess
of any insurance coverage.
10.8 Government Action. Any government authority takes any action that
-----------------
the Bank reasonably believes materially adversely affects the Borrower's or any
Guarantor's financial condition or ability to perform or repay its obligations
hereunder.
10.9 Material Adverse Change. A material adverse change occurs in the
-----------------------
Borrower's or any Guarantor's financial condition, properties or prospects, or
ability to repay the loan or perform its obligations under this Agreement or any
other loan document.
10.10 Cross-default. Any default occurs under any agreement in connection
-------------
with any credit the Borrower or any Guarantor has obtained from anyone else or
which the Borrower or any Guarantor has guaranteed which in either case exceeds
an aggregate principal amount (either individually or in the aggregate) equal to
Two Hundred Fifty Thousand Dollars ($250,000.00).
10.11 Default under Guaranty or Subordination Agreement. Any guaranty,
-------------------------------------------------
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
10.12 Other Bank Agreements. The Borrower or any Guarantor fails to meet
---------------------
the conditions of, or fails to perform any obligation under any other agreement
the Borrower or any Guarantor has with the Bank or any affiliate of the Bank.
10.13 ERISA Plans. The occurrence of any one or more of the following
-----------
events with respect to the Borrower or any of its subsidiaries, provided such
event or events could reasonably be expected, in the judgment of the Bank, to
subject the Borrower or such subsidiary to any tax, penalty or liability (or any
combination of the foregoing) which, in the aggregate, could have a material
adverse effect on the financial condition of the Borrower or any subsidiary with
respect to a Plan:
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 27
<PAGE>
(a) A reportable event shall occur with respect to a Plan which is,
in the reasonable judgment of the Bank likely to result in the termination
of such Plan for purposes of Title IV of ERISA; or
(b) Any Plan termination (or commencement of proceedings to
terminate a Plan) or the Borrower's full or partial withdrawal from a Plan.
10.14 Other Breach Under Agreement. The Borrower fails to meet the
----------------------------
conditions of this Agreement or fails to perform any obligation under Sections
4.3 or 8.2 through 8.13 of this Agreement to the extent not otherwise
specifically referred to in this Article. The Borrower fails to perform any
obligations under this Agreement, other than those described in the preceding
sentence and those specifically referred to in this Article, and such failure
shall continue for a period of twenty (20) days.
10.15 Change of Control. If any persons or entities acquires after the
-----------------
date hereof more than fifty-one percent (51%) of the outstanding capital stock
of Borrower entitled (without regard to any contingency) to vote in the election
of the directors of Borrower.
10.16 Change in Management. The Borrower's or any Guarantor's executive
--------------------
management shall change.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
----
information provided to the Bank and all financial covenants will be made
according to generally accepted accounting principles applied on a consistent
basis.
11.2 Governing Law. This Agreement is governed by Texas law.
-------------
11.3 Successors and Assigns. This Agreement is binding on the Borrower's
----------------------
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
11.4 ARBITRATION.
-----------
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Bank, including but not limited to
those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 28
<PAGE>
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between the Borrower and the Bank, including claims for
injury to persons, property or business interests (torts).
(b) AT THE REQUEST OF THE BORROWER OR THE BANK, ANY SUCH
CONTROVERSIES OR CLAIMS WILL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH
THE UNITED STATES ARBITRATION ACT. THE UNITED STATES ARBITRATION ACT WILL
APPLY EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS GOVERNED BY TEXAS LAW.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration. The arbitration will be conducted within Dallas County, Texas.
(d) For purposes of the application of the statute of limitations,
the filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether any
such claim or controversy is barred by the statute of limitations and, if
so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the
Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 29
<PAGE>
(b) The pursuit of, or a successful action for, interim, additional
or supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit.
11.5 Severability; Waivers. If any part of this Agreement is not
---------------------
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
11.6 Costs. If the Bank incurs any expenses in connection with
-----
administering or enforcing this Agreement, or if the Bank takes collection
action under this Agreement, it is entitled to costs and reasonable attorneys'
fees, including any allocated costs of in-house counsel.
11.7 Attorneys' Fees. In the event of a lawsuit or arbitration
---------------
proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys' fees (including any allocated costs of in-house counsel) incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator.
11.8 Indemnification. THE BORROWER AGREES TO INDEMNIFY THE BANK AGAINST,
---------------
AND HOLD THE BANK HARMLESS FROM, ALL CLAIMS, ACTIONS, LOSSES, COSTS AND EXPENSES
(INCLUDING ATTORNEYS' FEES AND ALLOCATED COSTS FOR IN-HOUSE LEGAL SERVICES)
INCURRED BY THE BANK AND ARISING FROM ANY CONTENTION, WHETHER WELL-FOUNDED OR
OTHERWISE, THAT THERE HAS BEEN A FAILURE TO COMPLY WITH ANY LAW REGULATING THE
BORROWER'S OR ANY SUBSIDIARIES' SALES OR LEASES TO OR PERFORMANCE OF SERVICES
FOR DEBTORS OBLIGATED UPON THE BORROWER'S OR ANY SUBSIDIARIES' ACCOUNTS
RECEIVABLE AND DISCLOSURES IN CONNECTION THEREWITH. THIS INDEMNITY WILL SURVIVE
REPAYMENT OF THE BORROWER'S OBLIGATIONS TO THE BANK AND TERMINATION OF THIS
AGREEMENT.
11.9 Notices. All notices required under this Agreement shall be
-------
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature pages hereto, or to such other addresses as the Bank
and the Borrower may specify from time to time in writing.
11.10 Headings. Article and paragraph headings are for reference only and
--------
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.11 Counterparts. This Agreement may be executed in as many
------------
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 30
<PAGE>
11.12 Usury Laws. It is the intention of the parties hereto to comply
----------
with applicable usury laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Agreement or in any of the documents
evidencing or securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such instruments or documents require or permit the
payment, charging, taking, reserving or receiving of any sums constituting
interest, as defined under applicable usury laws, in excess of the maximum
amount permitted by such laws. If any such excess of interest is contracted
for, paid, charged, taken, reserved or received under this Agreement or under
the terms of any of the documents evidencing or securing payment hereof or
otherwise relating hereto, or in any communication by Bank or any other person
to Borrower or any other party liable for the payment of the indebtedness
evidenced hereby, or if the maturity of the indebtedness is accelerated in whole
or in part, or in the event that all or part of the principal or interest shall
be prepaid, so that under any of such circumstances or under any other
circumstances whatsoever, the amount of interest contracted for, paid, charged,
taken, reserved or received under this Agreement or under any of the documents
securing payment hereof or otherwise relating hereto, on the amount of principal
actually outstanding from time to time shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event (i) the
provisions of this Section shall govern and control, (ii) any such excess shall
be canceled automatically to the extent of such excess, and shall not be
collected or collectible, (iii) any such excess which is or has been received
shall be credited against the then unpaid principal balance hereof or refunded
to Borrower, at the Bank's option, and (iv) the effective rate of interest shall
be automatically reduced to the maximum lawful rate allowed under applicable
laws as construed by courts having jurisdiction hereof or thereof. It is
further agreed that, without limitation of the foregoing, all calculations of
the rate of interest contracted for, paid charged, taken, reserved or received
under this Agreement or under such other documents or instruments that are made
for the purpose of determining whether such rate exceeds the maximum lawful rate
of interest, shall be made, to the extent permitted by applicable usury laws, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the indebtedness, all interest at any time contracted
for, paid, charged, taken, reserved or received from the Borrower or otherwise
by the holder or holders thereof. The terms of this Section shall be deemed to
be incorporated in every loan document, security instrument, debt instrument and
communication relating to this Agreement and the loan evidenced hereby. The
term "applicable usury laws" shall mean such laws of the State of Texas or the
laws of the United States, whichever laws allow the higher rate of interest, as
such laws now exist; provided, however, that if such laws shall hereafter allow
-------- -------
higher rates of interest, then the applicable usury laws shall be the laws
allowing the higher rates, to be effective as of the effective date of such
laws.
11.13 NO ORAL AGREEMENTS. This Agreement and any related security or other
------------------
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between
the Bank and the Borrower concerning the subject matter hereof;
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 31
<PAGE>
(b) replace any prior oral or written agreements between the Bank
and the Borrower concerning the agreement between the Bank and the Borrower
as evidenced hereby; and
(c) are intended by the Bank and the Borrower as the final, complete
and exclusive statement of the terms agreed to by the Bank and the
Borrower.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
THIS WRITTEN AGREEMENT AND THE INSTRUMENTS AND DOCUMENTS EXECUTED IN
CONNECTION HEREWITH, 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.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA, TEXAS, N.A. AZTEC MANUFACTURING CO.
By: By:
------------------------- -------------------------
Donald P. Hellman L. C. Martin
Vice President President
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
P.O. Box 619005 P.O. Box 668
Dallas, Texas 75261-9005 Crowley, Texas 76036
Telecopy No.: 214-444-7167
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 32
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit A Borrowing Certificate
Exhibit B Borrowing Base Certificate
INDEX TO SCHEDULES
------------------
Schedule 7.8 Liens encumbering Collateral
Schedule 8.7 Existing Debt
Schedule 8.8 Existing Liens
BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY) - Page 33
<PAGE>
Exhibit A
to
Aztec Manufacturing Co.
Business Loan Agreement
(Receivables and Inventory)
Borrowing Certificate
---------------------
Exhibit A to Business Loan Agreement - Cover Page
<PAGE>
BORROWING CERTIFICATE
---------------------
This Borrowing Certificate is executed and delivered to Bank of
America, Texas, N.A. ("Lender"), by Aztec Manufacturing Co., ("Borrower"),
------ --------
____ day of ______, ______, pursuant to that certain Business Loan
Agreement (Receivables and Inventory), dated as of June ____, 1996
(together with any and all renewals, modifications, extensions and
amendments thereof, the "Credit Agreement"), between Borrower and Lender.
----------------
All capitalized terms not otherwise defined herein shall have the
definitions assigned to such terms in the Credit Agreement.
Borrower hereby requests that Lender make an extension of credit to
Borrower in the amount of $________ to be funded on ____________, _____
under the [line of credit][term loan].
The interest option selected by Borrower for this extension of
credit is (select one):
<TABLE>
<CAPTION>
Rate Principal Amount
---- ----------------
<S> <C>
[_] the Bank's Reference Rate $
-------------
[_] the Eurodollar Rate, plus $
-------------
[_] the Long Term Rate [applicable to the
term loan only] $
-------------
</TABLE>
If an Eurodollar Rate is selected, the interest period applicable is
_____months [select 1, 2, 3, 6 or 12 months, as applicable (12 month
interest period not available on line of credit)].
In connection with the foregoing extension of credit and pursuant to
the terms and provisions of the Credit Agreement, the undersigned hereby
certifies that:
(i) The undersigned is the duly elected, qualified and acting
officer of the Borrower, as specified below, and, as such officer, is
authorized to make and deliver this certificate.
(ii) The representations and warranties contained in the Credit
Agreement and in each of the other collateral documents, security
instruments, debt instruments and other document or instrument executed in
connection with or in any way related to the Credit Agreement are true and
correct in all material respects on and as of the date hereof with the same
force and effect as though made on and as of the date hereof (except as set
forth in writing to Lender or as noted in the attachments hereto).
(iii) No potential event of default or event of default has occurred
and is continuing or will exist after giving effect to this extension of
credit request hereby.
EXECUTED and delivered this _____ day of ______, _______.
AZTEC MANUFACTURING CO.
By:
--------------------------
Name:
-------------------
Exhibit A to Business Loan Agreement - Borrowing Certificate - Page 1
<PAGE>
Title:
------------------
Exhibit A to Business Loan Agreement - Borrowing Certificate - Page 2
<PAGE>
Exhibit B
to
Aztec Manufacturing Co.
Business Loan Agreement
(Receivables and Inventory)
Borrowing Base Certificate
--------------------------
Exhibit A to Business Loan Agreement - Cover Page
<PAGE>
BORROWING BASE CERTIFICATE
AZTEC MANUFACTURING CO.
AS OF:
-------------
<TABLE>
<CAPTION>
Accounts Receivable
- -------------------
<S> <C> <C>
Total Accounts Receivable $
--------
Less: Ineligibles (Per Schedule A
attached) $
--------
Acceptable Receivable $
--------
Advance Rate 80%
Available on Accounts Receivable $
--------
Total Non-Zinc Raw Material and Finish
Goods Inventory On Hand
--------
Less: Ineligibles (Per Schedule A
attached)
--------
Acceptable Inventory of Raw Material
and Finish Goods
--------
Advance Rate 50%
Available on Acceptable Inventory of
Raw Material and Finish Goods $
--------
Total Raw Zinc Inventory On Hand
--------
Less: Ineligibles (Per Schedule A
attached)
--------
Acceptable Raw Zinc Inventory
--------
Advance Rate 60%
Available on Zinc Inventory $
--------
Total Borrowing Base Availability (Less
than $10,000,000) $
--------
Less: Outstanding on Line of Credit $
--------
Less: Outstanding Letters of Credit
(Less than $750,000) $
--------
Total Outstandings (Maximum $10,000,000) $
--------
Remaining Availability $
--------
</TABLE>
The undersigned represents and warrants that:
A. The foregoing information is true, complete and correct, and that the
Acceptable Inventory and Acceptable Receivable described above complies
fully with the condition, terms, warranties, representations, and covenants
set forth in the Business Loan Agreement ("Agreement") between the
undersigned and Bank of America Texas, N.A., dated June 28, 1996, together
with any supplements or amendments thereto.
B. There have been no adverse changes and there is no litigation or proceeding
which may cause an adverse change in the financial statement or
certification furnished the Bank, nor is there any default under any
agreement between the undersigned and the Bank.
C. The undersigned has not permitted, and will not permit the Total
Outstandings at any time outstanding under the Agreement to exceed the
current Borrowing Base computed in the manner set forth in the Agreement.
AZTEC MANUFACTURING CO.
By:
----------------------------------------------
Name:
--------------------------------------------
BORROWING BASE CERTIFICATE - page 1
<PAGE>
Title:
-------------------------------------------
BORROWING BASE CERTIFICATE - Page 2
<PAGE>
BANK OF AMERICA TEXAS, N.A.
SCHEDULE A
(AZTEC MANUFACTURING CO.)
SUPPORT TO BORROWING BASE CERTIFICATE DATED
------------
INELIGIBLE COLLATERAL
<TABLE>
<CAPTION>
INELIGIBLE ACCOUNTS RECEIVABLE
<S> <C>
Over 90 Days from Invoice Date .................................. $
--------
Credit Balances in Past Due columns .............................
--------
Cross Aging (25%) ...............................................
--------
Concentration Limit (20% of Receivables) ........................
--------
Contra Accounts .................................................
--------
Local Government Accounts .......................................
--------
U.S. Government .................................................
--------
Foreign Accounts (Outside of USA) ...............................
--------
Affiliate/Parent/Subsidiary Accounts ............................
--------
Officer/Employee Accounts .......................................
--------
Consignment/COD/Guaranteed Sales ................................
--------
Service Charges/Interest ........................................
--------
Customer Deposits ...............................................
--------
Retainage .......................................................
--------
Not Ordinary Course .............................................
--------
Claims by Customer ..............................................
--------
Bankrupt Customer ...............................................
--------
Evidenced by Notes or Instruments ...............................
--------
Other Ineligibles ...............................................
--------
TOTAL INELIGIBLE ACCOUNTS RECEIVABLE ............................ $
--------
INELIGIBLE INVENTORY
Raw Material -- Title Defects ...............................
--------
and -- Subject to Other Liens .............
--------
Finished Goods -- Obsolete ...........................
--------
(excluding zinc) -- Bad Quality ........................
--------
-- Returned ....................................
--------
-- Packaging/Supplies/Display Items ............
--------
-- On Consignment ..............................
--------
-- Not on Borrower's Premises ..................
--------
-- Other Ineligibles ...........................
--------
Total Raw Material and Ineligible Finished Goods ................
--------
Zinc -- Title Defects ...............................
--------
-- Subject to Other Liens ......................
--------
-- Obsolete ....................................
--------
-- Bad Quality .................................
--------
-- Returned ....................................
--------
-- On Consignment ..............................
--------
-- Not on Borrower's Premises ..................
--------
-- Other Ineligibles ...........................
--------
Total Zinc Ineligible ...........................................
--------
TOTAL INELIGIBLE INVENTORY ......................................
--------
</TABLE>
BORROWING BASE CERTIFICATE - Page 3
<PAGE>
SCHEDULE 7.8
TO
AZTEC MANUFACTURING CO.
BUSINESS LOAN AGREEMENT
Liens Encumbering Collateral
----------------------------
<TABLE>
<CAPTION>
Secured Party File No. File Date Collateral
------------- -------- --------- ----------
<S> <C> <C> <C>
1. Safeco Credit Company 939505 11/16/95 Forklift
2. Safeco Credit Company, Inc. 950003703 11/20/95 Forklift
</TABLE>
SCHEDULE 7.8, Solo Page
<PAGE>
SCHEDULE 8.7
TO
AZTEC MANUFACTURING CO.
BUSINESS LOAN AGREEMENT
Existing Debt
-------------
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C> <C>
1. Arkansas Development $315,000
Finance Authority Economic
Development Revenue Bonds
1991 Series K
Arkgalv, Inc.
2. Arkansas Development 160,000
Finance Authority Economic
Development Revenue Bonds
1987 Series J
Arkgalv, Inc.
3. Various Arrangements Unknown
Concerning copy machine leases
Aztec Manufacturing Co. and all subsidiaries
</TABLE>
SCHEDULE 8.7, Solo Page
<PAGE>
SCHEDULE 8.8
TO
AZTEC MANUFACTURING CO.
BUSINESS LOAN AGREEMENT
Existing Liens
--------------
1. Those disclosed on Schedule 7.8
2. Liens on the real property located at 998 Escue Drive, Prairie
Grove, Arkansas of Arkgalv, Inc. securing the Arkansas Development
Finance Authority Economic Development Revenue Bonds, 1991 Series K
and 1987 Series J
SCHEDULE 8.8, Solo Page
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 167,156
<SECURITIES> 0
<RECEIVABLES> 9,410,442
<ALLOWANCES> (315,253)
<INVENTORY> 6,502,408
<CURRENT-ASSETS> 15,880,309
<PP&E> 30,582,490
<DEPRECIATION> 12,320,245
<TOTAL-ASSETS> 41,584,030
<CURRENT-LIABILITIES> 9,732,238
<BONDS> 6,389,711
0
0
<COMMON> 5,850,489
<OTHER-SE> 18,552,599
<TOTAL-LIABILITY-AND-EQUITY> 41,584,030
<SALES> 14,235,597
<TOTAL-REVENUES> 14,235,597
<CGS> 10,217,480
<TOTAL-COSTS> 12,448,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,214
<INCOME-PRETAX> 1,558,553
<INCOME-TAX> 615,511
<INCOME-CONTINUING> 943,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 943,042
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
