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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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: 0-24220
KBK CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2416103
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
301 COMMERCE, SUITE 2200, FORT WORTH, TEXAS 76102-4122
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 258-6000
Check whether the issuer (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]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
COMMON STOCK, $0.01 PAR VALUE 3,340,765
(SHARES OUTSTANDING AS OF JUNE 30, 1996)
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
YES [ ] NO [X]
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Page 1 of 15
<PAGE>
KBK CAPITAL CORPORATION
FORM 10-QSB -- Quarter Ended June 30, 1996
Page
Number
PART I. FINANCIAL INFORMATION
Item 1- Financial Statements
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995 1
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1996 and 1995 2
Consolidated Statements of Changes in Stockholders'
Equity for the Year Ended December 31, 1995 and Six
Months Ended June 30, 1996 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2- Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 13
PART II. OTHER INFORMATION
Item 1- Legal Proceedings 14
Item 4- Submission of Matters To a Vote of Security Holders 14
Item 6- Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
PART 1. - ITEM 1 - FINANCIAL STATEMENTS
KBK CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
JUNE 30,
1996 DEC. 31,
(UNAUDITED) 1995
------------ ------------
ASSETS
Cash ........................................... $ 3,464,739 $ 11,520,969
Purchased receivables .......................... 48,158,474 40,874,377
Loans receivable ............................... 15,883,305 5,609,709
Participation sold in loans receivable ......... (3,988,909) --
------------ ------------
Total receivables .......... 60,052,870 46,484,086
Allowance for credit losses .................... (1,733,448) (1,729,171)
------------ ------------
Net receivables ............ 58,319,422 44,754,915
Premises and equipment, net of accumulated
depreciation of $686,903 at June 30, 1996
and $514,624 at December 31, 1995 ........... 1,496,476 1,238,625
Intangible assets, less accumulated
amortization of $1,348,260 at June 30, 1996
and $1,167,495 at December 31, 1995 ......... 3,657,410 3,838,174
Prepaid federal income tax ..................... 66,758 --
Other assets ................................... 1,245,309 859,615
============ ============
$ 68,250,114 $ 62,212,298
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Bank line of credit ............................ $ 37,500,000 $ 33,000,000
Due to factored clients ........................ 8,022,212 7,217,162
Accounts payable and accrued liabilities ....... 847,635 478,701
Income taxes payable ........................... -- 228,879
------------ ------------
Total liabilities ................ 46,369,847 40,924,742
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value. Authorized
100,000 shares; no shares issued and
outstanding ................................. -- --
Common stock, $.01 par value. Authorized
10,000,000 shares; issued 3,547,200 shares
and outstanding 3,340,765 shares at
June 30, 1996 and issued 3,547,200 shares
and outstanding 3,397,200 shares at
December 31, 1995 ........................... 35,472 35,472
Additional paid-in capital ..................... 16,500,555 16,500,555
Retained earnings ............................. 6,662,338 5,685,279
------------ ------------
23,198,365 22,221,306
Treasury stock ................................. (1,318,098) (933,750)
------------ ------------
Total Stockholders' equity ....... 21,880,267 21,287,556
------------ ------------
$ 68,250,114 $ 62,212,298
============ ============
See accompanying notes to consolidated financial statements.
1
<PAGE>
KBK CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
(unaudited) (unaudited) (unaudited) (unaudited)
- --------------------------------------------------------------------------------
Earned discount income ..... $2,464,937 $2,512,740 $4,810,533 $4,860,049
Interest income - Loans .... 275,892 10,570 475,178 18,969
Other income - Fees ........ 197,170 17,220 254,690 32,615
---------- ---------- ---------- ----------
Total income ............ 2,937,999 2,540,530 5,540,401 4,911,633
Interest expense ........... 566,867 401,785 974,951 879,046
---------- ---------- ---------- ----------
Income after interest
expense .............. 2,371,132 2,138,745) 4,565,450 4,032,587
Provision for credit losses 10,000 100,000) 40,000 125,000
---------- ---------- ---------- ----------
Income after interest
expense and provision
for credit losses .... 2,361,132 2,038,745 4,525,450 3,907,587
Operating expenses:
Salaries and employee
benefits ............. 863,137 684,929 1,601,634 1,349,696
Amortization of
intangible assets .... 90,382 105,759 180,764 211,518
Occupancy and equipment . 185,870 140,294 361,655 287,704
Professional fees ....... 54,742 127,543 149,292 273,305
Other ................... 384,738 238,928 708,011 522,594
---------- ---------- ---------- ----------
Total operating
expenses ............ 1,578,869 1,297,453) 3,001,356 2,644,817
---------- ---------- ---------- ----------
Income before income
taxes ................ 782,263 741,292) 1,524,094 1,262,770
Income tax expense (benefit):
Federal
Current .............. 245,865 267,350) 509,694 458,032
Deferred ............. -- -- -- --
State ................... 21,571 31,090) 37,341 40,482
---------- ---------- ---------- ----------
Total income taxes ... 267,436 298,440 547,035 498,514
---------- ---------- ---------- ----------
Net income .............. $ 514,827 $ 442,852 $ 977,059 $ 764,256
========== ========== ========== ==========
Net income per share .... $ .15 $ .12 $ .28 $ .21
Weighted-average common
shares outstanding ... 3,514,996 3,591,379 3,529,883 3,693,714
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2
<PAGE>
KBK CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995
AND SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------- Total
Shares Additional Retained Treasury stockholders'
Outstanding Amount paid-in capital earnings stock equity
---------- ------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ...... 3,547,200 $35,472 $ 16,501,754 $3,836,786 $ -- $ 20,374,012
Purchase of stock for treasury .. (150,000) -- -- -- (933,750) (933,750)
Offering expenses ............... -- -- (1,199) -- -- (1,199)
Net Income ...................... -- -- -- 1,848,493 -- 1,848,493
---------- ------- ------------ ---------- ----------- ------------
Balance, December 31, 1995 ...... 3,397,200 $35,472 $ 16,500,555 $5,685,279 $ (933,750) $ 21,287,556
Net Income ...................... -- -- -- 977,059 -- 977,059
Purchase of stock for treasury .. (56,435) -- -- -- (384,348) (384,348)
---------- ------- ------------ ---------- ----------- ------------
Balance, June 30, 1996 .......... 3,340,765 $35,472 $ 16,500,555 $6,662,338 $(1,318,098) $ 21,880,267
========== ======= ============ ========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
KBK CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
(UNAUDITED) (UNAUDITED)
------------ ------------
Cash flows from operating activities:
Net income ....................................... $ 977,059 $ 764,256
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............... 353,042 315,555
Provision for credit losses ................. 40,000 (119,073)
Decrease (increase) in receivables .......... (17,593,415) 12,536,868
Participation sold .......................... 3,988,909 --
Increase in other assets .................... (385,694) (202,220)
Increase (decrease) in due to factored
clients ..................................... 805,050 (3,102,524)
Increase in accounts payable and accrued
liabilities ................................. 368,934 1,948,423
Increase (decrease) in income taxes ......... (295,637) 255,540
------------ ------------
Net cash provided by (used in) operating
activities .............................. (11,741,752) 12,396,825
Cash flows used in investing activities
Purchase of premise and equipment ........... (430,130) (409,401)
Repurchase of common stock .................. (384,348) --
------------ ------------
Net cash used in investing activities ...... (814,478) (409,401)
Cash flows from financing activities:
Repayments of payable to former stockholder . -- (375,000)
Net borrowings from (repayments to) bank .... 4,500,000 (15,926,125)
Net decrease in commercial certificates ..... -- (132,405)
Offering expenses ........................... -- (1,198)
------------ ------------
Net cash provided by financing activities .. 4,500,000 (16,434,728)
------------ ------------
Net decrease in cash and cash equivalents .. (8,056,230) (4,447,304)
Cash at beginning of period ...................... 11,520,969 4,447,304
============ ============
Cash at end of period ............................ $ 3,464,739 $ --
============ ============
See accompanying notes to consolidated financial statements.
4
KBK CAPITAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated financial statements of KBK Capital Corporation (the
"Company"), included herein, are unaudited for all periods ended June 30, 1996
and 1995. However, they reflect all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to fairly depict
the results for the periods presented. Certain information and note disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to rules
and regulations of the Securities and Exchange Commission. The Company believes
that the disclosures made herein are adequate to make the information presented
not misleading.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year. It is suggested that these consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and notes thereto for the years ended December 31, 1995 and 1994
which are included in the Company's annual report.
2. BANK LINE OF CREDIT
The Company maintains a $75 million multi-bank line of credit ("Credit
Facility"), made up of a $50 million Revolving Credit Facility ("Revolving
Facility") collateralized by purchased accounts receivable with $40 million
committed at June 30, 1996 and a $25 million Advancing Term Facility ("Term
Facility") collateralized by term loans, with $5 million committed at June 30,
1996. The Credit Facility, as amended on May 28, 1996 to include the Term
Facility, provides for maximum borrowings under the Revolving Facility of the
lesser of (i) $50 million, or (ii) the amount of a borrowing base (based on a
percentage of eligible accounts receivable as defined in the letter agreement to
the Credit Facility net of related amounts due to clients and exclusions based
on client or debtor considerations). Borrowings under the Revolving Facility
bear interest at the agent bank's prime rate or at applicable LIBOR plus 1.5% or
1.25% depending on the Company's interest coverage ratio (as defined in the
letter agreement to the Credit Facility) with interest payable quarterly. The
Credit Facility also provided for maximum borrowings under the Term Facility of
the lesser of (i) $25 million, or (ii) the amount of a borrowing base (based on
a percentage of eligible term loans as defined in the letter agreement to the
Credit Facility). Borrowings under the Term Facility bear interest at the agent
bank's prime rate or at applicable LIBOR plus 1.75% or 1.50% depending on the
Company's interest coverage ratio (as defined in the letter agreement to the
Credit Facility) with interest payable quarterly. Commitment fees are paid
quarterly at the rate of .25% on the unused current commitment amounts under the
Revolving Facility and the Term Facility. The Credit Facility expires on April
30, 1999, at which time all outstanding amounts are due thereunder.
3. STOCKHOLDERS' EQUITY
Pursuant to the Stock Repurchase Plan initiated in 1995, the Company
acquired 56,435 shares of its common stock at a cost of $384,348 during the six
months ended June 30, 1996. This stock is currently held as treasury stock and
has not been canceled.
5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a commercial financial institution providing asset-based and
working capital financing to middle-market businesses primarily through the
discounted purchase of their accounts receivable and secondarily through lending
collateralized by inventory, equipment, accounts receivable or other assets of
the borrower. The Company's clients are typically businesses with annual
revenues up to $30 million which are experiencing growth. By providing
asset-based and working capital financing, the Company relies principally on the
quality of the client's underlying assets and financial condition of the
client's customers ("account debtors") rather than the financial condition of
the client itself.
In working capital financings, the Company purchases accounts receivable for a
negotiated price (the "Initial Payment"), usually less than their face amount,
based upon size, age and type of accounts being purchased, the quality of client
documentation and the Company's judgment as to payment history and credit
worthiness of the account debtors. This Initial Payment is negotiated on a
client-by-client basis and generally does not vary on a receivable-by-receivable
basis when purchased from the client. Revenue generated from the Initial Payment
in the form of a fixed discount is recognized for financial accounting purposes
in the month the related receivable is purchased.
The Company also deducts a variable discount from the purchase price of the
accounts receivable based on the Initial Payment amount and the number of days
between the Initial Payment date and the date the underlying account receivable
is collected. Upon collection of an account receivable, the difference between
the amount collected and the Initial Payment, with respect to that receivable,
less the Company's fixed and variable discounts, (the "residual payment") is
paid to the client. Variable discount income is recorded on an accrual basis
over the period between the date the underlying receivable is purchased and the
date the receivable is collected.
During 1995, the Company expanded its product lines to offer various other types
of financing to customers already served through accounts receivable purchase
facilities. These loan facilities were extended in an effort to maintain and
extend the financial relationship with new or existing customers. The loan
facilities are generally not extended on a stand alone basis without the
prospect of working capital facilities on a long term relationship. These
product lines include term loans secured by inventory, accounts receivable,
equipment and other assets at floating rates over a base rate and are secured.
In its asset-based lending activities, the Company typically obtains an auction
or liquidation value appraisal of the collateral and extends credit at a
negotiated percentage of the appraised value. The term of these facilities
generally does not exceed five years. Interest income on these loans is accrued
ratably over the life of the loan at a variable rate. The rates are negotiated
on a client-by-client basis.
The Company expects that it will experience lower than historical yields during
the third and fourth quarters of 1996, which is expected to have a negative
impact on the level of expected growth in its revenues and results of operations
for the remainder of 1996. Broad-based and sustained economic growth has
resulted in improved financial strength for many middle market companies
currently and prospectively served by KBK. The Company's customary practice of
adjusting pricing for its customers commensurate with improvement or
deterioration in their financial strength, continues to be reflected in lower
yields on the Company's earning asset portfolio. In addition, the Company
continues to extend lower pricing on new business generated as it competes
aggressively for earning asset growth.
Results for the second quarter of 1996 reflect a 16% increase in revenues and a
46% increase in earning assets, in each case compared to the same period in the
prior year. The Company expects that additions made to its marketing staff
during the first half of 1996 will continue to generate earning asset growth
6
during the second half of 1996 as yields remain under pressure from strong
economic growth and the Company's aggressive competition for earning asset
growth. Management expects that the rate of growth in earning assets will
out-pace revenue growth through the remainder of the year. There can be no
assurance, however, that earning asset growth will be sufficient to offset lower
yields continuing to be experienced by the Company.
The information in the preceding two paragraphs contains forward-looking
information based on current information and expectations of the Company that
involve a number of risks, uncertainties and assumptions, including the overall
state of the economy, competition among financial institutions, and the
Company's ability to generate growth in earning assets through the generation of
new business. Should one or more of these risks or uncertainties materialize, or
should the underlying assumptions prove incorrect, actual outcomes could vary
materially from those expected.
The following discussion of the Company's results of operations and financial
condition should be read in conjunction with the Company's unaudited
consolidated financial statements included elsewhere in this report. This
discussion contains forward looking statements that are, as such, estimates.
These estimates could be affected by changes in assumptions that make the
estimates not correct.
RESULTS OF OPERATIONS
ANALYSIS OF SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
The following tables set forth the results of operations and certain other data
of the Company for the second quarter of 1996 and the second quarter of 1995.
Quarter Ended Quarter Ended
June 30, 1996 June 30,1995
(unaudited) (unaudited)
------------------------------------------
(dollars in thousands)
Average Earning Assets ............... $57,222 $39,194
Total Revenues ....................... $ 2,938 100.0% $ 2,541 100.0%
Interest Expense ..................... 567 19.3% 402 15.8%
Provision for Credit Losses .......... 10 0.3% 100 3.9%
Operating Expenses ................... 1,579 53.7% 1,297 51.0%
Income Taxes ......................... 267 9.1% 298 11.7%
Net Income ........................... 515 17.5% 443 17.4%
Total revenue increased 16%, or $397,000 to $2.9 million for the second quarter
of 1996 compared to second quarter 1995 total revenues of $2.5 million. This was
due in part to an increase of $265,000 in the interest income component of
revenue to $276,000 for the second quarter 1996 from $11,000 for the same period
in 1995. The increase in interest income was primarily due to the increase of
$9.3 million in average outstanding loans for the second quarter 1996 to $9.9
million from $677,000 for the same period of 1995 resulting from extending the
life of client relationships by offering secured loans to clients already served
by the accounts receivable purchase facilities. Other fee income also increased
$180,000 to $197,000 for the second quarter of 1996, from $17,000 in the same
quarter of 1995 resulting from fees charged on new loans and receivable purchase
facilities, increases in funds transfer fees and the addition of fees for
services performed such as audits and document preparation. These increases were
partially offset by the drop in discount fees of $48,000 to $2.5 million for the
second quarter of 1996. The decrease resulted from a $175,000 drop in fixed
discounts for the second quarter of 1996 from the same quarter in 1995 partially
offset by an increase of $128,000 in variable discounts to $1.0 million in the
second quarter of 1996 from $874,000 in the same quarter of 1995. The drop in
fixed fees resulted from
7
the participation by certain correspondents in the fixed fee revenue of some
clients in lieu of a commission and the overall decline in fixed fee structures
connected with variable performance based pricing. Increases in variable
discounts resulted from the increase in average purchased accounts receivable
outstanding to $47.3 million for the second quarter of 1996 from $38.5 million
for the second quarter of 1995.
Total earning assets generated from purchased receivables financing and loan
financing resulted in a 46% growth in average earning assets to $57 million for
the quarter ended June 30, 1996 from $39 million for the quarter ended June 30,
1995. Of this increase, $9.3 million resulted from the growth in the loan
portfolio and $8.8 million resulted from growth in the receivables purchased
portfolio. Volume of $101.6 million of receivables purchased in the second
quarter of 1996 reflects an increase of $13.8 million, or 16% over second
quarter 1995 volume of $87.8 million. The growth in purchased receivables
originated in the Fort Worth, San Antonio and New Orleans offices exceeded the
decline in accounts originated by the offices in Houston and Lafayette. The
decline of purchased receivables in the Houston portfolio is related to the
planned termination of the facility for a group of related clients in December
of 1995 which has not as yet been replaced with the addition of new accounts.
The growth in loans receivable is due to cross selling of asset-based financing
products to new and existing clients.
Interest expense increased $165,000 to $567,000 for the second quarter of 1996
from $402,000 for the same quarter in 1995. This increase is due to a $15.6
million increase in the average outstanding balance under the Company's line of
credit to $32 million for the second quarter of 1996 from $16.4 million for the
same quarter in 1995. The increase in the average amounts outstanding was
partially offset by the lower effective prime rate in the second quarter of 1996
of 8.25% compared to 9% in the second quarter of 1995.
Yields (annualized revenue divided by average earning assets), however,
decreased to 20.5% for the second quarter of 1996 from 25.9% for the same
quarter of 1995, due to the increase in the loan portion of earning assets as
discussed in the preceding paragraph and the results of performance based
variable pricing in place in 1996. The Company's customary practice of adjusting
pricing for its customers, commensurate with improvement or deterioration in
their financial strength, continues to be reflected in lower yields on the
Company's earning assets portfolio. Also the term loan component of earning
assets generally has a lower yield than the yield generated in working capital
financing through purchased receivables. As the Company extends the life of
client relationships through the addition of lower yield products and rewards
good performance with lower rate purchase facilities, yields are expected to
continue to decline. Additionally the Company continues to extend lower pricing
on new business generated as it competes aggressively for earning asset growth.
A broad based and sustained economic growth has resulted in improved financial
strength for many middle market companies currently and prospectively served by
the Company. This allows such companies alternative financing sources such as
commercial banks and asset based lenders.
A provision for credit losses of $10,000 was recorded for the second quarter of
1996, as compared to $100,000 for the second quarter of 1995. During the second
quarter of 1996, the Company had net charge-offs of $21,000 compared to $88,000
of net charge-offs for the second quarter of 1995. The allowance for credit
losses at June 30, 1996 of $1.7 million represents 3.0% of average earning
assets for the quarter then ended. The allowance for credit losses at June 30,
1995 of $1.5 million was 3.8% of average earning assets for the quarter then
ended. Management believes the current allowance is adequate to cover potential
losses which might result from the purchased accounts receivable and loan
portfolio at June 30, 1996.
Operating expenses of $1.6 million for the quarter ended June 30, 1996 were up
$281,000, or 23%, compared with the $1.3 million for the quarter ended at June
30, 1995. Salaries and employee benefits increased $178,000 to $863,000 for the
second quarter of 1996 compared to $685,000 for the same quarter of 1995. Most
of this increase relates to the expansion of the marketing staff to 22 full-time
8
personnel from 11 full-time personnel in the same quarter of 1995. Occupancy
expenses increased $46,000 to $186,000 for the second quarter of 1996, from
$140,000 for the same quarter of 1995 resulting from the increased rent and
depreciation for office space and equipment required in New Orleans and the
opening of two new offices in California in the second quarter of 1996.
Marketing related expenses such as referral commissions, travel, entertainment,
advertising, postage, telephone and office supplies increased $114,000 or 66% to
$285,000 in the second quarter of 1996 from $172,000 in the same quarter of 1995
due to increased direct mail projects and other direct cost to support more
geographically diverse marketing offices. Administrative expenses such as
directors fees, dues and subscriptions, other taxes, credit services, insurance,
contributions and miscellaneous expenses increased $32,000 or 47% to $99,000 for
the second quarter of 1996 from $67,000 for the same quarter of 1995. These
increased expenses for the second quarter of 1996 were offset by a $73,000
decrease in legal and professional fees to $55,000 from $128,000 in the second
quarter of 1995 and a decrease of $15,000 in amortization of intangibles to
$90,000 in the second quarter of 1996 from $105,000 in the second quarter of
1995. The decrease in legal fees relates to high cost in 1995 of the Company's
defense in a client bankruptcy suit which was substantially concluded before the
second quarter of 1996. The decrease in amortization is due to the lengthening
of the noncompetition agreement with the prior owner in the fourth quarter of
1995.
Income taxes of $267,000 for the second quarter of 1996 were 11% less than the
$299,000 of income taxes for the second quarter of 1995, due to an adjustment of
an accounting estimate made in 1995.
As a result of the foregoing, net income of the Company for the second quarter
of 1996 increased $72,000, or 16%, to $515,000 from $443,000 for the second
quarter of 1995.
ANALYSIS OF SIX MONTHS ENDED JUNE 30, 1996
COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The following table sets forth the results of operations and certain other
data of the Company for the six months ended June 30, 1996 and 1995.
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
(unaudited) (unaudited)
---------------------------------------------
(DOLLARS IN THOUSANDS)
Average Earning Assets ............... $52,870 $39,719
Total Revenues ....................... $ 5,540 100.0% $ 4,912 100.0%
Interest Expense ..................... 975 17.6% 879 17.8%
Provision for Credit Losses .......... 40 .7% 125 2.5%
Operating Expenses ................... 3,001 54.2% 2,645 53.8%
Income Taxes ......................... 547 9.9% 499 10.2%
Net Income ........................... 977 17.6% 764 15.6%
Total revenue increased 13%, or $628,000, to $5.5 million for the six months
ended June 30, 1996 compared to the same period for 1995 total revenues of $4.9
million. This was due primarily to the increase of $456,000 in the interest
income component of revenue to $475,000 for the six months ended June 30, 1996
from $19,000 for the same period 1995. The increase in interest income was
primarily due to the increase of $7.7 million in average outstanding loans for
the six months ended June 30, 1996 to $8.2 million from $507,000 for same period
of 1995 resulting from the Company's extending the life of client relationships
by offering secured loans to clients already served by the accounts receivable
purchase facilities. Other fee income also increased $456,000 to $475,000 for
the first six months of 1996, from $17,000 in the same period of 1995 resulting
from fees charged on new loans and receivable purchase facilities, increases in
funds transfer fees and the addition of fees for services performed such as
audits and document preparation. These increases were partially offset by the
drop in discount fees of
9
$50,000 to $4.8 million for the six months ended June 30,1996. The decrease
resulted from a $215,000 drop in fixed discounts for the six months ended June
30, 1996 from the same period in 1995 partially offset by an increase of
$166,000 in variable discounts to $1.9 million for the six months ended June 30,
1996 from $1.8 million in the same period of 1995. The drop in fixed fees
resulted from the participation by certain correspondents in the fixed fee
revenue of some clients in lieu of a commission and the overall decline in fixed
fee structures connected with variable pricing. Increases in variable discounts
resulted from the increase in average purchased accounts receivable outstanding
of $44.7 million for the six months ended June 30, 1996 from $39.2 for the same
period of 1995.
Total earning assets generated from purchased receivables and loan financing
resulted in a 17% growth in earning assets, to $53 million for the six months
ended June 30, 1996 from $40 million for the six months ended June 30, 1995. The
volume of accounts receivable purchased grew 11% to $194 million for the six
months ended June 30, 1996 from $175 million for the same period of 1995. The
growth in purchased receivables originated in the Fort Worth, San Antonio and
New Orleans offices exceeded the decline in accounts originated by the offices
in Houston and Lafayette. The decline in the Houston portfolio purchases is
related to the planned termination of the facility for a group of related
clients in December of 1995 which has not as yet been replaced with the addition
of new accounts. The growth in loans receivable is due to cross selling of
asset-based financing products to new and existing clients.
Interest expense increased $96,000 to $975,000 for the six months ended June 30,
1996 from $879,000 for the same quarter in 1995. This increase is due to a $10.1
million increase in the average outstanding balance under the line of credit to
$27.2 million for the six months ended June 30, 1996 from $17.1 million for the
same period in 1995 but was partially offset by the prime borrowing rate
declining 25 basis points from 8.5% to 8.25% in the second month of 1996
compared to increasing 50 basis points from 8.5% to 9% in the second month of
1995.
Yields (revenue divided by average earning assets, annualized), however,
decreased to 21.0% for the six months ended June 30,1996 from 24.7% for the same
period of 1995, due to the increase in the loan portion of earning assets as
discussed in the preceding paragraph and the results of performance based
variable pricing in place in 1996. This component of earning assets generally
has a lower yield than the yield generated in working capital financing through
purchased receivables. As the Company extends the life of client relationships
through the addition of lower yield products and rewards good performance with
lower rate purchase facilities, yields are expected to continue to decline.
A provision for credit losses of $40,000 was recorded for the six months ended
June 30, 1996, as compared to $125,000 for the same period of 1995. During the
second quarter of 1996, the Company had net charge-offs of $36,000 compared to
$234,000 of net charge-offs for the same period of 1995. The allowance for
credit losses at June 30, 1996 of $1.7 million represents 3.2% of average
earning assets for the six months then ended. The allowance for credit losses at
June 30, 1995 of $1.5 million was 3.8% of average earning assets for the six
months then ended. Management believes the current allowance is adequate to
cover potential losses which might result from the purchased accounts receivable
and loan portfolio at June 30, 1996.
Operating expenses of $3.0 million for the six months June 30, 1996 were up
$356,000, or 13%, compared with the $2.6 million for the same period of 1995.
Salaries and employee benefits increased $252,000 to $1.6 million for the six
months ended June 30, 1996 compared to $1.3 million for the same period of 1995.
Most of this increase relates to the expansion of the marketing staff in the
first six months of 1996 through the addition of nine full-time personnel.
Occupancy expenses increased $74,000 to $362,000 for the second quarter of 1996,
from $288,000 for the same period of 1995 resulting from the increased rent and
depreciation for office space and equipment required in New Orleans and the
opening of two new offices in California in the second quarter of 1996.
Marketing related expenses such as referral commissions, travel, entertainment,
advertising, postage, telephone and office supplies increased $133,000 or 35% to
$514,000 for the six months ended June 30, 1996 from $381,000 in the
10
same period of 1995 due to increased direct mail projects and other direct cost
to support more geographically diverse marketing offices. Administrative
expenses such as directors fees, dues and subscriptions, other taxes, credit
services, insurance, contributions and miscellaneous expenses increased $52,000
or 37% to $194,000 for the six months ended June 30, 1996 from $142,000 for the
same period of 1995. These increased expenses for the six months ended June 30,
1996 were offset by a $124,000 decrease in legal and professional fees to
$149,000 from $273,000 in the same period of 1995 and a decrease of $31,000 in
amortization of intangibles to $181,000 in the six months ended June 30, 1996
from $212,000 in the same period of 1995. The decrease in legal fees relates to
the high cost in 1995 of the company's defense in a client bankruptcy suit which
was substantially concluded before the second quarter of 1996. The decrease in
amortization is due to the lengthening of the noncompetition agreement with the
prior owner in the fourth quarter of 1995.
Income taxes of $547,000 for the six months ended June 30, 1996 were 10% more
than the $499,000 of income taxes for the same period of 1995, due to a 20%
increase in net income before taxes for the six months ended June 30, 1996
compared to the same period for 1995 and due to an adjustment of an estimate
made in 1995.
As a result of the foregoing, net income of the Company for the six months ended
June 30, 1996 increased $213,000, or 28%, to $977,000 from $764,000 for the same
period of 1995.
CHANGES IN FINANCIAL CONDITION
All asset components of the Company's balance sheet increased from December 31,
1995, to June 30, 1996, except intangible assets. Total assets increased 10%
from $62.2 million at December 31, 1995 to $68.3 million at June 30, 1996. This
increase was primarily due to the increase in earning assets from $11.5 million
at December 31, 1995 to $60 million at June 30, 1996 resulting from increased
borrowings of $4.5 and the increase of $13.5 million in earning assets (total
receivables) from $46.5 million at December 31, 1995 to $60.0 million at June
30, 1996. Net intangible assets declined $90,400 during the second quarter 1996
due to amortization.
Because of the increase in purchased accounts receivable balances, the balance
in the due to factored clients increased 10%, from $7.2 million to $8.0 million.
Stockholders' equity increased $593,000, from $21.3 million at December 31, 1995
to $21.9 million at June 30, 1996 due to net income for the six month ended June
30, 1996 of $977,000 net of treasury stock purchased during the quarter at a
cost of $384,000. The Company paid no dividends on its common stock for the six
months ended June 30, 1996.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements generally increase proportionately to the
change in earning assets. During the second quarter of 1996, the total volume of
receivables purchased by the Company was $101.6 million, a 16% increase over the
total volume of receivables purchased of $87.8 million during the second quarter
of 1995. Average earning assets from the working capital financing of purchased
receivables of $47.3 million was 18.6% above the comparable average earning
assets of $38.5 million for the quarter ended June 30, 1995. The average balance
on loans, however, grew from $676,000 for the quarter ended June 30, 1995 to
$12.8 million for the quarter ended June 30, 1996. This increase in loan growth
caused average earning assets to grow 45.9% from $39.2 million for the quarter
ended June 30, 1995, to $57.2 million for the quarter ended June 30, 1996. The
Company continues to search for ways to employ its capital base and to expand
its portfolio through the expansion of its current product line, the addition of
new product lines such as collateralized loan facilities, the acquisition or
development of new products or lines and the addition of services related to the
purchase or servicing of accounts receivable.
The Company maintains a $75 million multi-bank line of credit ("Credit
Facility"), made up of a $50 million Revolving Credit Facility ("Revolving
Facility") collateralized by purchased accounts receivable with $32.5 million
outstanding and $40 million committed at June 30, 1996 and a $25 million
Advancing Term Facility ("Term Facility") collateralized by term loans with $5
million outstanding and $5 million committed at June 30, 1996. The Credit
Facility as amended on May 28, 1996 to include the Term Facility provided for
maximum borrowings under the Revolving Facility of the lesser of (i) $50
million, or (ii) the amount of a borrowing base (based on a percentage of
eligible accounts receivable as defined in the letter agreement to the Credit
Facility net of related amounts due to clients and exclusions based on client or
debtor considerations). Borrowings under the Revolving Facility bear interest at
the agent bank's prime rate or at applicable LIBOR plus 1.5% or 1.25% depending
on the Company's interest coverage ratio (as defined in the letter agreement to
the credit facility) with interest payable quarterly. The Credit Facility also
provided for maximum borrowings under the Term Facility of the lesser of (i) $25
million, or (ii) the amount of a borrowing base (based on a percentage of
eligible term loans as defined in the letter agreement to the Credit Facility.
Borrowings under the Term Facility bear interest at the agent bank's prime rate
or at applicable LIBOR plus 1.75% or 1.50% depending on the Company's interest
coverage ratio (as defined in the letter agreement to the credit facility) with
interest payable quarterly. Commitment fees are paid quarterly at the rate of
.25% on the unused current commitment amounts under the Revolving Facility and
the Term Facility. The Credit Facility expires on April 30, 1999, at which time
all outstanding amounts are due thereunder.
Borrowings under the Credit Facility are secured by all accounts receivable of
KBK now existing or hereafter to come into existence (including all accounts
receivable purchased by KBK from its clients), all inventory of KBK now owned or
acquired, all instruments, chattel paper, documents and general intangibles of
KBK now owned or acquired, an assignment of all security interest, mortgages and
liens securing the foregoing and all proceeds of the foregoing. The terms of the
Credit Facility require KBK to comply with certain financial covenants and
include the maintenance of a certain current ratio and tangible net worth,
limitations on its debt to tangible net worth ratio and an interest coverage
ratio which requires that the ratio of the Company's income before interest and
taxes to interest expense, over the last four quarters, be no less than 1.5 to
1. Additionally, the Credit Facility restricts the payment of dividends or the
repurchase of stock in any fiscal year to the lesser of (i) KBK's after tax
income for such fiscal year, or (ii) the sum of 50% of the amount by which KBK's
after tax income exceeds the cumulative amount of dividends permitted to be paid
under such tests, but not so paid. Thus, the Company is restricted in its
ability to pay cash dividends or repurchase its common stock. Under the terms of
the Credit Facility, the limitation on dividends and repurchases at June 30,
1996 was $819,000, and $435,000 was available for such payments. The Company has
not paid dividends on its common stock and currently does not intend to pay cash
dividends, rather it intends to retain its cash for the
12
continued expansion of its business and the continuation of the stock repurchase
program initiated in November, 1995. Pursuant to action by the Company's Board
of Directors in July of 1996, the stock repurchase program was increased by
200,000 shares from its initial 300,000 shares. Under the Company's stock
repurchase program, the Company may buy back in open market transactions, block
trades or private transactions up to 500,000 shares (14% of the outstanding
shares at the time of the program's initiation) at current market prices. During
the second quarter of 1996, the Company repurchased 22,435 shares at a cost of
$135,603. As a result, at the end of the second quarter of 1996, the Company has
purchased 206,435 shares of its common stock since the inception of its
repurchase program in November 1995.
The reduction in cash from $11.5 million at December 31, 1995 to $3.5 million is
due to the increase in purchased accounts receivable and loans outstanding of
$17.6 million net of additional borrowings from the bank of $4.5 million and the
sale of a $4.0 million participation in a loan for the quarter ended June 30,
1996.
13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any litigation other than routine proceedings
incidental to its business and the Company does not expect that these
proceedings will have a material adverse effect on the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following items were submitted to the stockholders of the Company at the
Annual Meeting of Stockholders held on May 1, 1996. Of the total 3,363,200
outstanding and authorized voting shares, there were present by proxy or in
person, 2,964,243 shares or 88% of the voting shares outstanding. The following
issues were presented to the stockholders for approval.
1. To amend the Articles of Incorporation to provide for three classes of
Directors, each class to serve for staggered terms of 3 years;
2. To elect nine Directors - CLASS I - Term initially expires 1997:
Kenneth H. Jones, Jr., R. Earl Cox, III, Martha V. Leonard; CLASS II -
Term initially expires 1998: Michael D. Magill, Thomas M. Simmons,
Harris A. Kaffie; CLASS III Term initially expires 1999: Robert J.
McGee, Daniel R. Feehan, Thomas L. Healey;
3. To approve the Company's 1996 Long-Term Incentive Plan;
4. To ratify the selection by the Board of Directors of KPMG Peat Marwick
LLP as independent auditors for the fiscal year ending December 31,
1996.
For Item 1, 2,261,654 shares voted FOR, 305,600 shares voted AGAINST, and 6,400
shares ABSTAINED. For Item 2, the following votes were cast for each of the
nominees proposed by the Board of the Company.
Nominee Shares Voted For Shares Voted Against Shares Withheld
Kenneth H. Jones, Jr. .. 2,811,890 - 0 - 2,075
R. Earl Cox III ........ 2,805,890 - 0 - 8,075
Martha V. Leonard ...... 2,811,890 - 0 - 2,075
Michael D. Magill ...... 2,813,965 - 0 - - 0 -
Thomas M. Simmons ...... 2,813,965 - 0 - - 0 -
Harris A. Kaffie ....... 2,811,890 - 0 - 2,075
Robert J. McGee ........ 2,813,965 - 0 - - 0 -
Daniel R. Feehan ....... 2,811,890 - 0 - 2,075
Thomas L. Healey ....... 2,813,965 - 0 - - 0 -
For Item 3, shares voted FOR were 2,584,812 shares, 16,900 shares voted AGAINST,
and 7,800 shares ABSTAINED. For Item 4, shares voted FOR were 2,813,965, shares
voted AGAINST were none, and 300 share ABSTAINED. All items were approved
pursuant to the Company's Articles of Incorporation and By-Laws.
14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*23.3 - Second Amended and Restated Letter Loan Agreement dated May
28, 1996 among KBK Financial, Inc., the banks listed on the
signature pages thereof and BankOne, Texas, N.A., as Agent,
and related documents.
(b) Reports on Form 8-K
None
- -------------
* Filed herewith
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KBK CAPITAL CORPORATION
Date August 12, 1996 /s/ MICHAEL D. MAGILL
Michael D. Magill,
Executive Vice President
and Chief Financial Officer
Exhibit 23.3
TABLE OF CONTENTS
PAGE
Section 1 Credit Facility............................................... 1
A. Revolving Credit Notes........................................ 1
(a) Revolving Notes........................................ 1
(b) Maximum Revolving Credit Availability: Advance
Procedure.............................................. 1
(c) Term................................................... 2
(d) Rate................................................... 2
(e) Repayment Terms........................................ 2
(f) Concerning Letters of Credit........................... 2
(g) Commitment Fees........................................ 2
(h) Agent Fee.............................................. 2
(i) Purpose................................................ 2
B. Advancing Term Notes.......................................... 3
(a) Advancing Term Notes................................... 3
(b) Availability: Advance Procedure........................ 3
(c) Term................................................... 3
(d) Rate................................................... 3
(e) Repayment Terms........................................ 3
(f) Commitment Fees........................................ 3
(g) Purpose................................................ 4
Section 2 Interest...................................................... 4
Section 3 Representation and Warranties................................. 8
(a) Organization, Authority. Etc.................................. 8
(b) Financial Statements.......................................... 8
(c) Investments and Liabilities................................... 8
(d) Title......................................................... 8
(e) Tax Returns................................................... 8
(f) No Default.................................................... 8
(g) ERISA; Margin Securities...................................... 9
(h) Patents. Etc.................................................. 9
(i) No Untrue Statements.......................................... 9
(j) Status of Collateral.......................................... 9
Section 4 Reporting Requirements........................................ 9
(a) Annual Financial Statements................................... 9
(b) Quarterly Financial Statements................................ 9
(c) Monthly Reports............................................... 10
(d) .............................................................. 10
(1) Annual Financial Statements of Guarantor............... 10
(2) Quarterly Financial Statements of Guarantor............ 10
(e) Notice of Default............................................. 10
(f) Notice of Litigation.......................................... 10
(g) Other Information............................................. 10
Section 5 Affirmative Covenants......................................... 11
(a) Compliance and Performance.................................... 11
(b) Reimbursement: Indemnity...................................... 11
(c) Current Committed Amount...................................... 11
(d) Borrowing Base................................................ 12
(e) Eligible Accounts Receivable and Eligible Term Loans.......... 12
(f) Security...................................................... 13
(g) Guaranty...................................................... 14
(h) Concerning Commercial Paper................................... 14
Section 6 Negative Covenants ........................................... 14
(a) Investments................................................... 14
(b) Merger and Consolidation...................................... 14
(c) Dividends and Distributions................................... 15
(d) Sale of Assets................................................ 15
(e) Indebtedness.................................................. 15
(f) Liens......................................................... 15
Section 7 Financial Covenants........................................... 15
Section 8 Default and Remedies.......................................... 17
Section 9 Closing....................................................... 18
Section 10 The Agent 19
(a) Creation of Agency............................................ 19
(b) Payments and Distributions.................................... 19
(c) Notices....................................................... 20
(d) Indemnity..................................................... 20
(e) Reliance...................................................... 20
(f) Truth of Representations...................................... 20
(g) Business with Borrower........................................ 20
(h) Independent Investigations.................................... 20
(i) Prior Adjudication of Certain Actions......................... 21
(j) Remedies upon Default......................................... 21
(k) Fundings by Lenders........................................... 22
(l) Default by a Lender........................................... 22
(m) Actions Requiring Consent of the Lenders...................... 22
(n) Resignation; Successor Agent.................................. 23
(o) No Third Party Beneficiary.................................... 24
Section 11 Disclosure.................................................... 24
Section 12 Miscellaneous................................................. 24
(a) Notices....................................................... 24
(b) Successors and Assigns........................................ 24
(c) Renewals and Extensions....................................... 24
(d) Prior Loan Agreement.......................................... 24
(e) No Waiver; Remedies Cumulative................................ 24
(f) Governing Law................................................. 25
(g) Invalid Provisions............................................ 25
(h) Usury Savings Clause.......................................... 25
(i) Headings...................................................... 25
Section 13 Arbitration................................................... 25
Section 14 Reference to and Effect on the Loan Documents................. 25
Section 15 Deviation From Compliance With the Loan Agreement............. 26
Section 16 Entire Agreement.............................................. 26
SECOND AMENDED AND RESTATED
LETTER LOAN AGREEMENT
KBK FINANCIAL, INC., AS BORROWER,
AND KBK CAPITAL CORPORATION, AS GUARANTOR
AND
BANK ONE, TEXAS, N.A., AS AGENT,
FIRST INTERSTATE BANK OF TEXAS, N.A.,
NATIONSBANK OF TEXAS, N.A.
BANK OF AMERICA, TEXAS, N.A
OVERTON BANK AND TRUST, N.A.,
AS LENDERS
MAY 28, 1996
<PAGE>
SECOND AMENDED AND RESTATED LETTER LOAN AGREEMENT
Bank One, Texas, N.A., as Agent
910 Travis
Houston, Texas 77002
Gentlemen:
This second amended and restated letter loan agreement ("AGREEMENT")
confirms the mutual agreements among KBK FINANCIAL, INC., a Delaware corporation
("BORROWER"), the lenders listed on Schedule 1 hereto (collectively, the
"LENDERS") and BANK ONE, TEXAS, N.A., a national banking association, as Agent
for itself and the other Lenders (in such capacity, the "AGENT") in connection
with the credit facility more fully described herein (the "CREDIT FACILITY"),
and amends and restates the rights and obligations of Borrower, the Lenders and
the Agent under that certain letter loan agreement dated March 5, 1993 by and
among Borrower, the Lenders and the Agent, as amended by Amended and Restated
Letter Loan Agreement dated April 4, 1994, First Amendment to Amended and
Restated Letter Loan Agreement dated December 30, 1994, Second Amendment to
Amended and Restated Letter Loan Agreement dated February 17, 1995, Third
Amendment to Amended and Restated Letter Loan Agreement dated July 31, 1995,
Fourth Amendment to Amended and Restated Letter Loan Agreement dated September
28, 1995, and Fifth Amendment to Amended and Restated Letter Loan Agreement
dated December 19, 1995 (collectively, the "PRIOR LOAN AGREEMENT").
Section 1. CREDIT FACILITY. Subject to the terms of this Agreement, the
Lenders agree to lend and Borrower agrees to borrow certain amounts
(collectively, the "CREDIT FACILITY") to be evidenced by the promissory notes
(collectively, the "NOTES") described hereinbelow, pursuant to the following
terms and conditions:
A. Revolving Credit Notes.
(a) REVOLVING NOTES: Borrower's obligation to repay the revolving
indebtedness portion of the Credit Facility (the "REVOLVING CREDIT
FACILITY") shall be evidenced by its execution of a promissory note (the
"BANK ONE NOTE") dated of even date herewith in the form attached hereto
as Exhibit "A-1", a promissory note (the "FIRST INTERSTATE NOTE") dated
of even date herewith in the form attached hereto as Exhibit "A-2", a
promissory note (the "NATIONSBANK NOTE") dated of even date herewith in
the form attached hereto as Exhibit "A-3", a promissory note (the "BANK
OF AMERICA NOTE") dated of even date herewith in the form attached
hereto as Exhibit "A-4", and a promissory note (the "OVERTON NOTE")
dated of even date herewith in the form attached hereto as Exhibit
"A-5".
(b) MAXIMUM REVOLVING CREDIT AVAILABILITY: ADVANCE PROCEDURE:
$50,000,000.00, subject to the limitations set forth in this Agreement,
including the Borrowing Base described in Section 5(d) hereof. Borrower
may request advances pursuant to the Revolving Credit Facility from
Agent by telephone at
Bank One, Texas, N.A.
Page 2
least (i) one (1) Business Day (hereinafter defined) prior to the
requested date of advance for advances accruing interest at the Prime
Rate (as defined in Section 2 hereof), or (ii) three (3) Business Days
prior to the requested date of advance for advances accruing interest at
the LIBOR Rate (as defined in Section 2 hereof). Agent shall request
each Lender to make available to Agent such Lender's portion of the
requested advance, as described in Section 10(k) hereof. Agent shall
advance to Borrower all funds delivered by the Lenders to Agent for the
purpose of funding such requested advance to Borrower.
(c) TERM: Through April 30, 1999.
(d) RATE: The interest rate described in Section 2 of this
Agreement, not to exceed the maximum non-usurious rate permitted by
applicable law (the "MAXIMUM RATE").
(e) REPAYMENT TERMS: Accrued and unpaid interest shall be due and
payable on the last day of each calendar quarter, with the balance of
unpaid principal and accrued and unpaid interest due and payable on
April 30, 1999.
(f) CONCERNING LETTERS OF CREDIT: No letter of credit issued
under the Revolving Credit Facility may have an expiration date later
than April 30, 1999. The issuances of all letters of credit are subject
to the execution by Borrower of Agent's standard documentation therefor
including, without limitation, provisions regarding capital adequacy.
The face amount of each letter of credit issued under the Revolving
Credit Facility shall be deemed an amount outstanding thereunder. All
letters of credit shall bear a fee, payable in advance to Agent, for the
benefit of the Lenders, equal to one percent (1%) per annum of the face
amount of such letter of credit. Any letter of credit issued by Agent at
the request of Borrower and outstanding on the date hereof shall be
deemed issued under the Revolving Credit Facility.
(g) COMMITMENT FEES: One-fourth of one percent (1/4%) per annum
of the average unused portion of the Current Committed Revolving Amount
(hereinafter defined), payable to Agent, for the benefit of the Lenders,
in arrears on the same day as each interest payment on the Notes.
(h) AGENT FEE: $10,000.00 per calendar year, payable to Agent on
or before May 1 of each calendar year throughout the Term of the Credit
Facility.
(i) PURPOSE: To renew and extend the obligations of Borrower to
the Lenders and the Agent pursuant to and described in the Prior Loan
Agreement (as amended), to serve as working capital for Borrower, to
support the issuance of commercial paper and to support the issuance of
up to $2,000,000.00 in face amount of letters of credit.
B. Advancing Term Notes.
(a) ADVANCING TERM NOTES: Borrower's obligation to repay the
advancing term indebtedness portion of the Credit Facility (the "TERM
FACILITY") shall be evidenced by its execution of a promissory note (the
"BANK ONE TERM NOTE") dated of even date herewith in the form attached
as Exhibit "A-6" hereto, a promissory note (the "FIRST INTERSTATE TERM
NOTE") dated of even date herewith in the form attached hereto as
Exhibit "A-7", a promissory note (the "NATIONSBANK TERM NOTE") dated of
even date herewith in the form attached as Exhibit "A-8" hereto, a
promissory note (the "BANK OF AMERICA TERM NOTE") dated of even date
herewith in the form attached hereto as Exhibit "A-9", and a promissory
note (the "OVERTON TERM NOTE") dated of even date herewith in the form
attached as Exhibit "A-10" hereto.
(b) AVAILABILITY: ADVANCE PROCEDURE: $25,000,000.00, subject to
the limitations set forth in this Agreement, including the Borrowing
Base described in Section 5(d) hereof. Borrower may request advances
pursuant to the Term Facility from Agent by telephone at least (i) one
(1) Business Day (hereinafter defined) prior to the requested date of
advance for advances accruing interest at the Prime Rate (as defined in
Section 2 hereof), or (ii) three (3) Business Days prior to the
requested date of advance for advances accruing interest at the LIBOR
Rate (as defined in Section 2 hereof). Agent shall request each Lender
to make available to Agent such Lender's portion of the requested
advance, as described in Section 10(k) hereof. Agent shall advance to
Borrower all funds delivered by the Lenders to Agent for the purpose of
funding such requested advance to Borrower.
(c) TERM: Through April 30, 1999.
(d) RATE: The interest rate described in Section 2 of this
Agreement, not to exceed the maximum non-usurious rate permitted by
applicable law (the "MAXIMUM RATE").
(e) REPAYMENT TERMS: Accrued and unpaid interest shall be due and
payable on the last day of each calendar quarter, with the balance of
unpaid principal and accrued and unpaid interest due and payable on
April 30, 1999.
(f) COMMITMENT FEES: One-fourth of one percent (1/4%) per annum
of the average unused portion of the Current Committed Term Amount
(hereinafter defined), payable to Agent, for the benefit of the Lenders,
in arrears on the same day as each interest payment on the Notes.
(g) PURPOSE: To enable Borrower to finance certain term loans
which are secured by equipment, inventory or real estate.
Section 2. INTEREST.
(a) Subject to the provisions of paragraphs (d), (f) and (g) of this
Section 2, Borrower shall pay interest on the outstanding principal amount of
the Notes at the Prime Rate per annum, unless Borrower has elected, pursuant to
paragraph (c) of this Section 2, that such interest shall accrue at the LIBOR
Rate plus the Interest Amount (as defined below).
(b) Borrower may, at any time upon the expiration of any Interest
Period, or at any other time with respect to a portion of the outstanding
principal balance of the Notes that does not constitute a LIBOR Loan, elect that
the per annum rate of interest on all or any portion of the outstanding
principal amount of the Notes accrue at the Prime Rate. Accrued and unpaid
interest on the Notes under this Section 2(b) shall be calculated on the basis
of a three hundred sixty-five (365) or three hundred sixty-six (366) day year,
as the case may be, and the actual number of days elapsed.
(c) Upon three (3) Business Days written notice to Agent of such
election and of the Interest Period selected by Borrower, Borrower may,
effective upon the expiration of any Interest Period, or effective any other
time with respect to a portion of the outstanding principal balance of the Notes
that does not constitute a LIBOR Loan, elect that the per annum rate of interest
on at least $500,000.00 of the outstanding principal amount of the Notes accrue
at the LIBOR Rate plus the "Interest Amount" (hereinafter defined), but only if
at the time of such election no event of default exists hereunder, no more than
three (3) other LIBOR Loans are outstanding on the Term Facility, and no more
than three (3) other LIBOR Loans are outstanding on the Revolving Credit
Facility. Accrued and unpaid interest on each LIBOR Loan shall be calculated on
the basis of a three hundred sixty (360) day year, and the actual number of days
elapsed.
(1) The phrase "INTEREST AMOUNT" shall, with respect to the
Revolving Credit Facility, equal: (A) 1.50% so long as Borrower's
Interest Coverage Ratio [as defined in Section 7(b)(10)] is equal to or
less than 3.25 to 1.00, or (B) 1.25% so long as Borrower's Interest
Coverage Ratio is equal to or more than 3.26 to 1.00.
(2) The phrase "INTEREST AMOUNT" shall, with respect to the Term
Facility, equal: (A) 1.75% so long as Borrower's Interest Coverage Ratio
[as defined in Section 7(b)(10)] is equal to or less than 3.25 to 1.00,
or (B) 1.50% so long as Borrower's Interest Coverage Ratio is equal to
or more than 3.26 to 1.00.
(3) The Interest Amount shall be established and/or adjusted
within three Business Days of Agent's receipt of the financial
statements required in Section 4(b)
Bank One, Texas, N.A.
Page 3
hereof; provided, however, if such financial statements are not timely
received by Agent, such effective date shall be the third Business Day
from the date such statements were due.
(d) (1) In the event that Agent shall have determined (which
determination shall, absent manifest error, be final, conclusive and binding):
(A) on any date for determining the LIBOR Rate for any
Interest Period, that by reason of any changes affecting the
LIBOR Market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided
for in the definition of the LIBOR Rate; or
(B) at any time, that the relevant LIBOR Rate does not
represent the effective pricing to Agent for funding or
maintaining a LIBOR Loan, or Agent shall incur increased costs or
reductions in the amounts received or receivable hereunder in
respect of any LIBOR Loan, in any such case because of (i) any
change in any applicable law or governmental rule, regulation,
guideline or order or any interpretation thereof and including
the introduction of any new law or governmental rule, regulation,
guideline or order (such as, for example but not limited to, a
change in official reserve requirements) and/or (ii) other
circumstances which materially and adversely affect Agent or the
LIBOR Market or the position of Agent in such market; or
(C) at any time, that the making or continuance by Agent
of any LIBOR Loan has become unlawful by its compliance in good
faith with any law, governmental rule, regulation, guideline or
order (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful), or has become
impracticable as a result of a contingency occurring which
materially and adversely affects the LIBOR Market;
then, and in any such event, Agent shall promptly after making such
determination give written notice to Borrower. Thereafter: (A) in the
case of clause (A) above, Borrower's right to elect the LIBOR Rate as
the basis for determining accrued interest on the Notes shall be
suspended until such time as Agent notifies Borrower that the
circumstances giving rise to such notice by Agent no longer exist, any
such election by Borrower will be void and interest on the Notes shall,
subject to the provisions of paragraphs (f) and (g) of this Section 2,
accrue and be payable pursuant to the provisions of paragraph (b) of
this Section 2; (B) in the case of clause (B) above, Borrower shall pay
to Agent, upon written demand therefor, such additional amounts (in the
form of an increased rate of, or a different method of calculating,
interest or otherwise as Agent in its sole discretion shall determine)
as shall be required to compensate Agent for such increased costs or
reduction in amounts received or receivable hereunder; provided that
Borrower shall have no obligation to make any payments of additional
amounts to the extent such increased costs or reductions in amounts
received or receivable hereunder are attributable to taxes based on net
income imposed on Agent by the United States of America (a written
notice as to additional amounts owed
Bank One, Texas, N.A.
Page 4
Agent, showing in reasonable detail the basis for the calculation
thereof, submitted to Borrower by Agent shall, absent manifest error, be
final, conclusive and binding); and (C) in the case of clause (C) above,
interest on the Notes shall, subject to the provisions of paragraphs (f)
and (g) of this Section 2, accrue and be payable pursuant to the
provisions of paragraph (b) of this Section 2.
(2) Upon the occurrence of any of the circumstances described in
subparagraph (1)(A) or (C) of this Section 2(d), or if Borrower so
elects after the occurrence of an event described in subparagraph (1)(B)
of this Section 2(d), interest on the outstanding principal amount of
the Notes shall, subject to the provisions of paragraphs (f) and (g) of
this Section 2, forthwith accrue and be payable pursuant to the
provisions of paragraph (b) of this section 2.
(e) Borrower shall compensate Agent, for the benefit of the Lenders,
upon its written request (which request shall set forth in reasonable detail the
basis for requesting such amounts and the calculation thereof and shall, absent
manifest error, be final, conclusive and binding), for all losses, expenses and
liabilities (including, without limitation, any loss, interest, expense, penalty
or other amounts paid or incurred by Agent in connection with any deposits or
funds liquidated or reemployed by Agent, to the extent not received by Agent in
connection with the re-employment of such funds) which Agent sustains (1) if any
repayment or prepayment (including, without limitation, payment after
acceleration) of any LIBOR Loan occurs on a date which is not the last day of
the Interest Period applicable thereto, (2) if any prepayment of any LIBOR Loan
is not made on any date specified in a notice of prepayment given by Borrower,
or (3) as a consequence of (i) any default by Borrower in repaying any interest
or principal on any Note or any other indebtedness of Borrower to Agent or any
other Lender when required by the terms of this Agreement, or (ii) an election
made by Borrower pursuant to paragraph (d)(2) of this Section 2. The calculation
of all amounts payable to Agent under this paragraph (e) shall be made on the
assumption that Agent has funded each LIBOR Loan through the purchase of a
Eurodollar deposit bearing interest at the LIBOR Rate plus two percent (2%) in
an amount equal to the amount of such LIBOR Loan with a maturity equivalent to
the Interest Period applicable to such LIBOR Loan, and through the transfer of
such Eurodollar deposit from an office of Agent outside the United States to an
office of Agent in the United States; provided that Agent or any Lender may make
advances under the Credit Facility in any manner that it chooses in its sole
discretion and the foregoing assumption shall only be made in order to calculate
amounts payable under this Section 2.
(f) In the event that Agent shall have determined that the adoption of
any requirement of law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof, or compliance by
Agent with any request or directive regarding capital adequacy made or issued
(whether or not having the force of law and whether or not non-compliance
therewith would be unlawful) from any central bank or other governmental
authority or agency, does or will have the effect of increasing the amount of
capital required or expected to be maintained by Agent (or any corporation
controlling Agent), and Agent shall determine that such increase is based upon
the existence of Agent's commitment or obligations hereunder with respect to
making LIBOR Loans and other commitments or obligations of this type, then from
time to time upon the written demand by Agent to Borrower, Borrower shall pay to
Agent such additional
Bank One, Texas, N.A.
Page 5
amount or amounts as will compensate Agent for any increased costs or reduced
rate of return on capital or assets of Agent resulting from such circumstances.
A certificate as to any such additional amount or amounts showing in reasonable
detail the basis for the calculation thereof submitted to Borrower by Agent
shall, absent manifest error, be final, conclusive and binding.
(g) In the event that, and for so long as any event of default hereunder
shall have occurred and be continuing, then and in any such event, the
outstanding principal amount of the Notes shall bear interest at the Maximum
Rate.
(h) As used herein, the following terms shall have the following
meanings:
(1) "BUSINESS DAY" shall mean a day other than a Saturday,
Sunday, or legal holiday for commercial banks under the laws of the
State of Texas.
(2) "INTEREST PERIOD" shall mean the interest period to be
applicable to any LIBOR Loan, each of which Interest Periods shall be
(i) for the Revolving Credit Facility, either a one month period, two
month period, three month period or six month period, or (ii) with
respect to the Term Facility, a one year period; provided, however,
(A) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day; provided, that if any Interest
Period would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the
immediately preceding Business Day;
(B) if any Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month at the
end of such Interest Period, such Interest Period shall end on
the last Business Day of such calendar month; and
(C) no Interest Period shall extend beyond the final
maturity date of the Notes.
(3) "LIBOR LOAN" shall mean at least $500,000.00 of the
outstanding principal balance of the Notes as to which Borrower has
elected the LIBOR Rate option pursuant to this Section 2.
(4) "LIBOR MARKET" shall mean the-London interbank Eurocurrency
market.
(5) "LIBOR RATE" shall mean, with respect to each Interest
Period, the rate per annum quoted by Agent as the rate which Agent, in
accordance with its usual practice, is offering first-class banks in the
LIBOR Market for deposits of dollars (lawful money of the United States
of America) for such Interest Period at or about 11:00 a.m. London,
England time two (2) Business Days prior to the beginning of such
Interest Period for delivery on the
Bank One, Texas, N.A.
Page 6
first day of such Interest Period.
(6) "PRIME RATE" shall mean at any time the variable rate of
interest then most recently announced publicly by Agent (or any
successor to all or substantially all of its assets) as its prime rate
of interest and, without notice to Borrower or any other person, such
rate of interest shall change as and when changes in that prime rate of
interest are announced.
Section 3. REPRESENTATION AND WARRANTIES. Borrower represents and
warrants to Agent that, as of the date hereof and as of the date of each advance
under the Credit Facility:
(a) ORGANIZATION, AUTHORITY. ETC. Borrower is a corporation, duly
organized, legally existing and in good standing under the laws of the State of
Texas and is qualified as a foreign corporation in all jurisdictions where such
qualification is necessary. Borrower is authorized to execute this Agreement,
the Notes, and all the other Loan Documents (hereinafter defined), and those
documents or instruments, when executed and delivered will be valid and binding
obligations of Borrower, enforceable in accordance with their terms and do not
violate the provisions of the corporate charter or bylaws of Borrower or any
contract, agreement, law or regulation to which Borrower is subject.
(b) FINANCIAL STATEMENTS. All financial statements of Borrower delivered
to Agent are complete and correct and have been prepared in accordance with
generally accepted accounting principles, consistently applied. The financial
statements dated December 31, 1995 of Borrower (the "PRIOR FINANCIAL
STATEMENTS") delivered to Agent are complete and correct, have been prepared in
accordance with generally accepted accounting principles consistently applied
and no material adverse change in the condition of Borrower, financial or
otherwise, has occurred since the date of the most recent financial statements
of Borrower in Agent's Possession.
(c) INVESTMENTS AND LIABILITIES. Borrower has not made any investments
or incurred any liabilities except (i) for investments made and liabilities
incurred in the ordinary course of business or (ii) as disclosed in the most
recent financial statements of Borrower in Agent's possession.
(d) TITLE. Borrower has good title to its assets and properties, free
and clear of adverse claims, except as disclosed in the most recent financial
statements of Borrower in Agent's possession.
(e) TAX RETURNS. Borrower has filed all federal and state income tax
returns required to be filed as of the date of this Agreement and has paid all
taxes or assessments related to said returns.
(f) NO DEFAULT. To the best knowledge of Borrower, Borrower is not, and
after giving effect to any requested advance hereunder will not be, in default
in any respect under this Agreement, any other Loan Document, or any contract,
agreement or instrument to which Borrower is a party or by which Borrower may be
bound, and to the best knowledge of Borrower, Borrower is in compliance with all
applicable laws and regulations.
(g) ERISA; MARGIN SECURITIES. To the best knowledge of Borrower, no fact
exists, including but not limited to any reportable event or prohibited
transaction (as defined in the Employee Retirement Income Security Act of 1974,
as amended ["ERISA"]) which might constitute grounds for termination of any plan
of Borrower or appointment of a trustee to administer such plan. Borrower does
not own any "margin security" or "margin stock" as defined in Regulations G, U,
or X of the Board of Governors of the Federal Reserve System.
(h) PATENTS. ETC. Borrower has all patents, licenses, trademarks,
franchises and the like necessary to conduct its business and is not aware of
any conflict with the rights of others.
(i) NO UNTRUE STATEMENTS. Neither this Agreement nor any other
information furnished by Borrower to Agent or any Lender contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements not misleading.
(j) STATUS OF COLLATERAL. With respect to the Collateral (hereinafter
defined), to Borrower's knowledge: the Collateral and all documents related
thereto, including guaranties, if any (all of which documents are collectively
referred to herein as the "collateral loan documents") and each of them are
enforceable according to their terms; at the time of the execution of this
Agreement, Borrower had good title to the Collateral and all collateral loan
documents; all parties to the Collateral and collateral loan documents have full
capacity to contract; Borrower has no knowledge of any facts which impair the
validity of the Collateral; all filings and recordings required by law have been
completed and complied with; all Collateral represent obligations which are not
contingent or disputable; Borrower has no knowledge of any fact which would
impair the general performance of the obligations under the Collateral or
Borrower's rights under the Collateral (other than the customary rate of
non-compliance, which rate of non-compliance is in the ordinary course of
business and consistent with Borrower's operating history); the Collateral have
not been sold or pledged to a third party; the Borrower owns all of the
Collateral free and clear of any liens, security interests or encumbrances.
Section 4. REPORTING REQUIREMENTS. Borrower will deliver the following
reports to Agent:
(a) ANNUAL FINANCIAL STATEMENTS: Within forty-five (45) days after the
last day of each fiscal year of Borrower, the balance sheet of Borrower as of
the last day of such year and the statements of income and shareholders' equity
of Borrower for such year, certified by the chief financial officer of Borrower;
Bank One, Texas, N.A.
Page 7
(b) QUARTERLY FINANCIAL STATEMENTS: Within forty-five (45) days after
the last day of each fiscal quarter of Borrower, (1) the balance sheet of
Borrower as of the last day of such quarter and the statements of income and
shareholders' equity of Borrower for such quarter, certified by an authorized
financial officer of Borrower, and (2) a completed Compliance Certificate as of
the last day of such quarter in the form attached as Exhibit "D" hereto;
(c) MONTHLY REPORTS: Within thirty (30) days after the last day of each
month, (1) a report in such detail and containing such information as Agent may
request, as of the last day of such month, of all accounts receivable of
Borrower, grouped into columns of 0-30 days from invoice date, 31-60 days from
invoice date, 61-90 days from invoice date, and over 90 days from invoice date,
certified by an authorized financial officer of Borrower, and listing of all of
the term loans aged into columns identified by client numbers, (2) a report
listing the ten (10) Borrower's Clients (which may be identified by their client
numbers) from whom Borrower has purchased the largest aggregate amount of
accounts receivable outstanding as of the last day of such month, together with
the amounts owed on such accounts receivable by the account debtors thereon as
of such date, certified by an authorized financial officer of Borrower (as used
herein, a "BORROWER'S CLIENT" is a person or entity from whom Borrower purchases
accounts receivable, chattel paper, promissory notes, and liens and security
interests securing same or to whom Borrower advances loans) and (3) a completed
Borrowing Base Certificate (for each of the Revolving Credit Facility and Term
Facility) as of the last day of such month in the form attached as Exhibit "B-1"
and "B-2" hereto;
(d) (1) ANNUAL FINANCIAL STATEMENTS OF GUARANTOR: Within ninety (90)
days after the last day of each fiscal year of Guarantor (hereinafter defined),
the consolidated balance sheet of Guarantor as of the last day of such year and
the consolidated statements of income and shareholders' equity of Guarantor and
statement of cash flow for such year, certified without qualification by
independent certified public accountants acceptable to Agent, together with the
accompanying supplementary unaudited consolidating schedule;
(2) QUARTERLY FINANCIAL STATEMENTS OF GUARANTOR: Within
forty-five (45) days after the last day of each fiscal quarter of
Guarantor (hereinafter defined), the balance sheet of Guarantor as of
the last day of such quarter and the statements of income and
shareholders' equity of Guarantor for such quarter, certified by the
chief financial officer of Guarantor;
(e) NOTICE OF DEFAULT: Within three (3) days after Borrower has or
should have knowledge of the occurrence of a default under this Agreement,
notice of such default together with Borrower's plans to correct such default;
(f) NOTICE OF LITIGATION: Promptly, but in any event within fifteen (15)
days after receipt of service of the petition, notice of any litigation against
Borrower in which the claimed liability of Borrower is greater than $500,000.00
(or alleging unspecified damages) if such claim is not fully covered by
insurance; and
Bank One, Texas, N.A.
Page 8
(g) OTHER INFORMATION: Such other information as Agent may request from
time to time.
Section 5. AFFIRMATIVE COVENANTS.
(a) COMPLIANCE AND PERFORMANCE. Borrower will comply with all statutes
and governmental regulations and will pay all taxes, assessments, governmental
charges, claims for labor and the like. Borrower will maintain its corporate
existence and will remain in good standing in all jurisdictions in which it is
required to be qualified and will maintain its properties in good and workable
condition at all times. Borrower will perform all obligations under this
Agreement, and under all indentures, agreements, and contracts by which Borrower
is bound. Borrower will maintain with financially sound and reputable insurers
acceptable to Agent, insurance with respect to its properties and business
against such liabilities, casualties, risks and contingencies as is customary
for its business naming Agent as loss payee with respect to any insurance
covering collateral securing the loans hereunder, and will, upon Agent's
request, provide satisfactory evidence of such insurance. Upon Agent's request,
Borrower will provide Agent and/or Agent's representatives access to Borrower's
books, records and properties at such times during ordinary business hours as
Agent may request.
(b) REIMBURSEMENT: INDEMNITY. Borrower will reimburse Agent and each
Lender for all legal fees and expenses incurred by Agent and the Lenders in the
preparation of this Agreement and the other Loan Documents, and for all other
costs and expenses incurred by Agent and the Lenders in connection with this
Agreement including, without limitation, any and all legal fees and expenses
incurred in the enforcement of this Agreement or any of the other Loan Documents
and all costs Agent or any Lender may incur in evaluating collateral or
reviewing Borrower's financial records. Borrower and Guarantor agree, jointly
and severally, to indemnify and hold Agent and each Lender harmless from any
costs or expenses incurred by Agent or any Lender as a result of the provisions
of federal, state and local environmental laws and ordinances, including without
limitation the Comprehensive Environmental Response, Compensation and Liability
Act, as such laws and ordinances may relate to Borrower, Guarantor, or any
property or operations of Borrower or Guarantor.
(c) CURRENT COMMITTED AMOUNT. At no time may the outstanding amount
under the Credit Facility exceed the lesser of (i) the Borrowing Base, or (ii)
the maximum amount allowable under the Credit Facility (the "CURRENT COMMITTED
AMOUNT"). The Current Committed Revolving Amount and the Current Committed Term
Amount shall never exceed the respective amounts agreed upon by Lenders and
Borrower, as established by letter agreement in the form of Exhibit "E" annexed
hereto (the "CURRENT COMMITMENT LETTER"). Until Borrower gives written notice to
Agent and the Lenders that the Current Committed Amount has decreased, the
Current Committed Amount shall be the amount most recently agreed upon by
Lenders and Borrower. Borrower shall have the right, upon giving at least three
(3) Business Days' notice to Agent and the Lenders, to decrease either the
Current Committed Revolving Amount or the Current Committed Term Amount to any
multiple of $1,000,000.00, but may not do so more often than once during each
calendar quarter. In the event the Current Committed Amount is so reduced, it
may not be subsequently increased without the written consent of Agent and the
Lenders. Borrower acknowledges and agrees that the Lenders are under no
obligation to so increase the Current Committed Amount, and that the Lenders
will consider doing so only upon the written request of Borrower, which request
may not be made by Borrower more often than once during each calendar quarter.
(d) BORROWING BASE.
(1) The borrowing base for the Revolving Credit Facility (the
"REVOLVING BORROWING BASE") shall be eighty-five percent (85%) of the
amount by which the sum of all Eligible Accounts Receivable purchased by
Borrower from Borrower's Clients exceeds the sum of all amounts
attributable to such Eligible Accounts Receivable which are or may be
due from Borrower to Borrower's Clients. If at any time the amount
outstanding under the Revolving Credit Facility is greater than the
Revolving Borrowing Base at such time, Borrower shall immediately make a
prepayment on the Revolving Notes in an amount sufficient to reduce the
aggregate outstanding amounts thereof to an amount not more than the
Revolving Borrowing Base.
(2) The borrowing base for the Term Facility (the "TERM BORROWING
BASE") shall be eighty percent (80%) of the outstanding balance of the
sum of all Eligible Term Loans purchased by Borrower from Borrower's
Clients. If at any time the amount outstanding under the Term Facility
is greater than the Term Borrowing Base at such time, Borrower shall
immediately make a prepayment on the Term Notes in an amount sufficient
to reduce the aggregate outstanding amounts thereof to an amount not
more than the Term Borrowing Base.
(3) The Revolving Borrowing Base and the Term Borrowing Base are
herein collectively called the "BORROWING BASE."
(e) ELIGIBLE ACCOUNTS RECEIVABLE AND ELIGIBLE TERM LOANS.
(1) "ELIGIBLE ACCOUNTS RECEIVABLE" shall mean accounts receivable
purchased by Borrower from Borrower's Clients which are less than ninety
(90) days from date of purchase by Borrower and less than one hundred
twenty (120) days from invoice date, less all interests in such accounts
receivable sold, participated or syndicated by Borrower, and excluding
any account receivable that meets one or more of the following criteria:
(A) with a due date greater than ninety (90) days from invoice date, (B)
from an affiliate of Borrower, (C) from an account debtor subject to
bankruptcy proceedings (unless specifically approved by Agent), (D)
[INTENTIONALLY DELETED], (E) due from a foreign account debtor which is
not secured by a letter of credit in a manner satisfactory to Agent, not
covered by credit insurance satisfactory to Agent or not otherwise
specifically approved by
Bank One, Texas, N.A.
Page 9
Agent (for purposes hereof, accounts receivable from entities, the
majority of equity interest in which is owned by Mobil, Chevron, Shell
or Exxon, shall be deemed approved by Agent), (F) to the extent (but
only to the extent) such account receivable, when aggregated with all
other accounts receivable of Borrower purchased from the Borrower's
Client from whom Borrower has purchased such account receivable, exceeds
the greater of (i) Borrower's allowance for credit loss, as reflected on
the most recent financial statements of Borrower in Agent's possession
or (ii) twenty percent (20%) of Borrower's Tangible Net Worth as
reflected on the most recent financial statements of Borrower in Agent's
possession or (G) due from the federal government or any agency thereof
to the extent the sum of such governmental accounts receivable exceeds,
in the aggregate, twenty-five percent (25%) of Borrower's Tangible Net
Worth as reflected on the most recent financial statements of Borrower
in Agent's possession.
(2) "ELIGIBLE TERM LOANS" shall mean term loans from Borrower to
Borrower's Clients, excluding any loan that meets one or more of the
following criteria: (A) one or more payments are past due by more than
ninety (90) days, (B) to a party closely affiliated with, related to, or
employed by Borrower or Guarantor, (C) to an obligor subject to
bankruptcy proceedings (unless specifically approved by Agent), (D) two
or more interest payments are past due, (E) from an obligor domiciled
outside the United States of America, and such obligation is not secured
in a manner satisfactory to Agent, (F) to the extent (but only to the
extent) such term loan, when aggregated with all other term loans
comprising the Term Borrowing Base exceeds fifteen percent (15%) of
Borrower's Tangible Net Worth as reflected on the most recent financial
statements of Borrower in Agent's possession.
(f) SECURITY. The Notes and the other indebtedness hereunder shall be
secured by (i) all accounts receivable of Borrower now existing or hereafter to
come into existence, (ii) all inventory of Borrower now owned or hereafter
acquired, (iii) all instruments, chattel paper, documents and general
intangibles of Borrower now owned or hereafter acquired, (iv) an assignment of
all security interests, mortgages and liens securing the foregoing, and (v) all
proceeds of the foregoing (collectively, the "COLLATERAL").
(1) With respect to the Collateral that is comprised of
(i) chattel paper, documents and other such instruments evidencing both
an obligation and security interest or lease of specific goods, and (ii)
promissory notes and other such negotiable instruments evidencing a
right to the payment of money and are transferred by way of endorsement,
Borrower shall conspicuously mark same with the following indorsement:
"IF THIS IS CHATTEL PAPER OR OTHER SUCH INSTRUMENT EVIDENCING BOTH AN
OBLIGATION AND SECURITY INTEREST OR LEASE OF SPECIFIC GOODS, IT IS
HEREBY ASSIGNED TO BANK ONE, TEXAS, N.A., AS AGENT, UNDER THAT CERTAIN
SECOND AMENDED AND RESTATED LETTER LOAN AGREEMENT DATED MAY 28, 1996,
AS AMENDED; IF THIS IS A PROMISSORY NOTE OR OTHER SUCH NEGOTIABLE
INSTRUMENT EVIDENCING A RIGHT TO THE
Bank One, Texas, N.A.
Page 10
PAYMENT OF MONEY IT IS HEREBY INDORSED PAY TO THE ORDER OF BANK ONE,
TEXAS, N.A., WITH FULL RECOURSE.
(2) With respect to the Collateral that is secured by a
security interest in personal property (or otherwise subject to the
Business and Commerce Code of Texas), which is evidenced by a security
agreement, Borrower shall assign to Lenders the benefit of such security
agreement by the following legend on the security agreement: "ALL RIGHTS
AND INTEREST IN AND TO THIS SECURITY AGREEMENT ARE ASSIGNED TO BANK ONE,
TEXAS, N.A., AS AGENT, UNDER THAT CERTAIN SECOND AMENDED AND RESTATED
LETTER LOAN AGREEMENT DATED MAY 28, 1996, AS AMENDED."
(3) Agent reserves the right to require that Borrower
assign to Lender all real property lien rights (with respect to the
Collateral that is secured by a lien in real property) by execution of
assignments of notes and liens, assign to Lender all security interests
(with respect to security interests that are perfected by UCC filing) by
execution of a UCC-3 assignment, and revise such legends, endorsements
and assignments in its sole discretion to effectively indicate that the
Collateral has been assigned to Lenders to secure Borrower's obligations
hereunder.
In addition, Borrower shall take all other actions requested by Lender
to maintain and perfect Lenders' security interests in such Collateral,
and upon demand by Agent, in Agent's sole discretion, Borrower shall
deliver all original Collateral and assignments to a location designated
by Agent.
(g) GUARANTY. The Notes and the other indebtedness hereunder shall be
guaranteed by KBK Capital Corporation, a Delaware corporation ("GUARANTOR").
(h) CONCERNING COMMERCIAL PAPER. Borrower agrees that, at all times, the
sum of the Available Portion of the Borrowing Base plus all cash and cash
equivalents of Borrower at such time shall be equal to or greater than the face
amount of all commercial paper issued by Borrower. In the event of a breach of
the provision of this Section 5(h), Borrower shall immediately make a prepayment
on the Notes in an amount sufficient to increase the sum of the Available
Portion of the Borrowing Base, plus all cash and cash equivalents of Borrower,
to an amount equal to or greater than the face amount of all commercial paper
issued by Borrower. As used herein, the term "AVAILABLE PORTION OF THE BORROWING
BASE" shall mean the amount by which the lesser of (i) the Current Committed
Amount and (ii) the Borrowing Base exceeds the amount outstanding under the
Credit Facility.
Section 6. NEGATIVE COVENANTS. Unless waived by Agent in writing:
(a) INVESTMENTS. Borrower will not make investments in any company,
person or entity, except in the ordinary course of its business. Guarantor will
not make investments in any company, person or entity other than Borrower,
except in the ordinary course of its business.
(b) MERGER AND CONSOLIDATION. Except as provided below, neither Borrower
nor Guarantor will merge or consolidate with any person, create any
subsidiaries, enter into any partnerships or joint ventures, or acquire any
other entity. Borrower and Guarantor may merge or consolidate with an entity, so
long as (i) Borrower or Guarantor, as the case may be, is the surviving entity,
(ii) in the case of Borrower, the acquired entity has assets of less than
$5,000,000, (iii) there is no "change in control" of Borrower or Guarantor, and
(iv) the acquired entity is in the same basic business as that of Borrower and
Guarantor. For purposes hereof, the phrase "CHANGE IN CONTROL" shall mean any
person or entity, including a group as contemplated by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, that acquires, owns or controls
more than 50% of the outstanding shares of the capital stock thereof.
(c) DIVIDENDS AND DISTRIBUTIONS. Borrower will not declare or pay any
dividends or distributions (unless expressly permitted pursuant to Section
7(a)(2) of this Agreement) or purchase or redeem any stock of Borrower.
(d) SALE OF ASSETS. Neither Borrower nor Guarantor will sell, transfer
or otherwise dispose of any of its assets or enter into any arrangement
accomplishing substantially the same purpose, except that the foregoing
restrictions shall not apply to transactions in the ordinary course of business
or to interests sold, participated or syndicated in any Eligible Accounts
Receivable, if such interests are not included in the calculation of the
Borrowing Base.
(e) INDEBTEDNESS. Neither Borrower nor Guarantor will incur, create,
assume or guarantee in any manner any indebtedness, obligation or liability
(direct or contingent), other than the indebtedness under the Credit Facility,
except that Borrower and Guarantor may (i) incur, create, assume or guarantee
indebtedness, obligations and liabilities in the ordinary course of their
business and (ii) incur Funded Debt so long as the aggregate of all outstanding
Funded Debt of Borrower and Guarantor does not exceed $500,000.00.
(f) LIENS. Neither Borrower nor Guarantor will create or permit to exist
any lien, security interest or other encumbrance on any of its properties or
assets except (1) as disclosed on the Prior Financial Statements, (2) as
disclosed on the balance sheet of Guarantor dated December 31, 1995 delivered to
Agent, (3) liens in favor of Agent, (4) liens securing funded indebtedness up to
an aggregate amount of $500,000.00, (5) liens for taxes or other governmental
charges not yet due or contested in good faith, (6) liens in connection with
workers' compensation, unemployment insurance or other such obligations, (7)
legal or equitable encumbrances deemed to exist by reason of this or other
encumbrances deemed to exist by reason of this or other negative pledge
covenants, (8) legal or equitable encumbrances resulting from legal proceedings,
or (9) servitudes, easements and other similar property rights.
Bank One, Texas, N.A.
Page 11
Section 7. FINANCIAL COVENANTS.
(a) Borrower will not at any time permit:
(1) [Intentionally deleted];
(2) its dividends paid in any fiscal year to exceed the lesser of
(i) the sum of the Permitted Amount of Non-Discretionary Dividends for
such fiscal year and the Permitted Amount of Discretionary Dividends for
such fiscal year or (ii) the After-Tax Net Income of Borrower for such
fiscal year;
(3) its Tangible Net Worth to be less than $10,000,000.00;
(4) its ratio of Funded Debt to Capital to be greater than 4.0 to
1.0;
(5) the amount of capital expenditures it incurs or commits to
incur during any fiscal year (less the then current book value of
capital assets disposed of during such year) to exceed $1,750,000.00; or
(6) its Interest Coverage Ratio to be less than 1.50 to 1.0.
(b) For the purposes of this Agreement, the following terms have the
following meanings:
(1) "AFTER-TAX NET INCOME" shall mean the amount of net income
Borrower would have generated had Borrower's net income been subject to
tax at the rate which actually applies to the net income of Borrower
during the period to which such calculation relates;
(2) [Intentionally Deleted];
(3) "DEBT" shall mean all liabilities which would be classified
as liabilities;
(4) "NET WORTH" shall mean the sum of (i) par value of capital
stock, (ii) capital in excess of par value, (iii) retained earnings, and
(iv) Subordinated Debt;
(5) "PERMITTED AMOUNT OF DISCRETIONARY DIVIDENDS" for any given
fiscal year of Borrower shall mean the sum of (i) fifty percent (50%) of
the amount, if any, by which the After-Tax Net Income of Borrower for
Borrower's prior fiscal year (as set forth in the audited financial
statements of Borrower delivered to the Lenders pursuant to Section 4(a)
of this Agreement) exceeds the Permitted Amount of Non-Discretionary
Dividends for such prior fiscal year and (ii) the amount of the
Borrower's Prior Year Dividend Account on the first day of the fiscal
year of Borrower as to which the calculation of Permitted Amount of
Discretionary Dividends is made;
Bank One, Texas, N.A.
Page 12
(6) "PERMITTED AMOUNT OF NON-DISCRETIONARY DIVIDENDS" for any
given fiscal year of Borrower shall mean the amount of taxes that would
otherwise have been payable by Borrower with respect to its net income
during such fiscal year had Borrower not been part of a consolidated
group;
(7) "PRIOR YEAR DIVIDEND ACCOUNT" shall mean an account which
shall begin on the date of this Agreement at zero (0), and which shall
increase by the amount, if any, by
which the Permitted Amount of Discretionary Dividends in a given fiscal
year of Borrower (commencing its fiscal year ending December 31, 1994)
exceeds the amount of dividends actually paid by Borrower in such fiscal
year in excess of the Permitted Amount of Non- Discretionary Dividends
for such fiscal year, and which shall decrease by the amount of any
dividends actually paid by Borrower in such fiscal year which are
attributable to the Prior Year Dividend Account;
(8) "TANGIBLE NET WORTH" shall mean Net Worth (excluding the
amount of any write-up of any assets over their depreciated cost) less
(i) all intangible assets such as goodwill and patent rights and (ii)
all notes or accounts receivable due from affiliates;
(9) "SUBORDINATED DEBT" shall mean debt subordinated in a manner
satisfactory to Agent;
(10) "INTEREST COVERAGE RATIO" shall mean the ratio of (i) the
sum of net income of Borrower, expense for taxes and interest expense,
all for the four previous fiscal quarters of Borrower, to (ii) interest
expense of Borrower during the four previous fiscal quarters of
Borrower.
(11) "FUNDED DEBT" shall mean all interest bearing liabilities
other than non-recourse debt issued by special purpose subsidiaries
which reduces debt owing to Lender.
(12) "CAPITAL" shall mean common equity, plus Subordinated Debt,
plus the permitted allowance for credit losses, less intangibles.
All terms not expressly defined shall be defined in accordance with generally
accepted accounting principles. All determinations under this Agreement shall be
made in accordance with generally accepted accounting principles consistently
applied, except where expressly provided to the contrary. All references to a
preceding period shall mean the period ending as of the end of the month,
quarter or fiscal year for which the applicable report is delivered. All
references to a period immediately following shall mean the period beginning on
the first day of the month, quarter or fiscal year following the end of the
period for which the applicable report is delivered.
Section 8. DEFAULT AND REMEDIES. It shall constitute an event of default
hereunder if (a) Borrower fails to make when due any payment on any of the Notes
or on any other indebtedness hereunder, (b) Borrower fails to perform any of its
other agreements contained herein, (c) Borrower or Guarantor defaults under the
terms or provisions of any Loan Document or any other agreement, instrument or
document executed in connection with or as security for the Credit Facility, (d)
any representation or warranty of Borrower or Guarantor proves to have been
untrue when made, (e) any petition in bankruptcy is filed by Borrower or
Guarantor, or any order granting relief under any bankruptcy or receivership law
is filed with respect to Borrower or Guarantor, (f) Borrower or Guarantor
permits a monetary judgment against it in excess of $50,000.00 to remain
undischarged for a period in excess of thirty (30) days, or (g) Borrower or
Guarantor dissolves or (h) Borrower shall default in the payment of any
indebtedness of Borrower or in the performance of any of Borrower's obligations
and such default shall continue for more than any applicable period of grace.
Upon the occurrence of an event of default specified in clause (a) or (e)
above, or upon the breach of any covenant set forth in Section 5(c), 5(d), 5(e)
or 7 hereof, without notice to Borrower or any other person, the obligations of
the Lenders to fund additional loans to Borrower shall be terminated. Upon the
occurrence of any other event of default specified above, upon five (5) days
written notice to Borrower, but without further notice to Borrower or any other
person, the obligations of the Lenders to fund additional loans to Borrower
shall be terminated. Upon the occurrence of an event of default specified in
clause (e) above, immediately, and upon the occurrence of any other event of
default hereunder at the option of Agent upon five (5) days written notice to
Borrower, but without further notice to Borrower or any other person, all
indebtedness of Borrower to Agent and the Lenders shall be immediately due and
payable and Agent may take any other actions as may be permitted by this
Agreement, any other Loan Document or any other document or instrument
evidencing or securing the Credit Facility. Each of Borrower and Guarantor
expressly waives, except as set forth above, presentment, demand, protest,
notice of protest, or other notice of dishonor of any kind including, without
limitation, notice of intent to accelerate the maturity of the Notes and other
indebtedness hereunder and notice of acceleration of the maturity of the Notes
and other indebtedness hereunder.
Section 9. CLOSING. The initial funding of the Credit Facility shall be
subject to the receipt by Agent of the following documents, instruments and
certificates (which, with all previously executed loan documents relating to the
Credit Facility, are herein called the "LOAN DOCUMENTS"), each of which shall be
satisfactory in form and substance to Agent and its counsel:
(a) six (6) copies of this Agreement executed by Borrower and Guarantor:
(b) the promissory note attached hereto as Exhibit "A-1", executed by
Borrower;
(c) the promissory note attached hereto as Exhibit "A-2", executed by
Borrower;
(d) the promissory note attached hereto as Exhibit "A-3," executed by
Borrower;
(e) the promissory note attached hereto as Exhibit "A-4," executed by
Borrower;
(f) the promissory note attached hereto as Exhibit "A-5," executed by
Borrower;
(g) the promissory note attached hereto as Exhibit "A-6," executed by
Borrower;
Bank One, Texas, N.A.
Page 13
(h) the promissory note attached hereto as Exhibit "A-7," executed by
Borrower;
(i) the promissory note attached hereto as Exhibit "A-8," executed by
Borrower;
(j) the promissory note attached hereto as Exhibit "A-9," executed by
Borrower;
(k) the promissory note attached hereto as Exhibit "A-10," executed by
Borrower;
(l) a Specific Guaranty executed by Guarantor for the benefit of Bank of
America;
(m) the Consent of Guarantor attached hereto, executed by Guarantor;
(n) the Current Commitment Letter stipulating amounts agreed to by all
Lenders;
(o) a certificate of the Secretary of each of Borrower and Guarantor,
certifying as to the Articles of Incorporation and Bylaws of each, director's
resolutions of each, and the signatures of authorized officers of each;
(p) resolutions of the Board of Directors of each of Borrower and
Guarantor:
(q) certificates of existence issued by the Secretary of State of
Delaware with respect to each of Borrower and Guarantor;
(r) certificates of good standing with respect to each of Borrower and
Guarantor; and
(s) such other documents and instruments as may be reasonably requested
by Agent or its counsel.
Section 10. THE AGENT.
(a) CREATION OF AGENCY. Each Lender hereby authorizes the Agent to take
such action on such Lender's behalf and exercise such powers as are delegated to
the Agent by the terms hereof, together with all such powers as are reasonably
incidental thereto. The relationship between the Agent and each Lender is that
of agent and principal only, and nothing herein shall (nor shall it be construed
so as to) constitute the Agent a trustee or fiduciary for or of any Lender, or
impose on the Agent any duties or obligations other than those for which express
provision is made herein. In performing its express duties and obligations
hereunder, the Agent shall have no liability to any Lender in the absence of
gross negligence or willful misconduct by the Agent. The Lenders expressly
acknowledge and agree that the Agent shall have no implied duties hereunder
including, without limitation, any implied duty of good faith and fair dealing.
The Agent agrees that, upon the request of any Lender, it will use its best
efforts to obtain any information from or with respect to Borrower that is
available to Agent pursuant to the terms of this Agreement.
Bank One, Texas, N.A.
Page 14
(b) PAYMENTS AND DISTRIBUTIONS. Each Lender hereby authorizes the Agent
to receive any and all payments which are or which may become due under this
Agreement, the Notes or any of the other Loan Documents. Each Lender and Agent
hereby authorize and instruct Borrower to make all payments which are or which
may become due under any of such Loan Documents directly to the Agent. Each
Lender hereby agrees that, in the event it receives any payment which should
have been made to the Agent pursuant to the terms of this Agreement, or in the
event it offsets any amounts placed on deposit with it by Borrower, it shall
immediately remit such payment or offset amount to the Agent for distribution in
accordance with the terms of this Agreement. Except as otherwise expressly
provided herein, the Agent shall distribute promptly to the Lenders all sums
received by the Agent as a payment on or related to any of the Loan Documents
ratably in proportion to the amount of each Lender's interest in the Credit
Facility listed on Schedule 1 hereto. In the event interest on the Notes accrues
at more than one rate, or the Agent receives any prepayment with respect to any
Note, all interest payments and all prepayments received by Agent hereunder
shall be distributed ratably among the Lenders in proportion to the amount of
each Lender's interest in the Credit Facility, regardless of whether the
interest or prepayment was purported to have been made with respect to less than
all of the Notes.
(c) NOTICES. The Agent will promptly advise each Lender of any actual
notice of a default of Borrower hereunder received by the Agent. The Agent shall
not be under any obligation to any Lender to ascertain or inquire as to the
performance or observance of any of the terms or conditions of this Agreement or
any other Loan Document to be performed or observed by Borrower. Each Lender
hereby agrees that it will, promptly upon receipt of actual notice thereof,
notify the Agent of the existence of any default of Borrower hereunder.
(d) INDEMNITY. Each Lender hereby agrees to, and shall, ratably in
proportion to the amount of each Lender's interest in the Credit Facility,
indemnify, to the extent not reimbursed by Borrower, the Agent against any loss,
expense (including legal fees) or liability (except such as results from the
Agent's own gross negligence or willful misconduct) which the Agent may suffer
or incur in connection with the implementation, administration or enforcement of
the Credit Facility or any of the Loan Documents.
(e) RELIANCE. In performing its duties and exercising its powers
hereunder, the Agent will be entitled to rely on (1) any communication believed
by it to be genuine and to have been sent or signed by the person by whom it
purports to have been sent or signed and (2) the opinions and statements of any
professional advisor selected by it in connection herewith, and the Agent shall
not be liable to any other party hereto for any consequence of any such
reliance.
(f) TRUTH OF REPRESENTATIONS. The Agent takes no responsibility for the
truth of any representations made herein, nor for the adequacy or enforceability
of this Agreement, and neither the Agent (except in the case of its gross
negligence or willful misconduct) nor any of its officers, directors, employees,
agents or representatives shall be liable for any action taken or omitted to be
taken by it or any of them under or pursuant to this Agreement, or for any
oversight or error of judgment.
(g) BUSINESS WITH BORROWER. Notwithstanding the agency herein
constituted, Bank One, in its individual capacity, may, without liability to
account, make loans to, accept deposits from and generally engage in any kind of
banking or trust business with Borrower. The Lenders expressly acknowledge and
agree that such activities shall not constitute (and shall not be construed to
constitute) a conflict of interest with the Agent's performance of its duties
hereunder.
(h) INDEPENDENT INVESTIGATIONS. Each Lender acknowledges that it has
taken and will take such independent action and make such investigations as it
deems necessary to inform itself as to the financial condition and affairs of
Borrower and, based upon such independent action and investigation,-it has
determined to enter into this Agreement.
(i) PRIOR ADJUDICATION OF CERTAIN ACTIONS. If, in the opinion of the
Agent, the distribution of any sum received by the Agent in such capacity
hereunder, under the Notes or under any other Loan Document, or the taking or
omitting to take of any action hereunder or thereunder, might involve the Agent
in liability, it may refrain from taking such action (or omitting to take such
action) until its right to take such action (or omit to take such action) shall
have been adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and distributed by
the Agent is to be paid to a person other than the recipient thereof, each
Lender or other person to whom any such distribution shall have been made shall
either repay to the Agent its proportionate share of the amount so adjudged to
be repaid or shall pay over the same in such a manner and to such persons as
shall be determined by such court.
(j) REMEDIES UPON DEFAULT. Upon the occurrence of an event of default
hereunder by Borrower, the Agent shall be entitled to elect which, if any,
remedies will be pursued with respect to the Credit Facility and the collateral
securing the same (including, without limitation, deeds or assignments in lieu
of any such proceedings). The Agent shall be entitled to select the method of
disposition of any collateral securing the Credit Facility, or may elect to not
pursue any or all remedies with respect to such collateral. Should such
proceedings result in the foreclosure of any security interest held by the Agent
or the Lenders, the Agent shall have the right to acquire such collateral at
foreclosure, and to bid therefor all or any portion of the indebtedness of
Borrower to the Lenders under the Credit Facility and, if the successful bidder
thereon, the Agent shall acquire such collateral as nominee for the Lenders and
operate and/or dispose of such collateral in the manner the Agent sees fit, all
expenses of operation and disposal of such collateral to be borne by the Lenders
ratably according to their respective interests in the Credit Facility. In
addition to the foregoing, upon the occurrence of an event of default hereunder
by Borrower (or, if in the opinion of the Agent, such a default seems imminent),
the Agent, subject to the provisions of paragraph (m) of this Section 10 shall
be entitled, should it so elect, to pursue any restructuring or modification of
the terms and provisions (including, without limitation, repayment provisions)
of the Credit Facility, the Notes, this Agreement and the other Loan Documents
as may be determined by the Agent in its discretion. The Agent, subject to the
provisions of paragraph (m) of this Section 10, shall have the right to release
Borrower from liability for repayment of all or any part of the Credit Facility
if the Agent determines such release may increase the amounts to be realized by
the Lenders under the Credit Facility or may decrease the costs of collection of
the Lenders. Each Lender hereby agrees to, and shall, ratably in proportion to
the amount of each Lender's interest in the Credit Facility, indemnify and hold
the Agent harmless from and against any and all loss, liability or expense
(except such as results from the Agent's own gross negligence or willful
misconduct) incurred by the Agent in connection with its actions taken
hereunder, or in connection with any related document, after the occurrence of
an event of default hereunder by Borrower (including, without limitation,
actions taken to foreclose on, operate or dispose of any collateral and/or to
restructure the terms and provisions of the Credit Facility).
(k) FUNDINGS BY LENDERS. Agent shall notify the Lenders by telephone or
telecopy as promptly as practicable of a request for advance by Borrower and the
date on which such advance is requested to be made. Each Lender hereby agrees to
deposit with Agent, prior to 2:00 p.m. Houston time on the date such advance is
requested to be made, such Lender's portion of such advance, which shall be
determined by the percentage interest of such Lender in the Credit Facility.
(l) DEFAULT BY A LENDER. In the event any Lender fails to timely make
available to the Agent such Lender's pro rata portion of any loan made or to be
made pursuant to this Agreement or any other amount due from such Lender to
Agent hereunder or under any of the other Loan Documents, or upon the breach by
any Lender of any of its other obligations hereunder, such defaulting Lender
shall be referred to as a "DEFAULTING LENDER" and the Agent and other Lenders
shall have the rights described in this paragraph with respect to such
Defaulting Lender. Any amounts received by the Agent or any Lender (including
the Defaulting Lender) after the default causing such Lender to become a
Defaulting Lender shall be paid to the Lender or Lenders other than the
Defaulting Lender (the "NON-DEFAULTING LENDERS," whether one or more) in such
proportion as the interest of each Non-defaulting Lender bears to the interest
in the Credit Facility of all Non- defaulting Lenders. Further, the Agent and
the Non-defaulting Lenders shall have the right but not the obligation, to
advance monies on behalf of, or otherwise cure defaults of, the Defaulting
Lender, and the Defaulting Lender shall be liable to each such party for all
amounts so expended, such amounts to be repaid either through funds received or
to be received by the Agent or the other Lenders as a payment on the Notes or
other indebtedness hereunder, or otherwise through the general funds of such
Defaulting Lender. For so long as any Lender is a Defaulting Lender, such Lender
shall be deemed to have transferred and assigned to the Non-defaulting Lenders
all right, title and interest of such Defaulting Lender in and to the Credit
Facility, this Agreement, the Notes, and the other Loan Documents, as security
for the payment of all amounts owing from such Defaulting Lender to the
Non-defaulting Lenders or that may be advanced by the Non-defaulting Lenders to
or for the benefit of Borrower on behalf of such Defaulting Lender. Once all
obligations of the Defaulting Lender to the Agent and the other Lenders have
been satisfied, so that no default by such Lender exists hereunder, (1) the
Non-defaulting Lenders shall be deemed to have transferred and reassigned to
such Lender the right, title and interest of such Lender in and to the Credit
Facility previously transferred and assigned as security to the Non-defaulting
Lenders, (2) such Lender shall be entitled to be reinstated as a Lender
hereunder and (3) subject to the continued compliance with the terms hereof,
such Lender shall thereafter be entitled to receive all amounts payable with
respect to its interest in the Credit Facility.
(m) ACTIONS REQUIRING CONSENT OF THE LENDERS.
(1) Except as set forth in this paragraph (m), Agent shall be
entitled to take all action and exercise all powers relating to the
Credit Facility, the Loan Documents, and the Lenders' rights and
obligations thereunder.
(2) Agent is not authorized to, and shall not, undertake any of
the following actions without the written consent of all the Lenders:
(i) change the maximum availability hereunder, or the Current
Committed Amount;
(ii) change the rate of interest payable with respect to the
Credit Facility;
(iii) change the date on which any payment on the Credit
Facility is due or extend the final maturity date of any Credit
Facility;
(iv) waive any payment default under any Note;
(v) release any collateral securing the Credit Facility;
(vi) release Borrower or Guarantor from liability on the
Credit Facility;
(vii) accelerate the maturity of the Notes;
(viii) waive compliance by Borrower with, or amend the terms
of, Section 5(c), 5(d), 5(e) or 5(i) hereof, or any financial
covenant set forth in Section 7 hereof; or
(ix) amend or modify this Section 10(m)(2).
(3) Agent is not authorized to, and shall not, undertake any of
the following actions without the written consent of Lenders holding at
least seventy-five percent (75%) of the interests in the Credit
Facility:
(i) waive compliance by Borrower with, or amend the terms of,
any covenant set forth in Section 4, Section 5 (except as set
forth in subsection (m)(2)(viii) above) or Section 6 hereof.
(4) No Lender shall be entitled to take any action with respect
to the obligations
Bank One, Texas, N.A.
Page 15
owed to it under any Note, any Guaranty Agreement or any other Loan
Document including, without limitation, acceleration of the maturity of
such Lender's Note, it being agreed that all of such actions shall be
taken by Agent in the manner prescribed in this Agreement.
(n) RESIGNATION; SUCCESSOR AGENT. The Agent may resign at any time from
the agency created hereby by giving written notice of such resignation to
Borrower and the Lenders, and the Agent shall be relieved of all duties and
obligations arising hereunder after the time of such resignation. Upon receipt
of notice of such resignation, the Lenders shall appoint a successor agent
hereunder or, if the Lenders fail to so appoint a successor agent within thirty
(30) days after receipt of notice of the resignation of the Agent, any Lender
may petition a court of competent jurisdiction to appoint a successor agent
hereunder. Upon appointment and acceptance of the agency created hereby by the
successor agent, such successor agent shall succeed to all the rights, duties
and obligations of the Agent hereunder.
(o) NO THIRD PARTY BENEFICIARY. Nothing in this Section 10, express or
implied, is intended or shall be construed to give to any person other than the
Lenders and the Agent (including, without limitation, Borrower) any right or
remedy, and all terms and provisions of this Section 10 shall be for the sole
benefit of the Lenders and the Agent.
Section 11. DISCLOSURE. Any additions or exceptions applicable to the
terms of this Agreement, the representations and warranties of Borrower herein
or the covenants hereof shall only be those disclosed in writing to Agent
concurrently with the execution hereof .
Section 12. MISCELLANEOUS.
(a) NOTICES. All notices shall be in writing or by telecopy or telegram,
confirmed in writing and shall be sufficient in all respects if delivered or
sent by registered or certified mail to the address set forth on the signature
page of this Agreement. Any party may, by proper written notice hereunder to the
other parties, change the address to which notices shall thereafter be sent.
(b) SUCCESSORS AND ASSIGNS. All covenants and agreements herein
contained by or on behalf of Borrower shall bind its successors and assigns. No
Lender shall be entitled to assign its rights and obligations under this
Agreement and the other Loan Documents, except (i) in the event that a financial
institution is the successor to all or substantially all of the assets of any
Lender, (ii) assignments to Affiliated Lenders, and (iii) to the extent
expressly set forth herein or therein. For purposes hereof, "AFFILIATED LENDERS"
shall mean any other financial institution directly or in directly, controlling,
controlled by, or under common control with, such Lender.
(c) RENEWALS AND EXTENSIONS. All provisions of this Agreement shall
apply with equal force and effect to each and all renewals and extensions, in
whole or in part, of the Notes or the Credit Facility.
(d) PRIOR LOAN AGREEMENT. Agent, the Lenders and Borrower hereby agree
that this Agreement amends, restates and supersedes all prior agreements,
including without limitation, the Prior Loan Agreement, but in no way acts as a
release or relinquishment of the liens and/or security interests securing
payment of the indebtedness advanced pursuant to the Prior Loan Agreement and
such liens and/or security interests (including, without limitation, those
created by that certain Accounts Receivable and Inventory Security Agreement
dated March 5, 1993 as most recently amended by First Amendment to Amended and
Restated Accounts Receivable and Inventory Security Agreement of even date
herewith) are hereby renewed, extended, ratified, confirmed and carried forward
by Borrower in all respects to secure the Notes and the Credit Facility.
(e) NO WAIVER; REMEDIES CUMULATIVE. No course of dealing on the part of
Agent, any Lender or any officer or employee of Agent or any Lender, or any
failure or delay by Agent or any Lender with respect to exercising any right,
power, or privilege of Agent or any Lender under this Agreement or any other
Loan Document shall operate as a waiver thereof. The rights and remedies of
Agent and the Lenders under this Agreement and the other Loan Documents shall be
cumulative and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
(f) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(g) INVALID PROVISIONS. In the event any one or more of the provisions
contained in this Agreement or any of the other Loan Documents shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or the other Loan Documents. Furthermore, in lieu of such
invalid, illegal or unenforceable provision, there shall automatically be added
a provision as similar in terms to such invalid, illegal or unenforceable
provision as may be possible and as may be valid, legal and enforceable.
(h) USURY SAVINGS CLAUSE. Nothing contained in this Agreement or in any
of the other Loan Documents shall be construed to obligate Borrower, under any
circumstances whatsoever, to pay interest in excess of the maximum non-usurious
interest rate applicable to Borrower. In the event that any sums received from
Borrower are at any time under applicable law deemed to be in excess of the
maximum non-usurious amount Agent or the Lenders could collect under applicable
usury law, the effective rate of interest on the loans hereunder shall be
reduced to and be the maximum non-usurious interest rate permitted under
applicable law and Borrower and all sureties, endorsers and guarantors shall
accept as their sole remedy under such circumstances either the return of any
sums of interest which may have been collected and which produced a rate of
interest in excess of the applicable maximum non-usurious interest rate or the
application of those sums as a credit against the unpaid principal amount of the
loan, whichever remedy may be elected by Agent.
(i) HEADINGS. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way affect. limit, amplify
or modify the terms and provisions hereof.
Section 13. ARBITRATION. The parties hereto agree to be bound by the
terms and provisions of the current Arbitration Program attached as Exhibit "C"
hereto, which is incorporated by reference herein, pursuant to which any and all
disputes shall be resolved by mandatory binding arbitration upon the request of
any party.
Section 14. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. On and after
the date hereof, each reference in the other Loan Documents to the Loan
Agreement shall mean and be a reference to the Loan Agreement as amended and
restated hereby.
Section 15. DEVIATION FROM COMPLIANCE WITH THE LOAN AGREEMENT. For the
period ending December 31, 1995, Borrower was not in compliance with the
Borrowing Base. As a consequence, Borrower has requested and Lenders hereby
approve a deviation from such compliance for such time period.
Section 16. ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
Bank One, Texas, N.A.
Page 16
If this evidences your understanding of the agreements herein, please
execute in the space provided.
Sincerely,
KBK FINANCIAL, INC.
By: ______________________________
Name: ____________________________
Title: _____________________________
Address for Notice:
2200 City Center II
301 Commerce Street
Fort Worth, Texas 76102
Attention: Robert J. McGee
Telephone No.: 817-335-7557
Telecopy No.: 817-335-9339
ACCEPTED AND AGREED TO:
BANK ONE, TEXAS, N.A.
By: _______________________________
Barry A. Kelly, Vice President
Address for Notice:
910 Travis
Houston, Texas 77002
Telephone No.: 713-751-3831
Telecopy No.: 713-751-6199
Bank One, Texas, N.A.
Page 17
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: _______________________________
Name:______________________________
Title:_______________________________
Address for Notice:
1000 Louisiana, 3rd Floor
Houston, Texas 77002
Telephone No.: 713-250-3784
Telecopy No.: 713-250-7031
NATIONSBANK OF TEXAS, N.A.
By: _______________________________
Craig S. Wall,
Senior Vice President
Address for Notice:
700 Louisiana, 7th Floor
Houston, Texas 77002
Telephone No.: 713-247-6559
Telecopy No.: 713-247-7175
OVERTON BANK AND TRUST, N.A.
By:________________________________
Clay Jones, Vice President
Address for Notice:
4200 South Hulen
Fort Worth, Texas 76162
Telephone No.: 817-377-5046
Telecopy No.: 817-336-5615
BANK OF AMERICA, TEXAS, N.A.
By:________________________________
George Smith, Vice President
Bank One, Texas, N.A.
Page 18
Address for Notice:
333 Clay
Houston, Texas 77002
Telephone No.: 713-652-3615
Telecopy No.: 713-652-3619
GUARANTOR:
By execution hereof the undersigned Guarantor consents to the terms of
this Agreement including, without limitation, the obligations imposed pursuant
to Section 4(d)(1) and 4(d)(2) and Section 5(b) hereof and the waivers set forth
in Section 8 hereof.
KBK CAPITAL CORPORATION
By: ______________________________
Name: ____________________________
Title: _____________________________
Address for Notice:
2200 City Center II
301 Commerce Street
Forth Worth, Texas 76102
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<COMMON> 35,472
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