UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________ .
Commission File Number 000-24124
FRESH AMERICA CORP.
(Exact name of registrant as specified in its charter)
Texas 76-0281274
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12450 CUTTEN ROAD, HOUSTON, TX 77066
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (713) 444-8596
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At August 8, 1996, the Registrant had 3,641,413 shares of its Common Stock
outstanding. Exhibit index on page 14.
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
JANUARY 5, JUNE 28,
1996 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 1,851 $ 252
Receivables:
Trade accounts receivable ........................................ 19,675 24,149
Other ............................................................ 67 56
------- -------
Total receivables ........................................... 19,742 24,205
------- -------
Inventories:
Produce ......................................................... 1,746 2,862
Supplies ........................................................ 212 146
------- -------
Total inventories ........................................... 1,958 3,008
------- -------
Prepaid expenses .................................................. 664 632
------- -------
Total current assets ........................................ 24,215 28,097
Property, plant and equipment, net ................................... 4,795 5,108
Note receivable from shareholder ..................................... 125 125
Other assets ......................................................... 697 598
------- -------
$29,832 $33,928
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable ..................................................... $ 1,000 $ --
Current portion of long-term debt and capital leases .............. 91 130
Amounts drawn on bank in excess of amounts deposited .............. -- 1,723
Accounts payable .................................................. 10,573 11,885
Accrued salaries and wages ........................................ 395 257
Other accrued expenses ............................................ 542 738
Taxes payable ..................................................... 124 201
------- -------
Total current liabilities ................................... 12,725 14,934
------- -------
Long-term debt and capital leases, less current portion .............. 610 543
Shareholders' equity:
Common stock $.01 par value. Authorized 10,000,000
shares; issued 3,518,585 and 3,641,413 shares, respectively .... 35 36
Additional paid-in capital ........................................ 13,983 14,181
Retained earnings ................................................. 2,479 4,234
------- -------
Total shareholders' equity .................................. 16,497 18,451
Commitments and contingencies
------- -------
$29,832 $33,928
======= =======
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
2
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
QUARTER ENDED
-----------------------
JUNE 30, JUNE 28,
1995 1996
-------- --------
Net sales .......................................... $ 31,846 $ 64,721
Cost of goods sold, excluding depreciation
and amortization ................................. 25,909 58,396
-------- --------
Gross profit ...................... 5,937 6,325
-------- --------
Selling, general and administrative expenses:
Salaries and related costs ..................... 3,489 2,318
Rent, maintenance and related costs ............ 379 830
Insurance expense .............................. 338 186
Automobile, travel and related costs ........... 181 150
Communication expense .......................... 109 146
Depreciation and amortization .................. 185 325
Other .......................................... 144 214
-------- --------
4,825 4,169
-------- --------
Operating income ........................... 1,112 2,156
Other income (expense):
Interest expense ............................... (8) (21)
Interest income ................................ 129 54
Other, net ..................................... 32 83
-------- --------
153 116
-------- --------
Income before tax expense .......................... 1,265 2,272
Tax expense ........................................ 475 865
-------- --------
Net income ................................. $ 790 $ 1,407
======== ========
Earnings per share ................................. $ 0.22 $ 0.36
======== ========
Weighted average number of shares outstanding ...... 3,608 3,856
======== ========
The notes to consolidated financial statements are an integral part of these
statements.
3
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 28,
1995 1996
-------- ----------
Net sales ......................................... $ 57,661 $ 110,916
Cost of goods sold, excluding depreciation
and amortization ................................ 47,037 100,353
-------- ---------
Gross profit ..................... 10,624 10,563
-------- ---------
Selling, general and administrative expenses:
Salaries and related costs .................... 6,762 4,533
Rent, maintenance and related costs ........... 752 1,600
Insurance expense ............................. 646 377
Automobile, travel and related costs .......... 382 259
Communication expense ......................... 250 275
Depreciation and amortization ................. 350 604
Other ......................................... 291 360
-------- ---------
9,433 8,008
-------- ---------
Operating income .......................... 1,191 2,555
Other income (expense):
Interest expense .............................. (18) (45)
Interest income ............................... 251 89
Other, net .................................... 23 116
-------- ---------
256 160
-------- ---------
Income before tax expense ......................... 1,447 2,715
Tax expense ....................................... 475 960
-------- ---------
Net income ................................ $ 972 $ 1,755
======== =========
Earnings per share ................................ $ 0.27 $ 0.46
======== =========
Weighted average number of shares outstanding ..... 3,618 3,855
======== =========
The notes to consolidated financial statements are an integral part of these
statements.
4
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands except share amounts)
<TABLE>
<CAPTION>
Retained Total
Additional Earnings Shareholders'
Common Paid-in (Accumulated Equity
Stock Capital Deficit) (Deficit)
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Balances at January 2, 1994 .............................. $ 11 $ 184 $(1,894) $ (1,699)
Issuance of 15,000 shares of
Series B preferred stock .............................. -- (90) -- (90)
Conversion of Series A and
Series B preferred stock .............................. 11 3,989 -- 4,000
Exercise of employee stock options ....................... -- 10 -- 10
Dividends on preferred stock ............................. -- (112) -- (112)
Issuance of 1,250,000 shares of
common stock, net of offering costs ................... 13 10,000 -- 10,013
Net income ............................................... -- -- 2,073 2,073
-------- -------- ------- --------
Balances at January 1, 1995 .............................. 35 13,981 179 14,195
Exercise of employee stock options ....................... -- 2 -- 2
Net income ............................................... -- -- 2,300 2,300
-------- -------- ------- --------
Balances at January 5, 1996 .............................. 35 13,983 2,479 16,497
Exercise of employee stock options ....................... 1 198 -- 199
Net income ............................................... -- -- 1,755 1,755
-------- -------- ------- --------
Balances at June 28, 1996 ................................ $ 36 $ 14,181 $ 4,234 $ 18,451
======== ======== ======= ========
</TABLE>
The notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, June 28,
1995 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................................... $ 972 $ 1,755
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................................ 350 604
Loss on disposal of equipment ................................................ -- 4
Change in assets and liabilities:
Increase in accounts receivable .......................................... (633) (4,463)
Increase in inventories .................................................. (337) (1,050)
(Increase) decrease in prepaid expenses .................................. 54 (145)
(Increase) decrease in other assets ...................................... (1) 80
Increase (decrease) in accounts payable .................................. (2,626) 3,035
Increase (decrease) in accrued expenses and
other current liabilities ............................................. (58) 135
-------- -------
Total adjustments ................................................ (3,251) (1,800)
-------- -------
Net cash used in operating activities ............................ (2,279) (45)
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment, net ..................................... (100) (731)
Proceeds from sale of equipment ..................................................... -- 6
-------- -------
Net cash used in investing activities ............................ (100) (725)
-------- -------
Cash flows from financing activities:
Payments of notes payable, net of proceeds .......................................... -- (1,000)
Payments of long-term debt and capital leases ....................................... (9) (28)
Net proceeds from exercise of employee stock options ................................ -- 199
-------- -------
Net cash used in financing activities ............................ (9) (829)
-------- -------
Net decrease in cash and cash equivalents ........................ (2,388) (1,599)
Cash and cash equivalents at beginning of period ........................................ 11,542 1,851
-------- -------
Cash and cash equivalents at end of period .............................................. $ 9,154 $ 252
======== =======
Supplemental disclosures of cash flow information:
Cash paid for interest .............................................................. $ 18 $ 5
Cash paid for income taxes .......................................................... $ 642 $ 883
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
6
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 28, 1996
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fresh America Corp. was incorporated in Texas in May 1989. Prior to
November 1995, Fresh America Corp. was a licensee under contract with Sam's Club
("Sam's"), a division of WalMart Stores, Inc., to operate fresh produce
departments in certain Sam's clubs. Under the terms of a five-year distribution
agreement (the "Agreement") with Sam's, Fresh America Corp. discontinued the
operation of fresh produce departments in certain Sam's clubs and became a
distributor of fresh produce and related products primarily to Sam's (see
Note 2).
UNAUDITED INTERIM FINANCIAL INFORMATION - The consolidated balance sheet
as of June 28, 1996 and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the quarter and six month
periods ended June 30, 1995 and June 28, 1996 and related notes have been
prepared by the Company and are unaudited. In the opinion of the Company, the
interim financial information includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the results of
the interim periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the interim financial
information. The interim financial information should be read in conjunction
with the Company's audited consolidated financial statements. The results for
the quarter and six months ended June 28, 1996 may not be indicative of
operating results for the full year. During the quarter ended March 31, 1995,
the Company converted its accounting period to end on Friday. Previously, the
Company's accounting periods ended on Sunday. Consequently, the six month
periods ended June 30, 1995 and June 28, 1996 consist of 25 weeks and five days,
and 25 weeks, respectively. The quarters ended June 30, 1995 and June 28, 1996
both consist of 13 weeks.
The following are the significant accounting policies followed by the
Company in the preparation of the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Fresh America Corp. and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
FISCAL YEAR - The Company's fiscal year is a 52 week or 53 week period
ending on the first Friday in January.
7
NOTE 2. AGREEMENT WITH SAM'S CLUB.
In August 1995, the Company entered into a five-year distribution
Agreement with Sam's Club. The new Agreement, which began on December 1, 1995,
replaced the Company's pre-existing license agreement with Sam's Club which
expired on November 30, 1995. Under terms of the Agreement, the Company expanded
its distribution arrangement with Sam's into specified exclusive new territories
approximately doubling the number of Sam's clubs serviced by Fresh America. As a
result of this expansion, the Company commenced operations from two new
distribution centers in Chicago, Illinois and Cincinnati, Ohio on January 2,
1996. The Company and Sam's mutually agreed to begin the transition to the new
Agreement during November 1995. Expansion under the Agreement was effected on
January 2, 1996. The number of Sam's Clubs served by the Company increased from
190 clubs before expansion to 369 clubs as of January 5, 1996.
The Agreement gives Sam's ownership of the product as it enters the
clubs and complete operational authority within the produce departments of each
club. Accordingly, Sam's assumed all costs and liabilities related to the
operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the new Agreement, the Company invoices Sam's for product delivered to the
clubs in accordance with purchase orders issued by Sam's. The Agreement also
provides Sam's the option to reduce the number of clubs within the Company's
exclusive territory by approximately 10 percent per year under certain
circumstances and to discontinue service for clubs in which Sam's elects not to
offer produce, if any.
NOTE 3. EXERCISE OF COMMON STOCK WARRANTS.
On April 2, 1996, the Company issued 90,134 shares of common stock in exchange
for all of its 143,656 outstanding warrants, which had an exercise price of
$4.89 per share. The earnings per share computation for the six months ended
June 28, 1996 assumes this transaction occurred at the beginning of the period.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
components of the consolidated statements of operations as a percentage of net
sales.
Quarter Ended Six Months Ended
-------------------- ------------------
June 30, June 28, June 30, June 28,
1995 1996 1995 1996
--------- --------- -------- --------
Net Sales..................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............ 81.4 90.2 81.6 90.5
--------- --------- -------- --------
Gross Profit ................. 18.6 9.8 18.4 9.5
Selling, general and
administrative expenses .... 15.1 6.5 16.3 7.2
--------- --------- -------- --------
Operating income ............. 3.5 3.3 2.1 2.3
Other income (expense) ....... 0.5 0.2 0.4 0.2
--------- --------- -------- --------
Income before income tax
expense .................... 4.0 3.5 2.5 2.5
Tax expense................... 1.5 1.3 0.8 0.9
--------- --------- -------- --------
Net income ................... 2.5% 2.2% 1.7% 1.6%
========= ========= ======== ========
GENERAL
Fresh America Corp. is an integrated food distribution management company,
which, through November 1995, primarily operated fresh produce departments in
Sam's Club membership warehouse clubs under a license agreement with Sam's Club,
a division of Wal-Mart Stores, Inc. Effective November 1995, the Company
commenced operations under its new five-year distribution Agreement (the
"Agreement") with Sam's Club. The new Agreement replaced the Company's
pre-existing license agreement which was scheduled to expire on November 30,
1995. Under the new Agreement, the Company's distribution arrangement with Sam's
has expanded into the midwestern, central and southern Florida regions of the
United States where the Company has exclusive new territories. The addition of
these new territories increased the number of clubs served by the Company from
190 immediately prior to the expansion to 373 clubs as of June 28, 1996. Of the
additional 183 clubs, 26 clubs were added in early November 1995, 153 clubs were
added on January 2, 1996, and four were added subsequent to January 2, 1996.
Under the new Agreement Sam's Club takes ownership of the product as it
enters the clubs and resells the product to Sam's Club members. Fresh America
invoices Sam's Club for product delivered to the clubs in accordance with
purchase orders issued by Sam's Club. Further, Sam's has
9
complete operational authority within the produce departments of each club.
Accordingly, Sam's has assumed all costs and liabilities related to the
operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the prior license agreement, Fresh America was responsible for such costs
and maintained ownership of the product until it was sold directly to Sam's Club
members. Therefore, the Company's revenue and cost structure under the new
Agreement is not comparable with periods prior to November 1995.
Prior to fiscal 1995, the Company's fiscal year was a 52 or 53 week period
ending on the first Sunday in January. Commencing with fiscal 1995, the
Company's fiscal year is a 52 week or 53 week period ending on the first Friday
in January. Consequently, the six month periods ended June 30, 1995 and June 28,
1996 consist of 25 weeks and five days, and 25 weeks, respectively. The quarters
ended June 30, 1995 and June 28, 1996 both consist of 13 weeks.
AS DISCUSSED ABOVE, THE NEW AGREEMENT RESULTS IN A REVISED REVENUE AND COST
STRUCTURE FOR THE COMPANY WHICH IS NOT DIRECTLY COMPARABLE WITH PERIODS PRIOR TO
NOVEMBER 1995. THE FOLLOWING DISCUSSION IDENTIFIES THE MAJOR CATEGORIES OF COSTS
WHICH ARE AFFECTED BY THE TRANSITION TO THE NEW AGREEMENT. HOWEVER, TO PROPERLY
UNDERSTAND AND EVALUATE THE IMPACT OF THE NEW AGREEMENT, AN UNDERSTANDING OF THE
TERMS OF THE NEW AGREEMENT AND THE PRIOR LICENSE AGREEMENT IS ESSENTIAL (SEE
"GENERAL" ABOVE AND "ITEM 1 - BUSINESS" OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K WHICH IS INCORPORATED HEREIN BY REFERENCE).
COMPARISON OF QUARTER ENDED JUNE 28, 1996 TO QUARTER ENDED JUNE 30, 1995
NET SALES. Net sales increased $32.9 million, or 103.2%, from $31.8 million
in the second quarter of 1995 to $64.7 million in the second quarter of 1996.
The increase in net sales was the result of several factors, including (a) the
expansion of the Company's operating territory under the Agreement and the
resulting addition of 183 Sam's Clubs within the Company's operating territory
subsequent to the second quarter of 1995 and (b) the acquisition of Lone Star
Produce and other new business opportunities. These increases were partially
offset by the revised revenue structure under the Agreement.
Under the Agreement the Company has become a wholesale distributor whereas
under the previous license agreement with Sam's Club, the Company was selling at
retail to the Sam's Club member. As a consequence, the 97% increase in the
number of Sam's Clubs serviced by the Company in the second quarter of 1996 as
compared to the second quarter of 1995 was offset by an approximate 4.2%
reduction in average revenue per club per week from approximately $12,860 in the
second quarter of 1995 to approximately $12,315 in the second quarter of 1996.
The acquisition of Lone Star Produce in September 1995, and additional new
business opportunities with Alliant Foodservice and Dole Fresh Vegetables, Inc.,
increased revenues by approximately $5.0 million from the second quarter of 1995
to the second quarter of 1996.
10
COST OF GOODS SOLD. Cost of goods sold increased by $32.5 million, or
125.4%, from $25.9 million in the second quarter of 1995 to $58.4 million in the
second quarter of 1996, primarily reflecting the increase in net sales and the
change in the Company's cost structure under the Agreement. As a percentage of
net sales, cost of goods sold increased from 81.4% to 90.2%.
As mentioned above, under the new Agreement Sam's Club takes ownership of
the product as it enters the clubs and resells the product to Sam's Club
members. Accordingly, Sam's Club has assumed all costs and liabilities related
to the operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the prior license agreement, Fresh America was responsible for such costs
and maintained ownership of the product until it was sold directly to Sam's Club
members. The elimination of these costs and related risks to Fresh America is
the principal factor explaining the Company's lower gross profit margins under
the Agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased by $656,000 or 13.6%, from $4.8
million in the second quarter of 1995 to $4.2 million in the second quarter of
1996. As a percentage of net sales, SG&A expenses decreased from 15.1% to 6.5%.
The major decline in SG&A expenses was attributable to salaries and related
costs, which decreased $1.2 million, or 33.6%, from $3.5 million in the second
quarter of 1995 to $2.3 million in the second quarter of 1996. The decrease in
salaries and related costs was directly related to the reduction in labor at the
club and club management levels attributable to the Agreement. Under the
Agreement, the Company no longer operates the produce departments in the Sam's
Clubs and the Company reduced personnel associated with these operations in the
fourth quarter of 1995. Offsetting these reductions in SG&A expense was an
increase in rent, maintenance and related costs which increased $451,000, or
119.0%, from $379,000 in the second quarter of 1995 to $830,000 in the second
quarter of 1996. This increase is primarily attributable to the addition of two
new distribution centers in Chicago and Cincinnati which are operating out of
leased facilities.
OPERATING INCOME. As a result of the foregoing factors, operating income
increased by $1.0 million, from operating income of $1.1 million in the second
quarter of 1995 to $2.2 million in the second quarter of 1996. As a percentage
of net sales, operating income decreased from 3.5% in the second quarter of 1995
to 3.3% in the second quarter of 1996.
INTEREST INCOME (EXPENSE). Interest income decreased $75,000 in the second
quarter of 1996 primarily as a result of the Company funding the increase in
accounts receivable from Sam's under the Agreement with excess cash which was
previously invested in short term marketable securities. Interest expense
increased $13,000 primarily as a result of the debt issued in the acquisition of
Lone Star Produce.
NET INCOME. As a result of the foregoing factors, net income increased by
$617,000, from $790,000 in the second quarter of 1995 to $1.4 million in the
second quarter of 1996. As a percentage of net sales, net income decreased from
2.5% in the second quarter of 1995 to 2.2% in the second quarter of 1996.
11
COMPARISON OF SIX MONTHS ENDED JUNE 28, 1996 TO SIX MONTHS ENDED JUNE 30, 1995
As stated above, the six month period ended June 28, 1996 consisted of 175
days whereas the six month period ended June 30, 1995 consisted of 180 days, a
difference of five days or an approximate 3% decrease in the number of operating
days. This occurrence affects the analysis of most operating revenue and expense
categories in the following discussion.
NET SALES. Net sales increased $53.3 million, or 92.4%, from $57.7 million
in the first six months of 1995 to $110.9 million in the first six months of
1996. The increase in net sales was the result of several factors, including (a)
the expansion of the Company's operating territory under the Agreement and the
resulting addition of 183 Sam's Clubs within the Company's operating territory
subsequent to the first six months of 1995 and (b) the acquisition of Lone Star
Produce and other new business opportunities. These increases were partially
offset by (a) the revised revenue structure under the Agreement and (b) the
decrease in the number of operating days.
Under the Agreement the Company has become a wholesale distributor whereas
under the previous license agreement with Sam's Club, the Company was selling at
retail to the Sam's Club member. As a consequence, the 97% increase in the
number of Sam's Clubs serviced by the Company in the first six months of 1996 as
compared to the first six months 1995 was offset by an approximate 6.6%
reduction in average revenue per club per week from approximately $11,860 in the
first six months of 1995 to approximately $11,082 in the first six months of
1996. A decrease in net sales of approximately $1.5 million was attributable to
the five less days of operations in the quarter ended March 29, 1996. The
acquisition of Lone Star Produce in September 1995, and additional new business
opportunities with Alliant Foodservice and Dole Fresh Vegetables, Inc.,
increased revenues by approximately $7.7 million from the first six months of
1995 to the first six months of 1996.
COST OF GOODS SOLD. Cost of goods sold increased by $53.3 million, or
113.3%, from $47.0 million in the first six months of 1995 to $100.4 million in
the first six months of 1996, primarily reflecting the increase in net sales and
the change in the Company's cost structure under the Agreement. As a percentage
of net sales, cost of goods sold increased from 81.6% to 90.5%.
As mentioned above, under the new Agreement Sam's Club takes ownership of
the product as it enters the clubs and resells the product to Sam's Club
members. Accordingly, Sam's Club has assumed all costs and liabilities related
to the operation of the departments, including all in-club personnel costs,
merchandising and sales costs, customer returns and credits, and product shrink.
Under the prior license agreement, Fresh America was responsible for such costs
and maintained ownership of the product until it was sold directly to Sam's Club
members. The elimination of these costs and related risks to Fresh America is
the principal factor explaining the Company's lower gross profit margins under
the Agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased by $1.4 million or 15.1%, from $9.4
million in the first six months of 1995 to
12
$8.0 million in the first six months of 1996. As a percentage of net sales, SG&A
expenses decreased from 16.3% to 7.2%. The major decline in SG&A expenses was
attributable to salaries and related costs, which decreased $2.2 million, or
33.0%, from $6.8 million in the first six months of 1995 to $4.5 million in the
first six months of 1996. The decrease in salaries and related costs was
directly related to the reduction in labor at the club and club management
levels attributable to the Agreement. Under the Agreement, the Company no longer
operates the produce departments in the Sam's Clubs and the Company reduced
personnel associated with these operations in the fourth quarter of 1995.
Offsetting these reductions in SG&A expense was an increase in rent, maintenance
and related costs which increased $848,000, or 112.8%, from $752,000 in the
first six months of 1995 to $1.6 million in the first six months of 1996. This
increase is primarily attributable to the addition of two new distribution
centers in Chicago and Cincinnati which are operating out of leased facilities.
OPERATING INCOME. As a result of the foregoing factors, operating income
increased by $1.4 million, from operating income of $1.2 million in the first
six months of 1995 to $2.6 million in the first six months of 1996. As a
percentage of net sales, operating income increased from 2.1% in the first six
months of 1995 to 2.3% in the first six months of 1996.
INTEREST INCOME (EXPENSE). Interest income decreased $162,000 in the first
six months of 1996 as a result of the Company funding the increase in accounts
receivable from Sam's under the Agreement with excess cash which was previously
invested in short term marketable securities. Interest expense increased $27,000
primarily as a result of the debt issued in the acquisition of Lone Star
Produce.
INCOME TAX EXPENSE. In both the first six months of 1995 and 1996, the
provisions for income taxes reflect the full utilization of $193,000 of the
Company's available net operating loss carryforward. At the end of fiscal 1995,
the Company had $0.8 million of net operating loss carryforwards available to
reduce future income taxes. However, because an "ownership change" occurred for
federal income tax purposes in 1992, the Company may use no more than $193,000
of its net operating loss carryforwards during fiscal 1995 and each year in the
future.
NET INCOME. As a result of the foregoing factors, net income increased by
$783,000, from $972,000 in the first six months of 1995 to $1.8 million in the
first six months of 1996. As a percentage of net sales, net income decreased
from 1.7% in the first six months of 1995 to 1.6% in the first six months of
1996.
QUARTERLY RESULTS AND SEASONALITY
The Company's business is seasonal, with its greatest quarterly sales volume
occurring in the fourth quarter. A substantial portion of the Company's produce
sales consists of staple items such as apples, oranges, grapefruit, potatoes and
onions, which are strongest during the fall, winter and spring. The supply and
quality of these items declines during the summer, although lost sales are
replaced to some extent by more seasonal products such as peaches, plums,
nectarines, strawberries
13
and melons. Sales of refrigerated, pre-packed products, such as vegetable trays,
are strongest during the fourth quarter holiday season. Because the Company's
results of operations depend significantly on sales generated during the fourth
quarter, any adverse development affecting the Company's operations during this
period, such as the unavailability of high quality produce, harsh weather
conditions, or product costs, could have a disproportionate impact on the
Company's results of operations for the full year. Under the Agreement,
management believes the Company's quarterly net sales will continue to be
impacted by a similar pattern of seasonality.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities was $45,000 for the six months ended June
28, 1996. At June 28, 1996, the Company had working capital of $13.2 million and
a current ratio of 1.9:1. The Company has a $5.0 million bank revolving line of
credit, under which the maximum level of borrowing was $1,000,000 during the six
months ended June 28, 1996. The line of credit expires on June 1, 1998.
Management believes that the Company's current financial position is sufficient
to finance currently anticipated growth and capital expenditures.
INFLATION
Although the Company cannot determine the precise effects of inflation,
management does not believe inflation has had a material effect on the Company's
sales or results of operations. However, independent of normal inflationary
pressures, the Company's produce products are subject to fluctuating product
costs as discussed in "Quarterly Results and Seasonality" on the preceding page.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.1 Credit Agreement between the Company and
NationsBank, dated as of July 1, 1996.
Exhibit 10.2 Extension and Modification of Lease Between
the Estate of James Campbell and Fresh America
Corp.
Exhibit 11.1 Computation of Earnings Per Common Share.
Exhibit 27 Financial Data Schedule.
Exhibit 99.1 Item 1 of Annual Report on Form 10-K for Fiscal Year
1995. (Incorporated herein by reference.)
14
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FRESH AMERICA CORP.
(Registrant)
/s/ Marc K. Rieke
Date: August 9, 1996
Marc K. Rieke
Vice President,
Chief Financial Officer and
Assistant Secretary
15
EXHIBIT 10.1
[Execution Version]
CREDIT AGREEMENT
Between
FRESH AMERICA CORP.
as the Borrower,
and
NATIONSBANK OF TEXAS, N.A.,
as the Bank
$5,000,000
July 1, 1996
<PAGE>
Page
----
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.............................1
1.1 Certain Defined Terms........................................1
1.2 Computation of Time Periods.................................13
1.3 Accounting Terms; Preparation of Financials.................13
1.4 Type........................................................13
1.5 Interpretation..............................................13
ARTICLE 2. CREDIT FACILITIES...........................................13
2.1 Revolving Loan Facility.....................................13
2.2 Letter of Credit Facility...................................15
2.3 Fees........................................................18
2.4 Interest....................................................19
2.5 Breakage Costs..............................................21
2.6 Increased Costs.............................................22
2.7 Illegality..................................................22
2.8 Market Failure..............................................23
2.9 Payment Procedures and Computations.........................23
2.10 Taxes.......................................................24
ARTICLE 3. CONDITIONS PRECEDENT........................................24
3.1 Conditions Precedent to Initial Extensions of Credit........24
3.2 Conditions Precedent to Each Extension of Credit............24
ARTICLE 4. REPRESENTATIONS AND WARRANTIES..............................25
4.1 Organization................................................25
4.2 Authorization...............................................25
4.3 Enforceability..............................................25
4.4 Absence of Conflicts and Approvals..........................26
4.5 Investment Companies........................................26
4.6 Public Utilities............................................26
4.7 Financial Condition.........................................26
4.8 Condition of Assets.........................................27
4.9 Litigation..................................................27
4.10 Subsidiaries................................................27
4.11 Laws and Regulations........................................27
4.12 Environmental Compliance....................................27
4.13 ERISA.......................................................28
-i-
Page
----
4.14 Taxes.......................................................28
4.15 True and Complete Disclosure................................28
ARTICLE 5. COVENANTS...................................................28
5.1 Organization................................................28
5.2 Reporting...................................................29
5.3 Inspection..................................................30
5.4 Use of Proceeds.............................................31
5.5 Financial Covenants.........................................31
5.6 Debt........................................................31
5.7 Liens.......................................................31
5.8 Derivatives. ...............................................32
5.9 Corporate Transactions......................................32
5.10 Distributions...............................................32
5.11 Transactions with Affiliates................................32
5.12 Insurance...................................................32
5.13 Investments.................................................32
5.14 Lines of Business; Distribution.............................33
5.15 Compliance with Laws........................................33
5.16 Environmental Compliance....................................33
5.17 ERISA Compliance............................................33
5.18 Payment of Taxes and Claims.................................33
ARTICLE 6. DEFAULT AND REMEDIES........................................33
6.1 Events of Default...........................................33
6.2 Termination of Commitments..................................35
6.3 Acceleration of Credit Obligations..........................35
6.4 Cash Collateralization of Letters of Credit.................36
6.5 Default Interest............................................36
6.6 Right of Setoff.............................................36
6.7 Actions Under Credit Documents..............................36
6.8 Remedies Cumulative.........................................36
6.9 Application of Payments.....................................36
ARTICLE 7. MISCELLANEOUS...............................................37
7.1 Expenses....................................................37
7.2 Indemnification.............................................37
7.3 Modifications, Waivers, and Consents........................37
7.4 Survival of Agreements......................................37
7.5 Successors and Assigns......................................37
-ii-
Page
----
7.6 Notice......................................................38
7.7 Choice of Law...............................................38
7.8 Arbitration.................................................38
7.9 Counterparts................................................39
7.10 Amendment and Restatement...................................39
7.11 No Further Agreements.......................................39
-iii-
Page
EXHIBITS
Exhibit A - Form of Borrowing Base Certificate
Exhibit B - Form of Compliance Certificate
Exhibit C - Form of Borrowing Request
Exhibit D - Form of Continuation/Conversion Request
Exhibit E - Closing Documents List
Exhibit F - Form of Assignment of Deposit Accounts
SCHEDULES
Schedule I - Administrative Information
Schedule II - Disclosures
-iv-
CREDIT AGREEMENT
This Credit Agreement dated as of July 1, 1996, is between Fresh America
Corp., a Texas corporation ("Borrower"), and NationsBank of Texas, N.A.
("Bank").
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS AND ACCOUNTING TERMS.
1.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (unless otherwise indicated, such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Advance" means any Revolving Loan Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term "control" (including the terms "controlled by" or "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership, by contract, or otherwise.
"Agreement" means this Credit Agreement.
"Applicable Margin" means, as of any date of its determination:
(a) For any LIBOR Tranche, 2.25%; and
(b) For any Prime Rate Tranche, 0.00%.
"Applicable Lending Office" means, with respect to the Bank and for any
particular type of transaction, the office of the Bank set forth in SCHEDULE I
to this Agreement as its applicable lending office for such type of transaction
or such other office of the Bank as the Bank may from time to time specify in
writing to the Borrower for such particular type of transaction.
"Bank" means NationsBank of Texas, N.A.
"Borrower" means Fresh America Corp., a Texas corporation.
-1-
"Borrower Account" means the principal operating account of Borrower
with the Bank or any other account of Borrower with the Bank which is designated
as the "Borrower Account" in writing by the Borrower.
"Borrowing Base" means, at any date of its determination by the Bank,
80% of the face value of the Borrower's Eligible Accounts.
"Borrowing Base Certificate" means a certificate executed by a
Responsible Officer of the Borrower in substantially the form of EXHIBIT A.
"Borrowing Request" means a Borrowing Request executed by a Responsible
Officer of the Borrower and delivered to the Bank in substantially the form of
EXHIBIT C.
"Business Day" means any Monday through Friday during which commercial
banks are open for business in Houston, Texas, and, if the applicable Business
Day relates to any LIBOR Tranche, on which dealings are carried on in the London
interbank market.
"Capital Leases" means, for any Person, any lease of any property by
such Person which would, in accordance with generally accepted accounting
principles, be required to be classified and accounted for as a capital lease on
the balance sheet of such Person.
"Cash Flow" means, for any Person and period of its determination, the
net income of such Person exclusive of extraordinary items plus depreciation,
amortization, and other non-cash charges for such period.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Compliance Certificate" means a certificate executed by a Responsible
Officer of the Borrower in substantially the form of EXHIBIT B.
"Continuation/Conversion Request" means a Continuation/Conversion
Request executed by a Responsible Officer of the Borrower and delivered to the
Bank in substantially the form of EXHIBIT D.
"Credit Documents" means this Agreement, the Revolving Loan Note, the
Letter of Credit Documents, the Security Documents, the Support Documents, and
each other agreement, instrument, or document executed at any time in connection
with this Agreement.
"Credit Obligations" means all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by the
Borrower to the Bank under the Credit Documents and any increases, extensions,
and rearrangements of those
-2-
obligations under any amendments, supplements, and other modifications of the
documents and agreements creating those obligations.
"Credit Parties" means the Borrower and Lone Star Produce Acquisition
Corp., a Texas corporation.
"Debt" means, with respect to any Person and as of any date of its
determination, without duplication (a) indebtedness of such Person for borrowed
money, (b) obligations of such Person evidenced by notes, bonds, debentures, or
other similar instruments, (c) obligations of such Person as lessee under
Capital Leases, (d) obligations of such Person to pay the deferred purchase
price of property or services, (e) obligations of such Person under or relating
to letters of credit, guaranties, purchase agreements, investment agreements,
and other obligations of such Person which support the repayment or assure a
creditor against loss in respect of indebtedness and obligations of others
referred to in parts (a) through (d) of this definition, and (f) nonrecourse
indebtedness or obligations of others of the kinds referred to in parts (a)
through (e) of this definition secured by any Lien on or in respect of any
property of such Person. For the purposes of determining the amount of any Debt,
the amount of any Debt described in clause (e) of the definition of Debt shall
be valued at the full amount of the contingent liability thereunder and the
amount of any Debt described in clause (f) shall be valued at the lesser of the
amount of the Debt secured or the value of the property securing such Debt.
"Debt Service" means, for any Person and period of its determination,
the amount of principal payments for long term debt of such Person, (excluding
the Credit Obligations, but including the amount of payments for Capital Leases
of such Person), plus the amount of dividends declared or payable by such Person
during such period.
"Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time would, unless cured or waived, become an
Event of Default.
"Default Rate" means, with respect to any amount due hereunder, a per
annum interest rate equal to (a) if such amount is either outstanding principal
accruing interest based upon a rate established elsewhere in this Agreement or
accrued but unpaid interest thereon, the sum of (i) the interest rate
established elsewhere in this Agreement from time to time for such principal
amount, including any applicable margin, plus (ii) 3.00% per annum or (b) in all
other cases, the Prime Rate in effect from time to time plus the Applicable
Margin for Prime Rate Tranches in effect from time to time plus 3.00% per annum.
"Derivatives" means any swap, hedge, cap, collar, or similar arrangement
providing for the exchange of risks related to price changes in any commodity,
including money.
"Dollars or $" means lawful money of the United States of America.
-3-
"Eligible Accounts" means, with respect to any Person and as of any date
of its determination by the Bank, the accounts receivable of such Person which
are reflected on the balance sheet of such Person as of such date in accordance
with generally accepted accounting principles, excluding, however:
(a) accounts receivable in which the Bank does not have a first
priority perfected security interest (including accounts receivable governed by
the Federal Assignment of Claims Act) and accounts receivable which are not
"accounts" as such term is defined in the Texas Uniform Commercial Code
(including those represented by any promissory note, trade acceptance, chattel
paper, draft, or other instrument);
(b) accounts receivable which did not arise from an enforceable
order or contract for the absolute and final sale of the inventory or services
of the Person or accounts receivable for which the sales or services have not
been fully performed in the ordinary course of business of the Person;
(c) accounts receivable from any account debtor that has any
accounts receivable to the Credit Parties which are older than 45 days after the
date of the invoice that generated such account receivable;
(d) accounts receivable which are subject to any contest or
offset, including contra accounts, or which have been disputed (but only to the
extent of the contest, offset, or dispute);
(e) accounts receivable which were not generated in an arm's
length transaction or are accounts receivable from any Affiliate of the Person;
and
(f) accounts receivable from a foreign Person which are not
supported by a letter of credit approved by the Bank in writing.
"Erisa" means the Employee Retirement Income Security Act of 1974, as
amended.
"Environmental Law" means all federal, state, and local laws, rules,
regulations, ordinances, orders, decisions, agreements, and other requirements
now or hereafter in effect relating to the pollution, destruction, loss, or
injury of the environment, the presence of any contaminant in the environment,
the protection, cleanup, remediation, or restoration of the environment, the
creation, handling, transportation, use, or disposal of any waste product in the
environment, exposure of persons to any contaminant, waste, or hazardous
substance in the environment, and the health and safety of employees in relation
to their environment.
"Event of Default" has the meaning specified in Section 6.1.
-4-
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.
"Financial Statements" means the audited consolidated financial
statements of the Borrower referred to in Section 4.7(a).
"Guaranties" means (a) the Guaranty dated as of July 1, 1996, made by
Lone Star Produce Acquisition Corp., a Texas corporation, in favor of the Bank
guaranteeing payment of the Credit Obligations, and (b) any other present or
future guaranties of any Credit Obligations.
"Guarantors" means (a) Lone Star Produce Acquisition Corp., a Texas
corporation, and (b) any other Person that now or hereafter executes a Guaranty.
"Hazardous Materials" means any substance or material identified as a
hazardous substance pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended and as now or hereafter in
effect; any substance or material regulated as a hazardous waste pursuant to the
Resource Conservation and Recovery Act of 1976, as amended and as now or
hereafter in effect; and any substance or material designated as a hazardous
substance or hazardous waste pursuant to any Environmental Law.
"Highest Lawful Rate" means the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to the Bank which are presently in effect or,
to the extent allowed by law, under such applicable laws which may hereafter be
in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow. The maximum lawful rate under this Agreement shall be
the weekly indicated rate ceiling under Article 5069-1.04 of the Texas Revised
Civil Statutes, unless any other lawful rate ceiling exceeds the rate ceiling so
determined, and then the higher rate ceiling shall apply.
"Intangible Assets" means, with respect to any Person and as of any date
of its determination, the goodwill, patents, trade names, trade marks,
copyrights, franchises, experimental expense, organization expense, unamortized
debt discount and expense, deferred assets (other than prepaid insurance and
prepaid taxes), the excess of cost of shares acquired over book value of related
assets, and such other assets of such Person as are properly classified as
"intangible assets" in accordance with generally accepted accounting principles.
"Interest Period" means, with respect to each LIBOR Tranche, the period
commencing on the date of such LIBOR Tranche and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The duration
of each such Interest Period shall be one, two, three, or six months, in each
case as the Borrower may
-5-
select in the applicable Borrowing Request or Continuation/Conversion Request
(unless there shall exist any Default or Event of Default, in which case the
Borrower may only select one month Interest Periods); provided, however, that:
(a) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day; provided that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of the
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month; and
(c) the Borrower may not select an Interest Period for any LIBOR Tranche
which ends after the Revolving Loan Maturity Date.
"Interim Financial Statements" means the consolidated financial
statements of the Borrower referred to in Section 4.7(b).
"LIBOR" means, with respect to any LIBOR Tranche, the per annum interest
rate quoted to the Bank by the funding affiliate of the Bank in London, England,
at which deposits in an amount substantially equal to the amount of the LIBOR
Advance of the Bank comprising part of such Tranche, and for a duration
substantially equal to the Interest Period for such Tranche, are offered to the
principal office of such funding affiliate of the Bank in London, England, by
such funding affiliate's correspondent banks in the London interbank market
three Business Days before the date of such Tranche.
"LIBOR Tranche" shall mean any Tranche which bears interest based upon
the LIBOR, as determined in accordance with Section 2.4.
"Letter of Credit" means any standby letter of credit issued by the Bank
for the account of the Borrower pursuant to the terms of this Agreement.
"Letter of Credit Application" means the Bank's standard form letter of
credit application for a standby letter of credit, which has been executed by
the Borrower and accepted by the Bank in connection with the issuance of a
Letter of Credit.
"Letter of Credit Application Amendment" means the Bank's standard form
application to amend a letter of credit for a standby letter of credit, which
has been executed
-6-
by the Borrower and accepted by the Bank in connection with the increase or
extension of a Letter of Credit.
"Letter of Credit Collateral Account" means a special cash collateral
account pledged to the Bank containing cash deposited pursuant to Section 6.4 to
be maintained with the Bank in accordance with Section 2.2(g).
"Letter of Credit Documents" means all Letters of Credit, Letter of
Credit Applications, Letter of Credit Application Amendments, and agreements,
documents, and instruments entered into in connection with or relating thereto.
"Letter of Credit Exposure" means, as of any date of its determination,
the aggregate outstanding undrawn amount of Letters of Credit plus the aggregate
of the unpaid reimbursement obligations of the Borrower under the Letter of
Credit Applications and this Agreement resulting from draws under Letters of
Credit.
"Letter of Credit Sublimit" means $500,000.
"Lien" means any mortgage, lien, pledge, charge, deed of trust, security
interest, encumbrance, or other type of preferential arrangement to secure or
provide for the payment of any obligation of any Person, whether arising by
contract, operation of law, or otherwise (including any title retention for such
purposes under any conditional sale agreement, any Capital Lease, or any other
title transfer or retention agreement).
"Loan" means the Revolving Loan.
"Material Adverse Change" means any material adverse change in the
business, operations, or financial condition of the Borrower and the Borrower's
Subsidiaries, taken as a whole, since the date of the Financial Statements or
Interim Financial Statements or since the date of this Agreement, including any
change which results or could reasonably be expected to result in any liability
of any Credit Party of $750,000 or greater.
"Minimum Borrowing Amount" means, with respect to any Revolving Loan
Advance, $100,000.
"Minimum Borrowing Multiple" means $50,000.
"Minimum Tranche Amount" means, with respect to any LIBOR Tranche,
$250,000.
"Minimum Tranche Multiple" means $50,000.
-7-
"Net Worth" means, with respect to any Person and as of any date of its
determination, the excess of the assets of such Person over the sum of the
liabilities of such Person and the minority interests of such Person.
"PBGC" means Pension Benefit Guaranty Corporation or its successor.
"Permitted Debt" means all of the following Debt:
(a) the Credit Obligations;
(b) Debt in the form of accounts payable to trade creditors and
current operating liabilities incurred in the ordinary course of
business which are not more than 90 days past due unless being contested
in good faith and for which adequate reserves have been established and
reported in accordance with generally accepted accounting principles;
(c) Debt in the form of purchase money indebtedness and Capital
Leases; provided, however, that the Credit Parties may not incur such
purchase money indebtedness or Capital Leases if a Default or Event of
Default is continuing or if entering into such purchase money
indebtedness or Capital Leases would cause a Default or Event of
Default; and
(d) other Debt (i) existing on the date of this Agreement and
listed in Schedule II or (ii) incurred after the date of this Agreement,
provided that the aggregate outstanding amount of Debt of the Credit
Parties described in clause (i) and (ii) does not exceed $4,000,000, and
provided, further, that the Credit Parties may not incur such other Debt
described in clause (ii) if a Default or Event of Default is continuing
or if entering into such Debt would cause a Default or Event of Default.
"Permitted Derivatives" means any Derivative used by any Credit Party in
such Person's respective business operations in aggregate notional quantities
not to exceed the reasonably anticipated consumption of such Person of the
underlying commodity for the relevant period, but no Derivatives which are
speculative in nature.
"Permitted Investments" means all of the following investments:
(a) investments made by any Person in the Borrower and
Subsidiaries of the Borrower organized under a jurisdiction of the
United States holding substantially all material assets in the United
States; provided that the outstanding aggregate amount of such
investments shall not exceed $500,000;
-8-
(b) investments in the form of loans, guaranties, open accounts,
and other extensions of trade credit in the ordinary course of business;
(c) investments in commercial paper and bankers' acceptances
maturing in twelve months or less from the date of issuance and which,
at the time of acquisition is accorded the highest rating by Standard &
Poor's Corporation or Moody's Investors Services, Inc;
(d) investments in direct obligations of the United States, or
investments in any Person which investments are guaranteed by the full
faith and credit of the United States, in either case maturing in twelve
months or less from the date of acquisition thereof and repurchase
agreements having a term of less than one year and fully collateralized
by such obligations which are entered into with banks or trust companies
described in clause (e) below or brokerage companies having net worth in
excess of $500,000,000;
(e) investments in time deposits, certificates of deposit, or
Eurodollar certificates of deposit maturing within one year from the
date such investment is made, issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital, surplus, and undivided profits aggregating at least
$500,000,000 or a foreign branch thereof and whose long-term
certificates of deposit are, at the time of acquisition thereof, rated A
by Standard & Poor's Corporation or A by Moody's Investors Services,
Inc.;
(f) investments in money market funds which invest solely in the
types of investments described in paragraphs (c) through (e) above;
(g) repurchase agreements fully collateralized by obligations of
the types described above which are entered into with banks or trust
companies described in clause (e) above;
(h) investments in direct obligations, investment grade or
better, of corporations organized under a jurisdiction of the United
States, which are rated BBB or better by Standard & Poor's Corporation
or Baa by Moody's Investor's Services, Inc.; and
(i) any purchase of the Voting Securities of any Person, provided
that the aggregate amount of such purchases shall not exceed $1,000,000.
-9-
"Permitted Liens" means all of the following Liens:
(a) Liens securing the Credit Obligations;
(b) Liens securing purchase money debt or Capital Leases
permitted under clause (c) of the definition of Permitted Debt, provided
that each such Lien secures only the purchase money debt or Capital
Lease incurred in connection with the acquisition of the assets
purchased or leased in connection with the incurrence of such purchase
money debt or Capital Lease and each such Lien encumbers only the assets
purchased or leased in connection with the incurrence of such purchase
money debt;
(c) Liens arising in the ordinary course of business which are
not incurred in connection with the borrowing of money or the obtaining
of advances or credit and which do not materially detract from the value
of any Credit Party's assets or materially interfere with any Credit
Party's business, including (i) Liens for taxes, assessments, or other
governmental charges or levies which are not yet due and payable or
which are being contested in accordance with the terms of this
Agreement; (ii) Liens in connection with worker's compensation,
unemployment insurance, or other social security, old age pension, or
public liability obligations; (iii) Liens in the form of legal or
equitable encumbrances deemed to exist by reason of negative pledge
covenants and other covenants or undertakings of like nature; (iv) Liens
in the form of vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction, or other like Liens
arising by operation of law in the ordinary course of business or
incident to the construction or improvement of any property in respect
of obligations which are not yet due and payable or which are being
contested in accordance with this Agreement; and (v) Liens in the form
of zoning restrictions, easements, licenses, and other restrictions on
the use of real property or minor irregularities in title thereto which
do not materially impair the use of such property in the operation of
the business of the applicable Credit Party or the value of such
property;
(d) Liens existing on the date of this Agreement and listed in
SCHEDULE II, provided that no such Lien is spread to cover any property
not covered by such Lien as of the date of the Agreement and that the
amount of Debt secured thereby is not increased; and
(e) Agricultural Liens (including constructive trusts) arising
under the Perishable Agricultural Commodities Act, provided that
aggregate amount of such Liens (including constructive trusts) asserted,
perfected or imposed by any supplier or suppliers of the Credit Parties
against any of the Credit Parties' properties does not exceed $200,000.
-10-
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, or other entity, or a government or any political subdivision or agency
thereof, or any trustee, receiver, custodian, or similar official.
"Plan" means any (a) employee medical benefit plan under Section 3(1) of
ERISA, (b) defined benefit plan under Section 3(35) of ERISA, (c) multiemployer
plan under Section 4001(a)(3) of ERISA, and (d) account benefit plan defined in
Section 3(34) of ERISA.
"Prime Rate" means a fluctuating per annum interest rate in effect from
time to time equal to the rate of interest publicly announced by the Bank as its
prime rate, whether or not the Borrower has notice thereof.
"Prime Rate Tranche" shall mean any Tranche which bears interest based
upon the Prime Rate, as determined in accordance with Section 2.4.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Related Parties" means, with respect to any Person, such Person's
directors, officers, employees, agents, Affiliates, successors, and assigns, and
their respective directors, officers, employees, and agents, and, with respect
to any Person that is an individual, such Person's family relations and heirs.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Responsible Officer" means, with respect to any Person, such Person's
Chief Executive Officer, President, Chief Financial Officer, Vice Presidents,
Secretary, and Treasurer.
"Revolving Loan" means the aggregate outstanding principal amount of the
Revolving Loan Advances.
"Revolving Loan Advance" means any principal advanced pursuant to any
Borrowing Request under the revolving loan facility created in Section 2.1.
"Revolving Loan Commitment" means $5,000,000.
"Revolving Loan Maturity Date" means June 1, 1998.
"Revolving Loan Note" means the $5,000,000 Promissory Note (Revolving
Credit) dated as of July 1, 1996, made by the Borrower payable to the order of
the Bank evidencing
-11-
the indebtedness of the Borrower to the Bank resulting from Revolving Loan
Advances made by the Bank to the Borrower.
"Security Agreement" means the Security Agreement dated as of July 1,
1996, made by the Borrower in favor of the Bank granting the Bank a security
interest in the receivables, the inventory, and certain other assets of the
Borrower to secure the Credit Obligations.
"Security Documents" means the Security Agreement and any other document
creating Liens in favor of the Bank securing the repayment of the Credit
Obligations.
"Subsidiary" means, with respect to any Person, any other Person 50% or
more of whose outstanding Voting Securities (other than directors' qualifying
shares) shall at any time be owned by such Person or one or more Subsidiaries of
such Person.
"Support Documents" means the Guaranties and any other documents
creating obligations supporting the payment and performance of the Credit
Obligations.
"Tangible Assets" means, with respect to any Person and as of any date
of its determination, the assets of such Person less the Intangible Assets of
such Person.
"Tangible Net Worth" means, for any Person and as of any date of its
determination by the Bank, the Net Worth of such Person less the Intangible
Assets of such Person.
"Tranche" means any amount of principal outstanding accruing interest on
the same basis whether created in connection with new advances of principal
pursuant to Section 2.4(a)(i) or by the continuation or conversion of existing
tranches of principal pursuant to Section 2.4(a)(ii) and shall include any Prime
Rate Tranche or LIBOR Tranche.
"Type" has the meaning set forth in Section 1.4.
"Voting Securities" means (a) with respect to any corporation, any
capital stock of the corporation having general voting power under ordinary
circumstances to elect directors of such corporation, (b) with respect to any
partnership, any partnership interest having general voting power under ordinary
circumstances to elect the general partner or other management of the
partnership, and (c) with respect to any other Person, such ownership interests
in such Person having general voting power under ordinary circumstances to elect
the management of such Person, in each case irrespective of whether at the time
any other class of stock, partnership interests, or other ownership interest
might have special voting power or rights by reason of the happening of any
contingency.
-12-
1.2 Computation of Time Periods. In this Agreement in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each means "to but
excluding."
1.3 Accounting Terms; Preparation of Financials. All accounting terms,
definitions, ratios, and other tests described herein shall be construed in
accordance with United States generally accepted accounting principles applied
on a consistent basis with those applied in the preparation of the Financial
Statements, except as expressly set forth in this Agreement. The Credit Parties
shall prepare their financial statements in accordance with United States
generally accepted accounting principles applied on a consistent basis with
those applied in the preparation of the Financial Statements, unless otherwise
approved in writing by the Bank.
1.4 Type. The "Type" of a Tranche refers to the determination whether
such tranche is a LIBOR Tranche or a Prime Rate Tranche.
1.5 Interpretation. Article, Section, Schedule, and Exhibit references
are to this Agreement, unless otherwise specified. All references to
instruments, documents, contracts, and agreements are references to such
instruments, documents, contracts, and agreements as the same may be amended,
supplemented, and otherwise modified from time to time, unless otherwise
specified. The word "including" shall mean "including but not limited to." The
word "or" shall mean "and/or" wherever necessary to prevent interpretation of
any provision against the Bank. Whenever the Borrower has an obligation under
this Agreement and the Credit Documents the expense of complying with that
obligation shall be an expense of the Borrower unless otherwise specified.
Whenever any determination is to be made by the Bank, such determination shall
be in the Bank's sole discretion unless otherwise specified in this Agreement.
If any provision in this Agreement and the Credit Documents is held to be
illegal, invalid, not binding, or unenforceable, such provision shall be fully
severable and this Agreement and the Credit Documents shall be construed and
enforced as if such illegal, invalid, not binding, or unenforceable provision
had never comprised a part of this Agreement and the Credit Documents, and the
remaining provisions shall remain in full force and effect. This Agreement and
the Credit Documents have been reviewed and negotiated by sophisticated parties
with access to legal counsel and shall not be construed against the drafter. In
the event of a conflict between this Agreement and the Credit Documents, this
Agreement shall control.
ARTICLE 2. CREDIT FACILITIES.
2.1 Revolving Loan Facility.
(a) Commitment. The Bank agrees, on the terms and conditions set
forth in this Agreement and for the purposes set forth in Section 5.4, to make
Revolving Loan
-13-
Advances to the Borrower as requested by the Borrower from time to time on any
Business Day during the period from the date of this Agreement until the
Revolving Loan Maturity Date provided that the amount of the Revolving Loan plus
the Letter of Credit Exposure shall not exceed the lesser of (i) the Borrowing
Base or (ii) the Revolving Loan Commitment. Revolving Loan Advances must be made
in an amount equal to or greater than the Minimum Borrowing Amount and be made
in multiples of the Minimum Borrowing Multiple. Within the limits expressed in
this Agreement, the Borrower may from time to time borrow, prepay, and reborrow
Revolving Loan Advances. The indebtedness of the Borrower to the Bank resulting
from the Revolving Loan Advances made by the Bank shall be evidenced by the
Revolving Loan Note.
(b) Method of Advancing. Each Revolving Loan Advance shall be
made pursuant to a Borrowing Request given by the Borrower to the Bank in
writing or by telecopy not later than the time required pursuant to Section
2.4(a)(i) to select the interest rate basis for the Revolving Loan Advance. Each
Borrowing Request shall be fully completed and shall specify the information
required therein, and shall be irrevocable and binding on the Borrower unless
such Borrowing Request is rejected by the Bank as incomplete or improper. If the
Bank rejects a Borrowing Request pursuant hereto, the Bank shall provide the
Borrower with prompt notice of such rejection; provided that failure by the Bank
to provide such notice shall not affect the Bank's right to reject such
Borrowing Request or subject the Bank to any liability in connection therewith.
Each Borrowing Request shall be accompanied by a Borrowing Base Certificate.
Subject to the satisfaction of all applicable conditions precedent, the Bank
shall before close of business on the date requested for such Revolving Loan
Advance make such Revolving Loan Advance available to the Borrower in
immediately available funds at the Borrower Account.
(c) Prepayment.
(i) The Borrower may prepay the outstanding principal
amount of the Revolving Loan pursuant to written notice given by the Borrower to
the Bank in writing or by telecopy not later than (A) 2:00 p.m. (Houston, Texas,
time) on the third Business Day before the date of the proposed prepayment, in
the case of the prepayment of any portion of the Revolving Loan which is
comprised of LIBOR Tranches, or (B) 12:00 noon (Houston, Texas, time) on the
same Business Day of the proposed prepayment, in the case of the prepayment of
any portion of the Revolving Loan comprised solely of Prime Rate Tranches. Each
such notice shall specify the principal amount and the Tranches of the Revolving
Loan which shall be prepaid and the date of the prepayment, and shall be
irrevocable and binding on the Borrower. Each prepayment of the Revolving Loan
must be made in integral multiples of the Minimum Borrowing Multiple or in the
remaining outstanding principal amount of the Revolving Loan. No prepayment
(other than a prepayment of the remaining outstanding principal amount of the
Revolving Loan) may be made if such prepayment would cause the aggregate
outstanding principal amount of any
-14-
LIBOR Tranche comprising the Revolving Loan or the aggregate outstanding
principal amount of all Prime Rate Tranches comprising the Revolving Loan to be
less than the Minimum Tranche Amount. For each such notice given by the
Borrower, the Borrower shall prepay the Revolving Loan in the specified amount
on the specified date as set forth in such notice. The Borrower shall have no
right to prepay any principal amount of the Revolving Loan except as provided in
this Section 2.1(c)(i).
(ii) If the aggregate outstanding principal amount of the
Revolving Loan plus the Letter of Credit Exposure ever exceeds the lesser of the
Borrowing Base or the Revolving Loan Commitment, the Borrower shall, upon
receipt of written notice of such condition from the Bank and to the extent of
such excess, prepay to the Bank outstanding principal of the Revolving Loan,
and, if the Revolving Loan has been repaid in full, make deposits into the
Letter of Credit Collateral Account to provide cash collateral for the Letter of
Credit Exposure, such that such excess is eliminated.
(iii) Each prepayment of principal of any LIBOR Tranche
under the Revolving Loan pursuant to this Section 2.1(c) shall be accompanied by
payment of all accrued but unpaid interest on the principal amount prepaid and
any amounts required to be paid pursuant to Section 2.5 as a result of such
prepayment.
(d) Repayment. The Borrower shall pay to the Bank the outstanding
principal amount of the Revolving Loan on the Revolving Loan Maturity Date.
2.2 Letter of Credit Facility.
(a) Commitment for Letters of Credit. The Bank shall, on the
terms and conditions set forth in this Agreement and for the purposes set forth
in Section 5.4, issue, increase, and extend Letters of Credit at the request of
the Borrower from time to time on any Business Day during the period from the
date of this Agreement until the Revolving Loan Maturity Date provided that (i)
the Letter of Credit Exposure shall not exceed the Letter of Credit Sublimit and
(ii) the amount of the Revolving Loan plus the Letter of Credit Exposure shall
not exceed the lesser of (A) the Borrowing Base or (B) the Revolving Loan
Commitment. If the Bank rejects a request of Borrower for a Letter of Credit
pursuant hereto, the Bank shall provide the Borrower with prompt notice of such
rejection; provided that failure by the Bank to provide such notice shall not
affect the Bank's right to reject such request or subject the Bank to any
liability in connection therewith. No Letter of Credit may have an expiration
date later than 12 months after its issuance date, and each Letter of Credit
which is self-extending beyond its expiration date must be cancelable upon at
least 30 days notice given by the Bank to the beneficiary of such Letter of
Credit. No Letter of Credit may have an expiration date later than 3 months
after the Revolving Loan Maturity Date unless approved by the Bank. Each Letter
of Credit must be in form and substance acceptable to the Bank. The indebtedness
of the Borrower to the Bank resulting from Letters of Credit
-15-
requested by the Borrower shall be evidenced by the Letter of Credit
Applications made by the Borrower.
(b) Requesting Letters of Credit. Each Letter of Credit shall be
issued, increased, or extended pursuant to a Letter of Credit Application or
Letter of Credit Application Amendment, as applicable, given by the Borrower to
the Bank in writing or by telecopy promptly confirmed in writing, such Letter of
Credit Application or Letter of Credit Application Amendment being given not
later than 2:00 p.m. (Houston, Texas, time) on the second Business Day before
the date of the proposed issuance, increase, or extension of the Letter of
Credit. Each Letter of Credit Application or Letter of Credit Application
Amendment shall be fully completed and shall specify the information required
therein (including the proposed form of the Letter of Credit or change thereto),
and shall be irrevocable and binding on the Borrower unless such Letter of
Credit Application or Letter of Credit Application Amendment is rejected by the
Bank as incomplete or improper. Subject to the satisfaction of all applicable
conditions precedent, the Bank shall before close of business on the date
requested by the Borrower for the issuance, increase, or extension of such
Letter of Credit issue, increase, or extend such Letter of Credit to the
specified beneficiary.
(c) [Intentionally left blank].
(d) Reimbursements for Letters of Credit. With respect to any
Letter of Credit and in accordance with the related Letter of Credit
Application, the Borrower agrees to pay to the Bank on demand of the Bank any
amount due to the Bank under such Letter of Credit Application. If the Borrower
does not pay upon demand of the Bank any amount due to the Bank under any Letter
of Credit Application, in addition to any rights the Bank may have under such
Letter of Credit Application, the Bank may request the satisfaction of such
obligation by the making of a Revolving Loan Advance. Upon such request, the
Borrower shall be deemed to have requested the making of a Revolving Loan
Advance in the amount of such obligation and the transfer of the proceeds
thereof to the Bank. Such Revolving Loan Advance shall be comprised of a Prime
Rate Tranche. The Bank shall promptly forward notice of such Revolving Loan
Advance to the Borrower. The Borrower hereby unconditionally and irrevocably
authorizes, empowers, and directs the Bank to make such requests for Revolving
Loan Advances on behalf of the Borrower in satisfaction of such obligations. The
Bank may record and otherwise treat the making of such Revolving Loan Advances
as the making of a Revolving Loan Advance to the Borrower under this Agreement
as if requested by the Borrower. Nothing herein is intended to release the
Borrower's obligations under any Letter of Credit Application, but only to
provide an additional method of payment therefor. The making of any Advance
under this Section 2.2(d) shall not constitute a cure or waiver of any Default
or Event of Default caused by the Borrower's failure to comply with the
provisions of this Agreement or any Letter of Credit Application.
-16-
(e) Obligations Unconditional. The obligations of the Borrower
under this Agreement and the Letter of Credit Applications to reimburse the Bank
for draws under Letters of Credit and to make other payments due in respect of
Letters of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and the Letter of Credit
Applications under all circumstances, including: (i) any lack of validity or
enforceability of any Letter of Credit Document; (ii) any amendment, waiver, or
consent to departure from any Letter of Credit Document; (iii) the existence of
any claim, offset, defense, or other right which the Borrower or the Bank may
have at any time against any beneficiary or transferee of any Letter of Credit
(or any Persons for whom any such beneficiary or any such transferee may be
acting), the Bank, or any other person or entity, whether in connection with the
transactions contemplated in this Agreement or any unrelated transaction; (iv)
any statement or any other document presented under such Letter of Credit
proving to be forged, fraudulent, invalid, or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or (v) payment by
the Bank under any Letter of Credit against presentation of a draft or
certificate which does not comply with the terms of such Letter of Credit;
provided, however, that nothing contained in this paragraph (e) shall be deemed
to constitute a waiver of any remedies of the Borrower or the Bank in connection
with the Letters of Credit or the Borrower's or the Bank's rights under
paragraph (f) below.
(f) Liability of Bank. The Bank shall not be liable or
responsible for: (i) the use which may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (ii)
the validity, sufficiency, or genuineness of documents related to Letters of
Credit, or of any endorsement thereon, even if such documents should prove to be
in any or all respects invalid, insufficient, fraudulent, or forged; (iii)
payment by the Bank against presentation of documents which do not strictly
comply with the terms of a Letter of Credit, including failure of any documents
to bear any reference or adequate reference to the relevant Letter of Credit; or
(iv) any other circumstances whatsoever in making or failing to make payment
under any Letter of Credit (INCLUDING THE BANK'S OWN NEGLIGENCE); except that
the Bank shall be liable to the Borrower to the extent of any direct, as opposed
to consequential, damages suffered by the Borrower which the Borrower proves
were caused by the Bank's gross negligence or willful misconduct in determining
whether documents presented under a Letter of Credit comply with the terms of
such Letter of Credit.
(g) Letter of Credit Collateral Account.
(i) If the Borrower is required to deposit funds in the
Letter of Credit Collateral Account pursuant to Section 6.4, then the Borrower
and the Bank shall establish the Letter of Credit Collateral Account and the
Borrower shall execute any documents and agreements, including the Bank's
standard form assignment of deposit accounts attached hereto as EXHIBIT F, that
the Bank reasonably requests in connection
-17-
therewith to establish the Letter of Credit Collateral Account and grant the
Bank a first priority security interest in such account and the funds therein.
The Borrower hereby pledges to the Bank and grants the Bank a security interest
in the Letter of Credit Collateral Account, whenever established, all funds held
in the Letter of Credit Collateral Account from time to time, and all proceeds
thereof as security for the payment of the Credit Obligations.
(ii) During the existence of any Event of Default, the
Bank may (A) hold any funds in the Letter of Credit Collateral Account as cash
collateral for the Credit Obligations or (B) may apply any funds held in the
Letter of Credit Collateral Account to any Credit Obligations in any order
determined by the Bank, regardless of any Letter of Credit Exposure which may
remain outstanding. Upon cure of all Events of Default, the Bank shall release
to the Borrower any funds held in the Letter of Credit Collateral Account. The
Bank may in its sole discretion at any time release to the Borrower any funds
held in the Letter of Credit Collateral Account allocable to the Letters of
Credit of the Borrower.
(iii) Funds held in the Letter of Credit Collateral
Account shall be invested in money market funds of the Bank or in another
investment if mutually agreed upon by the Borrower and the Bank, but the Bank
shall have no other obligation to make any other investment of the funds
therein. Any interest earned by any such funds thus invested shall be the
property of the Borrower, and shall continue to be held in the Letter of Credit
Collateral Account as additional security for the payment of the Credit
Obligations, unless released by the Bank in its sole discretion. The Bank shall
exercise reasonable care in the custody and preservation of any funds held in
the Letter of Credit Collateral Account and shall be deemed to have exercised
such care if such funds are accorded treatment substantially equivalent to that
which the Bank accords its own property, it being understood that the Bank shall
not have any responsibility for taking any necessary steps to preserve rights
against any parties with respect to any such funds.
2.3 Fees.
(a) Commitment Fee. The Borrower shall pay to the Bank a
commitment fee equal to 0.25% per annum on the average daily amount by which (i)
the Revolving Loan Commitment exceeds (ii) the sum of the amount of the
Revolving Loan plus the Letter of Credit Exposure. The commitment fee shall be
due and payable quarterly in arrears within 10 days after receipt by the
Borrower of an invoice therefor.
(b) Fees for Letters of Credit. For each Letter of Credit issued
by the Bank, the Borrower shall pay to the Bank a letter of credit fee equal to
1.50% per annum on the face amount of such Letter of Credit for the stated term
of such Letter of Credit, with a minimum fee of $500. The Borrower shall pay
such letter of credit fees for such Letter of Credit, including any increased
amount due in respect of any increase or extension of such Letter of Credit, on
the date of the issuance, increase, or extension of such Letter of Credit.
-18-
All such fees shall be deemed to be earned upon the issuance, increase, or
extension of such Letter of Credit, and shall not be subject to refund in the
event of the early termination of such Letter of Credit.
2.4 Interest.
(a) Election of Interest Rate Basis. The Borrower may select the
interest rate basis for the Revolving Loan in accordance with the terms of this
Section 2.4(a):
(i) Under the Borrowing Request provided to the Bank in
connection with the making of each Revolving Loan Advance the Borrower shall
select the amount and the Type of the Tranches, and for each LIBOR Tranche
selected, any permitted Interest Period for such LIBOR Tranche, which will
comprise such Revolving Loan Advance, provided that (A) at no time shall there
be more than five separate LIBOR Tranches outstanding and (B) each Tranche must
be in a principal amount equal to or greater than the Minimum Tranche Amount and
be made in multiples of the Minimum Tranche Multiple. Such interest rate
elections must be provided to the Bank in writing or by telecopy not later than
2:00 p.m. (Houston, Texas, time) on the third Business Day before the date of
any proposed Revolving Loan Advance including any LIBOR Tranche or 12:00 noon
(Houston, Texas, time) on the same day of any proposed Revolving Loan Advance
including only a Prime Rate Tranche. In the case of any Revolving Loan Advance
including any LIBOR Tranche, upon determination by the Bank, the Bank shall
promptly notify the Borrower of the applicable interest rate to each such
Tranche.
(ii) The Borrower may continue or convert any portion of
any LIBOR Tranche or Prime Rate Tranche to form new LIBOR Tranches or Prime Rate
Tranches under the Revolving Loan in accordance with this paragraph. Each such
continuation or conversion shall be deemed to create a new Tranche for all
purposes of this Agreement. Each such continuation or conversion shall be made
pursuant to a Continuation/Conversion Request given by the Borrower to the Bank
in writing or by telecopy not later than 2:00 p.m. (Houston, Texas, time) on the
third Business Day before the date of the proposed continuation or conversion.
Each Continuation/Conversion Request shall be fully completed and shall specify
the information required therein, and shall be irrevocable and binding on the
Borrower. In the case of any continuation or conversion into LIBOR Tranches,
upon determination by the Bank, the Bank shall notify the Borrower of the
applicable interest rate. Continuations and conversions of Tranches shall be
made in integral multiples of the Minimum Tranche Multiple. No continuation or
conversion shall be permitted if such continuation or conversion would cause the
aggregate outstanding principal amount of any LIBOR Tranche which would remain
outstanding or the aggregate outstanding principal amount of all Prime Rate
Tranches which would remain outstanding to be less than the Minimum Tranche
Amount. At no time shall there be more than five separate LIBOR Tranches
outstanding. Any conversion of an existing LIBOR Tranche is
-19-
subject to Section 2.5. Subject to the satisfaction of all applicable conditions
precedent, the Bank shall before close of business on the date requested by the
Borrower for the continuation or conversion, make such continuation or
conversion.
(iii) At the end of the Interest Period for any LIBOR
Tranche if the Borrower has not continued or converted such LIBOR Tranche into
new Tranches as provided for in paragraph (ii) above, the Borrower shall be
deemed to have continued such LIBOR Tranche as a Prime Rate Tranche under the
Revolving Loan. Each Prime Rate Tranche shall continue as a Prime Rate Tranche
under the Revolving Loan unless the Borrower converts such Prime Rate Tranche as
provided for in paragraph (ii) above.
(b) LIBOR Tranches. Each LIBOR Tranche shall bear interest during
its Interest Period at a per annum interest rate equal to the sum of the LIBOR
for such LIBOR Tranche plus the Applicable Margin for LIBOR Tranches in effect
from time to time. The Borrower shall pay to the Bank all accrued but unpaid
interest on each LIBOR Tranche on the last day of the applicable Interest Period
for such LIBOR Tranche (and with respect to LIBOR Tranches with Interest Periods
of greater than three months, on the date which is three months after the first
date of the Interest Period for such LIBOR Tranche), when required upon
prepayment as specified elsewhere in this Agreement, on any date when any
portion of any LIBOR Tranche is prepaid in full (but only to the extent of the
portion of any such LIBOR Tranche is prepaid), and on the applicable Maturity
Date for each such LIBOR Tranche.
(c) Prime Rate Tranches. Each Prime Rate Tranche shall bear
interest at a per annum interest rate equal to the Prime Rate in effect from
time to time plus the Applicable Margin for Prime Rate Tranches in effect from
time to time. The Borrower shall pay to the Bank all accrued but unpaid interest
on outstanding Prime Rate Tranches on the last day of each month, on any date
all Prime Rate Tranches are prepaid in full, and on the applicable Maturity Date
for each such Prime Rate Tranche.
(d) Usury.
(i) If the effective rate of interest contracted for by
the Bank with the Borrower under the Credit Documents, including the stated
rates of interest contracted for hereunder and any other amounts contracted for
under the Credit Documents which are deemed to be interest, at any time exceeds
the Highest Lawful Rate, then the outstanding principal amount of the loans made
by the Bank to the Borrower hereunder shall bear interest at a rate which would
make the effective rate of interest on the loans made by the Bank to the
Borrower under the Credit Documents equal the Highest Lawful Rate until the
difference between the amounts which would have been due by the Borrower to the
Bank at the stated rates and the amounts which were due by the Borrower to the
Bank at the Highest Lawful Rate (such difference being the "Lost Interest") has
been recaptured by the Bank. If, when
-20-
the loans made hereunder are repaid in full, the Lost Interest has not been
fully recaptured by the Bank pursuant to the preceding sentence, then, to the
extent permitted by law, the interest rates charged by the Bank to the Borrower
under Sections 2.4 and 6.5 hereunder shall be retroactively increased such that
the effective rate of interest on the loans made by the Bank to the Borrower
under the Credit Documents was at the Highest Lawful Rate since the
effectiveness of this Agreement to the extent necessary to recapture the Lost
Interest not recaptured pursuant to the preceding sentence and, to the extent
allowed by law, the Borrower shall pay to the Bank the amount of the Lost
Interest remaining to be recaptured by the Bank.
(ii) In calculating all sums paid or agreed to be paid to
the Bank by the Borrower for the use, forbearance, or detention of money under
the Credit Documents, such amounts shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread in equal parts throughout the
term of the Credit Documents.
(iii) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN
THIS AGREEMENT AND THE CREDIT DOCUMENTS TO THE CONTRARY, it is the intention of
the Bank and the Borrower to conform strictly to any applicable usury laws.
Accordingly, if the Bank contracts for, charges, or receives any consideration
from the Borrower which constitutes interest in excess of the Highest Lawful
Rate, then any such excess shall be canceled automatically and, if previously
paid, shall at the Bank's option be applied to the outstanding amount of the
loans made hereunder by the Bank to the Borrower or be refunded to the Borrower.
2.5 Breakage Costs. If (i) any payment of principal on or any conversion
of any LIBOR Tranche is made on any date other than the last day of the Interest
Period for such LIBOR Tranche, whether as a result of any voluntary or mandatory
prepayment, any acceleration of maturity, or any other cause, (ii) any payment
of principal on any LIBOR Tranche is not made when due, or (iii) any LIBOR
Tranche is not borrowed, converted, or prepaid in accordance with the respective
notice thereof provided by the Borrower to the Bank, whether as a result of any
failure to meet any applicable conditions precedent for borrowing, conversion,
or prepayment, the cancellation of any request for borrowing, conversion, or
prepayment, the failure of the Borrower to provide the respective notice of
borrowing, conversion, or prepayment, or any other cause not specified above
which is created by the Borrower, then the Borrower shall pay to the Bank upon
demand any amounts required to compensate the Bank for any losses, costs, or
expenses, including lost profits and administrative expenses, which are
allocable to such action, including losses, costs, and expenses related to the
liquidation or reinvestment of funds acquired or designated by the Bank to fund
or maintain such LIBOR Tranche or related to the reacquisition or redesignation
of funds by the Bank to fund or maintain such LIBOR Tranche following any
liquidation or reinvestment of such funds caused by such action. A certificate
as to the
-21-
amount of such loss, cost, or expense detailing the calculation thereof
submitted by the Bank to the Borrower shall be prima facie evidence of the
amount of such loss, cost or expense.
2.6 Increased Costs.
(a) Cost of Funds. If, due to either (i) any introduction of,
change in, or change in the interpretation of any law or regulation after the
date of this Agreement or (ii) compliance with any guideline or request from any
central bank or other governmental authority having appropriate jurisdiction
(whether or not having the force of law) given after the date of this Agreement,
there shall be any increase in the costs of the Bank allocable to (x) committing
to make any Advance or obtaining funds for the making, funding, or maintaining
of any Advance in the relevant interbank market or (y) committing to make
Letters of Credit or issuing, funding, or maintaining Letters of Credit,
including any increase in any applicable reserve requirement specified by the
Federal Reserve Board, including those for emergency, marginal, supplemental, or
other reserves, then the Borrower shall pay to the Bank upon demand any amounts
required to compensate the Bank for such increased costs, such amounts being due
and payable upon demand by the Bank. A certificate as to the cause and amount of
such increased cost detailing the calculation of such cost submitted by the Bank
to the Borrower shall be prima facie evidence of the amount of such loss, cost
or expense.
(b) Capital Adequacy. If, due to either (i) any introduction of,
change in, or change in the interpretation of any law or regulation after the
date of this Agreement or (ii) compliance with any guideline or request from any
central bank or other governmental authority having appropriate jurisdiction
(whether or not having the force of law) given after the date of this Agreement,
there shall be any increase in the capital requirements of the Bank or its
parent or holding company allocable to (x) committing to make Advances or
making, funding, or maintaining Advances or (y) committing to make Letters of
Credit or issuing, funding, or maintaining Letters of Credit, as such capital
requirements are allocated by the Bank, then the Borrower shall pay to the Bank
upon demand any amounts required to compensate the Bank or its parent or holding
company for such increase in costs (including an amount equal to any reduction
in the rate of return on assets or equity of the Bank or its parent or holding
company), such amounts being due and payable upon demand by the Bank. A
certificate as to the cause and amounts detailing the calculation of such
amounts submitted by the Bank to the Borrower shall be prima facie evidence of
the amount of such loss, cost or expense.
2.7 Illegality. Notwithstanding any other provision in this Agreement,
if it becomes unlawful for the Bank to obtain deposits or other funds for making
or funding any LIBOR Tranche in the relevant interbank market, the Bank shall so
notify the Borrower and the Bank's commitment to create LIBOR Tranches shall be
suspended until such condition has passed, all LIBOR Tranches applicable to the
Bank shall be converted to Prime Rate
-22-
Tranches as of the end of each applicable Interest Period or earlier if
necessary, and all subsequent requests for LIBOR Tranches shall be deemed to be
requests for Prime Rate Tranches.
2.8 Market Failure. Notwithstanding any other provision in this
Agreement, if the Bank determines that: (a) quotations of interest rates for the
relevant deposits referred to in the definition of "LIBOR" are not being
provided in the relevant amounts, or maturities for purposes of determining the
rate of interest referred to in the definition of "LIBOR" or (b) the relevant
rates of interest referred to in the definition of "LIBOR" which are used as the
basis to determine the rate of interest for LIBOR Tranches are not likely to
adequately cover the cost to the Bank of making or maintaining any LIBOR
Tranche, then if the Bank so notifies the Borrower, the commitment of the Bank
to create LIBOR Tranches shall be suspended until such condition has passed and
all LIBOR Tranches shall be converted to Prime Rate Tranches as of the end of
each applicable Interest Period, and all subsequent requests for LIBOR Tranches
shall be deemed to be requests for Prime Rate Tranches.
2.9 Payment Procudures and Computations.
(a) Payment Procedures. Time is of the essence in this Agreement
and the Credit Documents. All payment hereunder shall be made in Dollars. The
Borrower shall make each payment under this Agreement and under the Revolving
Loan Note not later than 12:00 noon (local time at the Applicable Lending
Office) on the day when due to the Bank at its Applicable Lending Office in
immediately available funds. All payments by the Borrower hereunder shall be
made without any offset, abatement, withholding, or reduction.
(b) Authority to Charge Accounts. The Bank, if and to the extent
payment owed to the Bank is not made when due, may charge from time to time
against any account of the Borrower with the Bank any amount so due. The Bank
agrees promptly to notify the Borrower after any such charge and application
made by the Bank provided that the failure to give such notice shall not affect
the validity of such charge and application.
(c) Interest and Fees. Unless expressly provided for in this
Agreement, (i) all computations of interest based on the Prime Rate shall be
made on the basis of a 360 day year, (ii) all computations of interest based
upon the LIBOR shall be made on the basis of a 360 day year, and (iii) all
computations of fees shall be made on the basis of a 360 day year, in each case
for the actual number of days (including the first day, but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
determination by the Bank of an interest rate or fee shall be conclusive and
binding for all purposes, absent manifest error.
(d) Payment Dates. Whenever any payment shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding
-23-
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or fees, as the case may be. If the time for
payment for an amount payable is not specified in this Agreement or in any other
Credit Document, the payment shall be due and payable on demand by the Bank.
2.10 Taxes.
(a) No Deduction for Certain Taxes. Any and all payments by the
Borrower shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges, or withholdings,
and all liabilities with respect thereto, other than taxes imposed on the income
and franchise taxes imposed on the Bank or the Applicable Lending Office thereof
by any jurisdiction in which any such entity is a citizen or resident or any
political subdivision of such jurisdiction (all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings, and liabilities being hereinafter
referred to as "Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable to the Bank or the Applicable
Lending Office thereof, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.10), such Person
receives an amount equal to the sum it would have received had no such
deductions been made; (ii) the Borrower shall make such deductions; and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) Other Taxes. The Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges, or
similar levies which arise from any payment made or from the execution,
delivery, or registration of, or otherwise with respect to, this Agreement or
the other Credit Documents.
ARTICLE 3. CONDITIONS PRECEDENT.
3.1 Conditions Precedent to Initial Extensions of Credit. The obligation
of the Bank to make the initial extension of credit under this Agreement,
including the making of any Advances and the issuance of any Letters of Credit,
shall be subject to the condition precedent that the Borrower shall have
delivered or shall have caused to be delivered the documents and other items
listed on EXHIBIT E, together with any other documents reasonably requested by
the Bank to document the agreements and intent of the Credit Documents, each in
form and with substance satisfactory to the Bank.
3.2 Conditions Precedent to Each Extension of Credit. The obligation of
the Bank to make any extension of credit under this Agreement, including the
making of any Advances and the issuance, increase, or extension of any Letters
of Credit, shall be subject to the further conditions precedent that:
-24-
(a) Representations and Warranties. As of the date of the making
of any extension of credit hereunder, the representations and warranties
contained in each Credit Document shall be true and correct in all material
respects as of such date (and the Borrower's request for the making of any
extension of credit hereunder shall be deemed to be a restatement,
representation, and additional warranty of the representations and warranties
contained in each Credit Document as of such date);
(b) Default. As of the date of the making of any extension of
credit hereunder, there shall exist no Default or Event of Default, and the
making of the extension of credit would not cause or be reasonably expected to
cause a Default or Event of Default; and
(c) Material Adverse Change. There shall not have occurred any
Material Adverse Change.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank, and with each request for any extension of credit hereunder,
including the making of any Advances and the issuance, increase, or extension of
any Letters of Credit, again represents and warrants to the Bank, as follows:
4.1 Organization. As of the date of this Agreement, the Borrower is duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of organization and is duly licensed, qualified to do business, and
in good standing in each jurisdiction in which the Borrower owns property or
conducts operations and which requires such licensing or qualification and where
failure to be so licensed, qualified, or in good standing could reasonably be
expected to cause a Material Adverse Change.
4.2 Authorization. The execution, delivery, and performance by each
Credit Party of the Credit Documents to which such Credit Party is a party and
the consummation of the transactions contemplated thereby (a) do not contravene
the organizational documents of such Credit Party, (b) have been duly authorized
by all necessary corporate action of each Credit Party, and (c) are within each
Credit Party's corporate powers.
4.3 Enforceability. Each Credit Document to which any Credit Party is a
party has been duly executed and delivered by each Credit Party which is a party
to such Credit Document and constitutes the legal, valid, and binding obligation
of each such Credit Party, enforceable against each such Credit Party in
accordance with such Credit Document's terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws at the time
in effect affecting the rights of creditors generally and subject to the
availability of equitable remedies.
-25-
4.4 Absence of Conflicts and Approvals. The execution, delivery, and
performance by each Credit Party of the Credit Documents to which such Credit
Party is a party and the consummation of the transactions contemplated thereby,
(a) do not result in any violation or breach of any provisions of, or constitute
a default under, any note, indenture, credit agreement, security agreement,
credit support agreement, or other similar agreement to which such Credit Party
is a party or any other material contract or agreement to which such Credit
Party is a party, (b) do not violate any law or regulation binding on or
affecting such Credit Party, (c) do not require any authorization, approval, or
other action by, or any notice to or filing with, any governmental authority,
and (d) do not result in or require the creation or imposition of any Lien
prohibited by this Agreement.
4.5 Investment Companies. No Credit Party is an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.6 Public Utilities. No Credit Party is a "holding company," or a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended. No Credit Party is a regulated
public utility.
4.7 Financial Condition.
(a) The Borrower has delivered to the Bank the Form 10-K report
of the Borrower dated as of January 5, 1996, including therein the consolidated
balance sheet of the Borrower as of such date and the consolidated statements of
income, stockholders' equity, and cash flows for the Borrower for the fiscal
year ending on such date. These financial statements are accurate and complete
in all material respects and present fairly the consolidated financial condition
of the Borrower as of such date in accordance with generally accepted accounting
principles.
(b) The Borrower has delivered to the Bank the Form 10-Q report
of the Borrower dated as of March 29, 1996, including therein the unaudited
consolidated balance sheet of the Borrower as of such date and the unaudited
consolidated statement of operations for the Borrower for the three-month period
ending on such date. These financial statements are accurate and complete in all
material respects and present fairly the consolidated financial condition of
Borrower as of such date in accordance with generally accepted accounting
principles, except as specifically discussed in Note 1 to such Form 10-Q report.
(c) As of the respective dates of the Financial Statements and
the Interim Financial Statements, there were no material contingent obligations,
liabilities for taxes, unusual forward or long-term commitments, or unrealized
or anticipated losses of the Borrower or any of the Borrower's Subsidiaries,
except as disclosed in the Financial Statements or the Interim Financial
Statements, and adequate reserves for such items have
-26-
been made in accordance with generally accepted accounting principles. No
Material Adverse Change has occurred. No Default exists.
4.8 Condition of Assets. Each Credit Party has good and indefeasible
title to all of its owned property and valid leasehold rights in all of its
leased property, as reflected in the financial statements most recently provided
to the Bank free and clear of all Liens except Permitted Liens. Each Credit
Party possesses all permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade names rights, and copyrights which are
necessary in the conduct of its business and which the failure to possess could
reasonably be expected to cause a Material Adverse Change. The material
properties used or to be used in the continuing operations of each Credit Party
are in good repair, working order, and condition, normal wear and tear excepted.
The properties of each Credit Party have not been adversely affected as a result
of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike
or other labor disturbance, embargo, requisition or taking of property or
cancellation of contracts, permits, or concessions by a governmental authority,
riot, activities of armed forces, or acts of God or of any public enemy in any
manner which could reasonably be expected to cause a Material Adverse Change.
4.9 Litigation. There are no actions, suits, or proceedings pending or,
to the knowledge of any Credit Party, threatened against any Credit Party at
law, in equity, or in admiralty, or by or before any governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign, or
any arbitrator which could reasonably be expected to cause a Material Adverse
Change.
4.10 Subsidiaries. The Borrower has no Subsidiaries except as disclosed
in SCHEDULE II.
4.11 Laws and Regulations. Each Credit Party has been and is in
compliance with all federal, state, and local laws and regulations which are
applicable to the operations and property of such Person and which the failure
to comply with could reasonably be expected to cause a Material Adverse Change.
4.12 Environmental Compliance. Each Credit Party has been and is in
compliance with all Environmental Laws and has obtained and is in compliance
with all related permits necessary for the ownership and operation of any such
Person's properties which the failure to be in compliance with could reasonably
be expected to cause a Material Adverse Change. Each Credit Party has never
received notice of and has never been investigated for any violation or alleged
violation of any Environmental Law in connection with any such Person's
presently or previously owned properties which threaten action or suggest
liabilities which could reasonably be expected to cause a Material Adverse
Change. Each Credit Party does not and has not created, handled, transported,
used, or disposed of any Hazardous Materials on or about any such Person's
properties (nor has any such Person's properties been
-27-
used for those purposes), except in compliance with all Environmental Laws and
related permits; has never been responsible for the release of any Hazardous
Materials into the environment in connection with any such Person's operations
and have not contaminated any properties with Hazardous Materials; and does not
and has not owned any properties contaminated by any Hazardous Materials, in
each case in any manner which could reasonably be expected to cause a Material
Adverse Change.
4.13 ERISA. Each Credit Party is in compliance in all material respects
with all provisions of ERISA. No Credit Party participates in or during the past
five years has participated in any defined benefit plan under Section 3(35) of
ERISA or any multiemployer plan under Section 4001(a)(3) of ERISA. With respect
to the Plans of the Credit Parties, neither a Reportable Event nor a Prohibited
Transaction has occurred and exists which could reasonably be expected to cause
a Material Adverse Change.
4.14 Taxes. Each Credit Party has filed all United States federal,
state, and local income tax returns and all other domestic and foreign tax
returns which are required to be filed by such Person and has paid, or provided
for the payment before the same became delinquent of, all taxes due pursuant to
such returns or pursuant to any assessment received by the such Person, except
where such failure could not reasonably be expected to cause a Material Adverse
Change. The charges, accruals, and reserves on the books of the Credit Parties
in respect of taxes are adequate in accordance with generally accepted
accounting principles.
4.15 True and Complete Disclosure. All factual information furnished by
or on behalf of any Credit Party in writing to the Bank in connection with the
Credit Documents and the transactions contemplated thereby is true and accurate
in all material respects on the date as of which such information was dated or
certified and does not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements contained therein not
misleading. To the Borrower's knowledge, all projections, estimates, and pro
forma financial information furnished by any Credit Party were prepared on the
basis of assumptions, data, information, tests, or conditions believed to be
reasonable at the time such projections, estimates, and pro forma financial
information were furnished.
ARTICLE 5. COVENANTS. Until the Bank receives irrevocable payment of the Credit
Obligations and have terminated this Agreement and each other Credit Document,
the Borrower shall comply with and cause compliance with the following
covenants:
5.1 Organization. The Borrower shall cause each Credit Party to maintain
itself as an entity duly organized and validly existing under the laws of each
such Person's respective jurisdiction of organization and be duly licensed,
qualified to do business, and in good standing in each jurisdiction in which
such Person is organized, owns property, or conducts operations and which
requires such licensing or qualification and where failure to
-28-
be so licensed, qualified, or in good standing could reasonably be expected to
cause a Material Adverse Change.
5.2 Reporting. The Borrower shall furnish to the Bank all of the
following:
(a) Annual Financial Reports. As soon as available and in any
event not later than 120 days after the end of each fiscal year of the Borrower,
(i) a copy of the consolidated Form 10-K report for such fiscal year for the
Borrower, including therein the consolidated balance sheets of the Borrower as
of the end of such fiscal year and the consolidated statements of income,
stockholders' equity, and cash flows for the Borrower for such fiscal year,
setting forth the consolidated financial position and results of the Borrower
for such fiscal year and certified, without any qualification or limit of the
scope of the examination of matters relevant to the financial statements, by a
nationally recognized certified public accounting firm; and (ii) a completed
Compliance Certificate duly certified by a Responsible Officer of the Borrower;
(b) Quarterly Financial Reports. As soon as available and in any
event not later than 45 days after the end of each fiscal quarter, (i) a copy of
the unaudited Form 10-Q report of the Borrower for such fiscal quarter and for
the fiscal year to date period ending on the last day of such fiscal quarter,
including therein the consolidated balance sheets of the Borrower as of the end
of such fiscal quarter and the consolidated statements of income, and cash flows
for such fiscal quarter and for such fiscal year to date period, setting forth
the consolidated financial position and results of the Borrower for such fiscal
quarter and fiscal year to date period, prepared in accordance with generally
accepted accounting principles (except as specifically discussed in Note 1 to
such Form 10-Q report), such report to be signed by a Responsible Officer of the
Borrower, and (ii) a completed Compliance Certificate duly certified by a
Responsible Officer of the Borrower;
(c) Borrowing Base Calculation; Accounts Receivable Aging. As of
the end of each calendar month for which there remains an outstanding balance
owing pursuant to the Revolving Loan Note, as soon as available and in any event
not later than 45 days after the end of any such month, (i) a calculation of the
Borrowing Base and (ii) a full aging of the Borrower's accounts receivable
together with all supporting information, both in reasonable detail and duly
certified by a Responsible Officer of the Borrower.
(d) SEC and Other Repoert. Promptly after the same become
publicly available, copies of all Forms 10-K, 10-Q, 8-K, annual reports, tender
offer documentation, and proxy statements, and any other information which the
Bank may reasonably request or which relates to events or circumstances which
could reasonably be expected to cause a Material Adverse Change, filed by the
Borrower with the Securities and Exchange Commission pursuant to the
requirements of the Securities Exchange Act of 1934 or filed with any national
securities exchange or distributed to the Borrower's shareholders;
-29-
(e) Defaults. Promptly, but in any event within five Business
Days after the discovery thereof, a notice of any facts known to any Credit
Party which constitute a Default, together with a statement of a Responsible
Officer of the Borrower setting forth the details of such facts and the actions
which the Borrower has taken and proposes to take with respect thereto;
(f) Litigation; Material Contingent Liabilities; Material
Agreement Default. The Borrower shall provide to the Bank: (i) promptly after
the commencement thereof, notice of all actions, suits, and proceedings before
any court or governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting any Credit Party which, if
determined adversely, could reasonably be expected to cause a Material Adverse
Change; (ii) promptly after acquiring knowledge thereof, notice of any material
actual or potential contingent liabilities in an amount exceeding $500,000; and
(iii) promptly after obtaining knowledge thereof, notice of any breach by any
Credit Party of any contract or agreement, including without limitation any
breach of the Agreement, dated as of August 28, 1995, between Sam's Club, a
division of Wal-Mart Stores, Inc. and Borrower, which breach could reasonably be
expected to cause a Material Adverse Change;
(g) Material Changes. Prompt written notice of any condition or
event of which any Credit Party has knowledge, which condition or event has
resulted or could reasonably be expected to cause a Material Adverse Change;
(h) Changes in Management. Promptly, but in any event within five
days after the occurrence thereof, a notice detailing any changes in the Chief
Executive Officer, the Chief Financial Officer or the President of the Borrower;
(i) Agricultural Liens. Prompt written notice of the assertion,
perfection or imposition by any supplier or suppliers of the Credit Parties of
any agricultural lien(s) or constructive trust(s) against any of the Credit
Parties' properties in an aggregate amount in excess of $200,000; and
(j) Other Information. Such other information respecting the
business operations or property of any Credit Party, financial or otherwise, as
the Bank may from time to time reasonably request.
5.3 Inspection. The Borrower shall cause each Credit Party to permit the
Bank to visit and inspect any of the properties of such Credit Party, to examine
all of such Person's books of account, records, reports, and other papers, to
make copies and extracts therefrom, and to discuss their respective affairs,
finances, and accounts with their respective officers and independent public
accountants all at such reasonable times and as often as may be reasonably
requested provided that the Borrower is given at least one Business Day advance
-30-
notice thereof and reasonable opportunity to be present when independent public
accountants or other third parties are contacted.
5.4 Use of Proceeds. The proceeds of the Revolving Loan Advances shall
be used by the Borrower only for general corporate and working capital purposes.
The Borrower shall not, directly or indirectly, use any part of such proceeds
for any purpose which violates, or is inconsistent with, Regulations G, T, U, or
X of the Board of Governors of the Federal Reserve System.
5.5 Financial Covenants.
(a) Current Ratio. As of the last day of each fiscal quarter, the
Borrower shall not permit the ratio of (i) the consolidated current assets of
the Borrower to (ii) the consolidated current liabilities of the Borrower, to be
less than 1.50 to 1.00.
(b) Leverage Ratio. As of the last day of each fiscal quarter,
the Borrower shall not permit the ratio of (i) the consolidated total
liabilities of the Borrower to (ii) the consolidated Tangible Net Worth of the
Borrower, to be greater than 1.25 to 1.00.
(c) Cash Flow Coverage. As of the last day of each fiscal
quarter, the Borrower shall not permit the ratio of (i) its Cash Flow for the
preceding twelve months to (ii) its Debt Service for the preceding twelve
months, to be less than 1.50 to 1.00.
(d) Tangible Net Worth. The Borrower shall not permit the
consolidated Tangible Net Worth of the Borrower to be less than the sum of (i)
$13,500,000 plus (ii) 50% of the cumulative annual consolidated net income of
the Borrower for each fiscal year of the Borrower after the fiscal year ended
January 5, 1996 (excluding, however, any annual net losses).
(e) No Annual Losses. The Borrower shall not permit the annual
consolidated net income of the Borrower for any fiscal year to be less than
zero.
5.6 Debt. The Borrower shall not permit any Credit Party to create,
assume, incur, suffer to exist, or in any manner become liable, directly,
indirectly, or contingently in respect of, any Debt other than Permitted Debt.
5.7 Liens. The Borrower shall not permit any Credit Party to create,
assume, incur, or suffer to exist any Lien on any of its real or personal
property whether now owned or hereafter acquired, or assign any right to receive
its income, except for Permitted Liens.
5.8 Derivatives. The Borrower shall not permit any Credit Party to enter
into or assume any obligations with respect to any Derivatives except for
Permitted Derivatives.
-31-
5.9 Corporate Transactions. The Borrower shall not permit any Credit
Party to (1) merge or consolidate with or be a party to a merger or
consolidation with any other Person or (2) assign, sell, lease, dispose of, or
otherwise transfer any assets outside of the ordinary course of business, except
that the Borrower and the Credit Parties may transfer assets outside of the
ordinary course of business in an aggregate net book value of up to $100,000.
5.10 Distributions. Without the prior approval of the Bank, the Borrower
shall not (a) purchase, redeem, retire, or otherwise acquire for value any of
the Borrower's capital stock now or hereafter outstanding; or (b) allocate or
otherwise set apart any sum for the purchase, redemption, or retirement of, any
shares of such Person's capital stock.
5.11 Transactions with Affiliates. The Borrower shall not permit any
Credit Party to enter into any transaction directly or indirectly with or for
the benefit of an Affiliate except transactions with an Affiliate for the
leasing of property, the rendering or receipt of services, or the purchase or
sale of inventory or other assets in the ordinary course of business if the
monetary or business consideration arising from such a transaction would be
substantially as advantageous to such Person as the monetary or business
consideration which such Person would obtain in a comparable arm's length
transaction; provided that the Borrower may (a) maintain its guaranty of the
existing indebtedness of Lone Star Produce Acquisition Corp. as set forth on
Schedule II hereof, and (b) make other advances to Persons in accordance with
Section 5.13(c) hereof.
5.12 Insurance. The Borrower shall cause each Credit Party to maintain
insurance with responsible and reputable insurance companies or associations
reasonably acceptable to the Bank in such amounts and covering such risks as are
usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which such Persons operate. Without
limiting the foregoing, the Borrower shall not and shall not permit any other
Credit Party to terminate any type of insurance coverage now in force without
establishing contingency plans or self insurance plans acceptable to the Bank.
The Borrower shall deliver to the Bank certificates evidencing such policies or
copies of such policies at the Bank's request. The insurance requirements of the
Security Documents are cumulative with the requirements hereunder.
5.13 Investments. The Borrower shall not permit any Credit Party to make
or hold any direct or indirect investment in any Person, including capital
contributions to the Person, investments in the debt or equity securities of the
Person, loans, guaranties, trade credit, or other extensions of credit to the
Person, except for (a) Permitted Investments, (b) Borrower's guaranty of the
existing indebtedness of Lone Star Produce Acquisition Corp. as set forth on
Schedule II hereof, and (c) other advances to Persons provided that the
aggregate outstanding amount of all such advances shall not exceed $350,000.
-32-
5.14 Lines of Business; Distribution. The Borrower shall not permit the
Credit Parties to change the character of their business as conducted on the
date of this Agreement, or engage in any type of business not reasonably related
to such business as presently and normally conducted.
5.15 Compliance with Laws. The Borrower shall cause each Credit Party to
comply with all federal, state, and local laws and regulations which are
applicable to the operations and property of such Persons and which the failure
to comply with could reasonably be expected to cause a Material Adverse Change..
5.16 Environmental Compliance. The Borrower shall cause each Credit
Party to comply with all Environmental Laws and obtain and comply with all
related permits necessary for the ownership and operation of any such Person's
properties. The Borrower shall cause each Credit Party to promptly disclose to
the Bank any notice to or investigation of such Persons for any violation or
alleged violation of any Environmental Law in connection with any such Person's
presently or previously owned properties which represent liabilities which could
reasonably be expected to cause a Material Adverse Change. The Borrower shall
not permit any Credit Party to create, handle, transport, use, or dispose of any
Hazardous Materials on or about any such Person's properties except in
compliance with all Environmental Laws and related permits; release any
Hazardous Materials into the environment in connection with any such Person's
operations or contaminate any properties with Hazardous Materials; or own
properties contaminated by any Hazardous Materials.
5.17 ERISA Compliance. The Borrower shall cause each Credit Party to
which ERISA applies to comply in all material respects with all applicable
provisions of ERISA, prevent the occurrence of any Reportable Event or
Prohibited Transaction with respect to, or the termination of, any of their
respective Plans, and not create or participate in any defined benefit plan
under Section 3(35) of ERISA or any multiemployer plan under Section 4001(a)(3)
of ERISA without the prior written consent of the Bank.
5.18 Payment of Taxes and Claims. The Borrower shall cause each Credit
Party to pay and discharge, before the same shall become delinquent, (a) all
taxes, assessments, levies, and like charges imposed upon any such Person or
upon any such Person's income, profits, or property by authorities having
competent jurisdiction prior to the date on which penalties attach thereto and
(b) all lawful claims which, if unpaid, would by law become a Lien upon any such
Person's property.
ARTICLE 6. DEFAULT AND REMEDIES.
6.1 Events of Dafault. Each of the following shall be an "Event of
Default" for the purposes of this Agreement and for each of the Credit
Documents:
-33-
(a) Payment Failure. The Borrower fails to pay when due any
principal amounts, interest, fees, reimbursements, indemnifications, or other
amounts due under this Agreement or any other Credit Document;
(b) False Representation. Any written representation or warranty
made by any Responsible Officer of any Credit Party in this Agreement or in any
other Credit Document proves to have been materially false or erroneous at the
time it was made or deemed made;
(c) Breach of Covenant. (i) Any breach by the Borrower of any of
the covenants contained in Sections 5.1, 5.2, 5.3, 5.4, or 5.5 of this
Agreement, and such breach is not cured within 30 days of the earlier of
knowledge of such breach by the Borrower or the receipt of written notice
thereof from the Bank, or (ii) any breach by the Borrower of any of the other
covenants contained in this Agreement or any other Credit Document;
(d) Security Document. Any Security Document at any time and for
any reason shall cease to create a first priority Lien on the collateral
thereunder or otherwise cease to be in full force and effect, shall be contested
by any obligor thereunder, or shall be breached by any obligor thereunder, and
such failure or breach is not cured within 30 days following the earlier of
knowledge of such breach or failure by the Borrower or the receipt of written
notice thereof from the Bank;
(e) Support Document. Any Support Document at any time and for
any reason shall cease to be in full force and effect, shall be contested by any
obligor thereunder, or shall be breached by any obligor thereunder, and such
failure or breach is not cured within 30 days following the earlier of knowledge
of such breach or failure by the Borrower or the receipt of written notice
thereof from the Bank;
(f) Material Debt Default. (i) Any principal, interest, fees, or
other amounts due on any Debt of any Credit Party is not paid when due, whether
by scheduled maturity, required prepayment, acceleration, demand, or otherwise,
and such failure is not cured within the applicable grace period, if any, and
the aggregate amount of all Debt of such Persons so in default exceeds $200,000;
(ii) any other event shall occur or condition shall exist under any agreement or
instrument relating to any Debt of any such Person the effect of which is to
accelerate or to permit the acceleration of the maturity of any such Debt,
whether or not any such Debt is actually accelerated, and such event or
condition shall not be cured within the applicable grace period, if any, and the
aggregate amount of all Debt of such Persons so in default exceeds $200,000; or
(iii) any Debt of any such Person shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled prepayment) prior to
the stated maturity thereof, and the aggregate amount of all Debt of such
Persons so accelerated exceeds $200,000;
-34-
(g) Material Agreement Default. There shall occur any breach by
any Credit Party of any contract or agreement, including without limitation any
breach of the Agreement, dated as of August 28, 1995, between Sam's Club, a
division of Wal-Mart Stores, Inc. and Borrower, which breach could reasonably be
expected to cause a Material Adverse Change and such breach is not cured within
the applicable grace period, if any;
(h) Bankruptcy and Insolvency. (i) there shall have been filed
against any Credit Party or any such Person's properties, without such Person's
consent, any petition or other request for relief seeking an arrangement,
receivership, reorganization, liquidation, or similar relief under bankruptcy or
other laws for the relief of debtors and such request for relief (A) remains in
effect for 60 or more days, whether or not consecutive, or (B) is approved by a
final nonappealable order, or (ii) any such Person consents to or files any
petition or other request for relief of the type described in clause (i) above
seeking relief from creditors, makes any assignment for the benefit of creditors
or other arrangement with creditors, or admits in writing such Person's
inability to pay such Person's debts as they become due;
(i) Adverse Judgment. The aggregate outstanding amount of unpaid,
final judgments against the Credit Parties, less any insurance proceeds covering
such judgments which are received or as to which the insurance carriers admit
liability, not discharged or stayed pending appeal or other court action within
30 days following entry is greater than $500,000.
6.2 Termination of Commitments. Upon the occurrence of any Event of
Default under Section 6.1(h), all of the commitments of the Bank hereunder shall
terminate. During the existence of any Event of Default other than an Event of
Default under Section 6.1(h), the Bank may declare by written notice to the
Borrower all of the commitments of the Bank hereunder terminated, whereupon the
same shall immediately terminate.
6.3 Acceleration of Credit Obligations. Upon the occurrence of any Event
of Default under Section 6.1(h), the aggregate outstanding principal amount of
all loans made hereunder, all accrued interest thereon, and all other Credit
Obligations shall immediately and automatically become due and payable. During
the existence of any Event of Default other than an Event of Default under
Section 6.1(h), the Bank may declare by written notice to the Borrower the
aggregate outstanding principal amount of all loans made hereunder, all accrued
interest thereon, and all other Credit Obligations to be immediately due and
payable. In connection with the foregoing, except for the notice provided for
above, the Borrower waives notice of intent to demand, demand, presentment for
payment, notice of nonpayment, protest, notice of protest, grace, notice of
dishonor, notice of intent to accelerate, notice of acceleration, and all other
notices.
-35-
6.4 Cach Collateralization of Letters of Credit. Upon the occurrence of
any Event of Default under Section 6.1(h), the Borrower shall pay to the Bank an
amount equal to the Letter of Credit Exposure to be held in the Letter of Credit
Collateral Account for disposition in accordance with Section 2.2(g). During the
existence of any Event of Default other than an Event of Default under Section
6.1(h), the Bank may require by written notice to the Borrower that the Borrower
pay to the Bank an amount equal to the Letter of Credit Exposure to be held in
the Letter of Credit Collateral Account for disposition in accordance with
Section 2.2(g).
6.5 Default Interest. If any Event of Default exists, the Bank may
declare by written notice to the Borrower that the Credit Obligations specified
in such notice shall bear interest beginning on the date specified in such
notice until paid in full at the applicable Default Rate for such Credit
Obligations, and the Borrower shall pay such interest to the Bank upon demand.
6.6 Right of Setoff. During the existence of an Event of Default, the
Bank is hereby authorized at any time, to the fullest extent permitted by law,
to set off and apply any indebtedness owed by the Bank to the Borrower against
any and all of the obligations of the Borrower under this Agreement and the
Credit Documents, irrespective of whether or not the Bank shall have made any
demand under this Agreement or the Credit Documents and although such
obligations may be contingent and unmatured. The Bank agrees promptly to notify
the Borrower after any such setoff and application made by the Bank provided
that the failure to give such notice shall not affect the validity of such
setoff and application.
6.7 Actions Under Credit Documents. Following an Event of Default, the
Bank may take any and all actions permitted under the other Credit Documents,
including the Support Documents and the Security Documents.
6.8 Remedies Cumulative. No right, power, or remedy conferred to the
Bank in this Agreement and the Credit Documents, or now or hereafter existing at
law, in equity, by statute, or otherwise, shall be exclusive, and each such
right, power, or remedy shall to the full extent permitted by law be cumulative
and in addition to every other such right, power, or remedy. No course of
dealing and no delay in exercising any right, power, or remedy conferred to the
Bank in this Agreement and the Credit Documents, or now or hereafter existing at
law, in equity, by statute, or otherwise, shall operate as a waiver of or
otherwise prejudice any such right, power, or remedy. No notice to or demand
upon the Borrower shall entitle the Borrower to similar notices or demands in
the future.
6.9 Application of Payments. When an Event of Default exists, all
payments shall be applied to the outstanding Credit Obligations in the order
determined by the Bank.
-36-
ARTICLE 7. MISCELLANEOUS.
7.1 Expenses. The Borrower shall pay on demand of the Bank (a) all
reasonable costs and expenses of the Bank in connection with the preparation,
execution, delivery, direct administration, modification, and amendment of this
Agreement and the other Credit Documents and (b) all costs and expenses of the
Bank in connection with the preservation or enforcement of its respective rights
under this Agreement and the other Credit Documents, whether through
negotiations, legal proceedings, or otherwise, including in each case fees and
expenses of counsel for the Bank. The provisions of this paragraph shall survive
the repayment and termination of the credit provided for under this Agreement
and any purported termination of this Agreement which does not expressly refer
to this paragraph.
7.2 Indemnification. The Borrower agrees to protect, defend, indemnify,
and hold harmless the Bank and its Related Parties (for the purposes of this
Section 7.2, collectively, the "Indemnified Parties"), from and against all
demands, claims, actions, suits, damages, judgments, fines, penalties,
liabilities, and costs and expenses, including reasonable costs of attorneys and
related costs of experts such as accountants (collectively, the "Indemnified
Liabilities"), actually incurred by any Indemnified Party which are related to
any litigation or proceeding relating to this Agreement, the Credit Documents,
or the transactions contemplated thereunder, INCLUDING ANY INDEMNIFIED
LIABILITIES CAUSED BY ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, but not
Indemnified Liabilities which are a result of any Indemnified Party's gross
negligence or willful misconduct. The provisions of this paragraph shall survive
the repayment and termination of the credit provided for under this Agreement
and any purported termination of this Agreement which does not expressly refer
to this paragraph.
7.3 Modifications, Waivers, and Consents. No modification or waiver of
any provision of this Agreement or the Revolving Loan Note, nor any consent
required under this Agreement or the Revolving Loan Note, shall be effective
unless the same shall be in writing and signed by the Bank and the Borrower, and
then such modification, waiver, or consent shall be effective only in the
specific instance and for the specific purpose for which given.
7.4 Survival of Agreements. All representations, warranties, and
covenants of the Borrower in this Agreement and the Credit Documents shall
survive the execution of this Agreement and the Credit Documents and any other
document or agreement.
7.5 Successors and Assigns. This Agreement and the Credit Documents
shall bind and inure to the benefit of the Borrower and its successors and
assigns and the Bank and its successors and assigns. The Borrower may not assign
its rights or delegate its duties under this Agreement or any Credit Document.
The Bank may assign its rights and delegate its duties under this Agreement or
any Credit Document. The Borrower will not be charged for any costs incurred by
the Bank or its assignee or delegee in connection with any such
-37-
assignment or delegation by the Bank hereunder. The Bank shall provide the
Borrower with prompt notice of any such assignment or delegation by the Bank;
provided that failure of the Bank to provide such notice shall not affect the
validity of any such assignment or delegation.
7.6 Notice. All notices and other communications under this Agreement
and the Revolving Loan Note shall be in writing and mailed by certified mail
(return receipt requested), telecopied, telexed, hand delivered, or delivered by
a nationally recognized overnight courier, to the address for the appropriate
party specified in SCHEDULE I or at such other address as shall be designated by
such party in a written notice to the other parties. Mailed notices shall be
effective when received. Telecopied or telexed notices shall be effective when
transmission is completed or confirmed by telex answerback. Delivered notices
shall be effective when delivered by messenger or courier. Notwithstanding the
foregoing, notices and communications to the Bank pursuant to Article 2 or 7
shall not be effective until received by the Bank.
7.7 Choice of Law. This Agreement and the Revolving Loan Note have been
prepared, are being executed and delivered, and are intended to be performed in
the State of Texas, and the substantive laws of the State of Texas and the
applicable federal laws of the United States shall govern the validity,
construction, enforcement, and interpretation of this Agreement and the
Revolving Loan Note; provided however, Chapter 15 of the Texas Credit Code does
not apply to this Agreement or the Revolving Loan Note. Each Letter of Credit
shall be governed by the Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce Publication No. 500 (1993 version).
7.8 Arbitration.
(a) Any controversy or claim between or among the parties hereto,
including those arising out of or relating to this Agreement or the Credit
Documents, including any claim based on or arising from an alleged tort, shall
be determined by binding arbitration in accordance with the Federal Arbitration
Act (or if not applicable, the applicable state law), the rules of practice and
procedure for the arbitration of commercial disputes of Judicial Arbitration and
Mediation Services, Inc. ("JAMS"), and the "special rules" set forth in
paragraph (b) below. In the event of any inconsistency, the special rules shall
control. Judgment upon any arbitration award may be entered in any court having
jurisdiction. Any party to this Agreement may bring an action, including a
summary or expedited proceeding, to compel arbitration of any controversy or
claim to which this Agreement or any of the Credit Documents applies in any
court having jurisdiction over such action.
(b) The arbitration shall be conducted in Houston, Texas, and
administered by JAMS, who shall appoint an arbitrator; if JAMS is unable or
legally precluded from administering the arbitration, then the American
Arbitration Association
-38-
shall serve. All arbitration hearings shall be commenced within 90 days of the
demand for arbitration; further, the arbitrator shall only be permitted to
extend the commencement of such hearing for up to an additional 60 days, and
only upon a showing of cause.
(c) Nothing in this Agreement shall be deemed to (i) limit the
applicability of any otherwise applicable statutes of limitation or repose and
any waivers contained in this Agreement or the Credit Documents; or (ii) be a
waiver by the Bank of the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of the Bank hereto
(A) to exercise self help remedies such as (but not limited to) setoff, or (B)
to foreclose against any real or personal property collateral, or (C) to obtain
from a court provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession, or the appointment of a receiver. The
Bank may exercise such self help rights, foreclose upon such property, or obtain
such provisional or ancillary remedies before, during, or after the pendency of
any arbitration proceeding brought pursuant to this Agreement. Neither this
exercise of self help remedies nor the institution or maintenance of an action
for foreclosure or provisional or ancillary remedies shall constitute a waiver
of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
7.9 Counterparts. This Agreement may be executed in multiple
counterparts which together shall constitute one and the same instrument.
7.10 Amendment and Restatement. This Agreement represents an amendment
and restatement of that certain Loan Agreement dated as of June 1, 1994, between
the Borrower and the Bank (as modified, the "Prior Agreement"). The indebtedness
under the Prior Agreement continues under this Agreement and the execution of
this Agreement does not indicate a payment, satisfaction, novation, or discharge
thereof. All security and support for the indebtedness under the Prior Agreement
continues to secure and support the indebtedness hereunder.
7.11 No Further Agreements. THIS WRITTEN AGREEMENT AND THE CREDIT
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
-39-
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
FRESH AMERICA CORP.
By: /s/ MARC K. RIEKE
Name: Marc K. Rieke
Title: Vice President and
Chief Financial Officer
BANK:
NATIONSBANK OF TEXAS, N.A.
By: /s/ GARY MINGLE
Name: Gary Mingle
Title:
-40-
EXHIBIT 10.2
EXTENSION AND MODIFICATION OF LEASE BETWEEN
THE ESTATE OF JAMES CAMPBELL ("LANDLORD") AND FRESH
AMERICA CORPORATION F/K/A GOURMET PACKING, INC.
("TENANT"), COVERING APPROXIMATELY
104,948 SQUARE FEET LOCATED AT
1049 AVENUE H EAST, ARLINGTON, TEXAS (THE "LEASE")
In consideration of the covenants contained within this extension and
modification of lease, the Lease is hereby extended and modified as follow:
I. TERM OF EXTENSION
Pursuant to pararaph four of the addendum to the Lease, the term of the
extension shall be for a period of 60 months, commencing April 1, 1996, and
terminating March 31, 2001 (the "Extended Term"), unless terminated earlier
pursuant to the terms of the Lease.
II. MODIFICATION OF BASE RENT
The monthly Base Rent payable by Tenant to Landlord pursuant to
paragraph 3(a) of the Lease during the remainder of the primary term shall be
modified to the sum of $23,739.38, commencing January 1, 1996, and continuing
through the remainder of the primary term. The above monthly Base Rent sum
assumes that Landlord reimburses Tenant for the entire $450,000.00 tenant
improvement allowance discussed below. In the event that the actual tenant
improvement allowance paid by Landlord to Tenant is less than $450,000.00, then,
in such event, the monthly Base Rent shall be adjusted based upon the actual
tenant improvement allowance paid by Landlord to Tenant, adjusted upward to the
next $1000.00 amount, as indicated on the attached exhibit "A", which is hereby
incorporated into this extension and modification of lease for all intents and
purposes as if fully set forth at length verbatim. In no event, however, shall
the monthly Base Rent during he remainder of the primary term be less than
$20,552.32. In the event that the actual tenant improvement allowance paid by
Landlord to Tenant is less than $450,000.00, Landord and Tenant agree to enter
into a written verification of monthly Base Rent agreement upon comletion by
Tenant of the improvements to the Premises.
III. MONTHLY RENT DURING EXTENDED TERM
The monthly Base Rent payable by Tenant to Landlord pursuant to
paragraph 3(a) of the Lease during he Extended Term shall be the sum of
$23,739.38, assuming that Landlord reimburses Tenant for the entire $450,000.00
tenant improvement allowance as described below. In the event that the actual
tenant improvement allowance paid by Landlord to Tenant is less than
$450,000.00, then the montly Base Rent during he Extended Term shall be adjusted
as described in the preceding paragraph. In no event, however, shall the monthly
Base Rent during the Extended Term be less than $20,552.32. In the event that
the actual tenant improvement allowance paid by Landlord to Tenant is less than
$450,000.00, Landlord and Tenant agree to enter into a wirtten verification of
monthly Base Rent agreement upon completion by Tenant of the improvements to the
Premises.
IV. ALLOWANCE FOR TENANT IMPROVEMENTS
As consideration for this extension and modification of lease, Landlord
agrees to reimburse Tenant up to the sum of $450,000.00 for Tenant's direct and
reasonable expenses improvements shall include, but not be limited to, the
following:
a) replacement of all carpet in offices,
b) painting of offices,
c) truck court expansion and repair,
d) electrical upgrade,
e) HVAC repairs and upgrades throughout the Building, and
f) installation of new cooler equipment.
All such improvements, to be done by or at the direction of Tenant, and the
payment of this allowance by Landlord, shall be governed by the attached axhibit
"B", which is hereby incorporated into this extension and modification of lease
for all intents and purposes as if fully set forth at lenght verbatim.
V. INSTALLATION OF COOLER EQUIPMENT
As a material inducement to Landlord to enter into this extension and
modification of lease, Tenant agrees to remove the existing cooler equipment
owned by Landlord and presently located upon the Premises, and replace said
existing cooler equipment with new cooler equipment to be acquired by Tenant.
Said new cooler equipment shall, at a minimum, be equal in size, capacity,
performance, and quality of construction as the existing cooler equipment
presently located upon the Premises. Tenant's installation of the new cooler
equipment shall be more particularly governed by the terms of the attached
exhibit "B", which is hereby incorporated into this extension and modificaton of
lease for all intents and purposes as if fully set forth at length verbatim.
VI. REPAIR
Landlord acknowledges that Tenant has asserted that the roof and ceiling
tiles of the Premises have been damaged due to leaks in the roof area, and
Landlord agrees to promptly inspect the roof and ceiling and repair such damage,
if any, as required under the terms of the Lease.
VII. RATIFICATION OF LEASE
Except as otherwise specifically amended by this extension and
modification of lease, the terms and provisons contained within this extension
and modification of lease shall in no manner impair, limit, restrict, or
otherwise affect the obligations of the parties as contained within the Lease.
Except as expressly modified by this extension and modification of lease, the
Lease is hereby ratified and approved. In the event of conflict between the
terms of the Lease and this extension and modification of lease, the terms of
this extension and modification of lease shall control.
VIII. APPROVAL BY TRUSTEES REQUIRED
Tenant acknowledges that this extension and modificaton of lease is
being executed by Tenant prior to review and approval by Landlord. Tenant
acknowledges and understands that there is no binding agreement prusuant to this
extension and modification of lease unless and until same is approved by The
Trustees of the Estate of James Campbell, Deceased, acting in their fiduciary
and not in their individual capacities, which approval shall be represented by
and effective upon Landlord's execution of this extension and modification
agreement.
TENANT: LANDLORD:
FRESH AMERICA CORPORATION THE TRUSTEES OF THE ESTATE
OF JAMES CAMPBELL, DECEASED,
ACTING IN THEIR FIDUCIARY
by: /s/ DAVID I. SHEINFELD AND NOT IN THEIR INDIVIDUAL
name: Davie I. Sheinfeld CAPACITIES
title: CEO
by: /s/ ROY S. ROBINE
Roy S. Robine
its: Director, Mainland Properties/West
by: /s/ CLYDE A. SKEEN
Clyde A. Skeen
its: Asset Manager
Date of Execution Date of Execution
by Tenant:_________ by Landlord: 3/22/96
APPROVED AS TO FORM:
by: /s/ L. KELLY JONES
L. Kelly Jones
date: 3/18/96
FRESH AMERICA CORP. EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------ ------------------
June 30, June 28, June 30, June 28,
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income applicable to common stock ............... $ 790 $ 1,407 $ 972 $ 1,755
======= ======= ======= =======
Computation of weighted average common shares:
Weighted average common shares outstanding .... 3,518 3,519 3,518 3,519
Options exercised ............................. -- 30 -- 33
Assumed common shares issued upon exercise
of stock options .............................. 130 342 130 342
Less shares assumed repurchased with proceeds (51) (125) (48) (129)
Assumed conversion of Common stock purchase
warrants, net new shares issued ............... 11 90 18 90
------- ------- ------- -------
3,608 3,856 3,618 3,855
======= ======= ======= =======
Earnings per common share ....................... $ 0.22 $ 0.36 $ 0.27 $ 0.46
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM QUARTER ENDED JUNE 28, 1996 FINANCIAL STATEMENTS OF FRESH AMERICA CORP. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JUN-28-1996
<CASH> 252
<SECURITIES> 0
<RECEIVABLES> 24,205
<ALLOWANCES> 0
<INVENTORY> 3,008
<CURRENT-ASSETS> 28,097
<PP&E> 6,752
<DEPRECIATION> (1,644)
<TOTAL-ASSETS> 33,928
<CURRENT-LIABILITIES> 14,934
<BONDS> 0
0
0
<COMMON> 36
<OTHER-SE> 18,415
<TOTAL-LIABILITY-AND-EQUITY> 33,928
<SALES> 110,916
<TOTAL-REVENUES> 110,916
<CGS> 100,353
<TOTAL-COSTS> 8,008
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (45)
<INCOME-PRETAX> 2,715
<INCOME-TAX> 960
<INCOME-CONTINUING> 1,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,755
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
