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 27, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission File Number 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.)
ONE LINCOLN CENTRE, 5400 LBJ FREEWAY, SUITE 1025, DALLAS, TX 75240
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (972) 774-0575
----------------
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 5, 1997, the Registrant had 3,740,890 shares of its Common Stock
outstanding.
Total number of pages in this report, including the cover page is 54. Exhibit
index on page 12.
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
JANUARY 3, JUNE 27,
1997 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 4,297 $ 2,790
Receivables:
Trade accounts receivable .................... 20,912 26,572
Other ........................................ 39 47
---------- ----------
Total receivables .......................... 20,951 26,619
---------- ----------
Inventories:
Produce ...................................... 1,680 3,034
Supplies ..................................... 260 355
---------- ----------
Total inventories .......................... 1,940 3,389
---------- ----------
Prepaid expenses ............................... 391 1,039
---------- ----------
Total current assets ....................... 27,579 33,837
---------- ----------
Property, plant and equipment, net ............... 5,920 9,168
Notes receivable from shareholders ............... 155 155
Other assets ..................................... 1,553 3,325
---------- ----------
$ 35,207 $ 46,485
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
and capital leases ........................... $ 105 $ 283
Accounts payable ............................... 11,598 19,207
Accrued salaries and wages ..................... 311 653
Other accrued expenses ......................... 1,039 1,254
Taxes payable .................................. 355 664
---------- ----------
Total current liabilities .................. 13,408 22,061
---------- ----------
Long-term debt and capital leases,
less current portion ........................... 547 578
---------- ----------
Shareholders' equity:
Common stock $.01 par value. Authorized
10,000,000 shares: issued 3,711,795
and 3,740,890 respectively ................... 37 37
Additional paid-in capital ..................... 14,693 14,811
Retained earnings .............................. 6,522 8,998
---------- ----------
Total shareholders' equity ................. 21,252 23,846
---------- ----------
Commitments and contingencies
---------- ----------
$ 35,207 $ 46,485
========== ==========
The notes to consolidated financial statements
are an integral part of these statements.
2
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 28, JUNE 27, JUNE 28, JUNE 27,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 64,721 $ 88,665 $ 110,916 $ 158,400
Cost of goods sold, excluding
depreciation and amortization ................ 58,396 79,235 100,353 141,852
---------- ---------- ---------- ----------
Gross profit .............................. 6,325 9,430 10,563 16,548
---------- ---------- ---------- ----------
Selling, general and administrative expenses:
Salaries and related costs ................... 2,318 4,225 4,533 7,632
Rent, maintenance and related costs .......... 830 1,282 1,600 2,268
Insurance expense ............................ 186 313 377 606
Automobile, travel and related costs ......... 150 269 259 461
Communication expense ........................ 146 251 275 416
Depreciation and amortization ................ 325 392 604 750
Other ........................................ 214 327 360 611
---------- ---------- ---------- ----------
4,169 7,059 8,008 12,744
---------- ---------- ---------- ----------
Operating income .......................... 2,156 2,371 2,555 3,804
---------- ---------- ---------- ----------
Other income (expense):
Interest expense ............................. (21) (72) (45) (93)
Interest income .............................. 54 63 89 104
Other, net ................................... 83 94 116 156
---------- ---------- ---------- ----------
116 85 160 167
---------- ---------- ---------- ----------
Income before income taxes ..................... 2,272 2,456 2,715 3,971
Provision for income taxes ..................... 865 925 960 1,495
---------- ---------- ---------- ----------
Net income ................................ $ 1,407 $ 1,531 $ 1,755 $ 2,476
========== ========== ========== ==========
Earnings per share ............................. $ 0.36 $ 0.39 $ 0.46 $ 0.63
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding ................ 3,856 3,954 3,855 3,952
========== ========== ========== ==========
</TABLE>
The notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED
--------------------
JUNE 28, JUNE 27,
1996 1997
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 1,755 $ 2,476
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 604 750
Other ............................................ 4 65
Change in assets and liabilities:
Accounts receivable .............................. (4,463) (5,240)
Inventories ...................................... (1,050) (1,230)
Prepaid expenses ................................. (145) (674)
Other assets ..................................... 80 (281)
Accounts payable ................................. 3,035 6,744
Accrued expenses and other current
liabililties ................................... 135 569
-------- --------
Total adjustments ............................ (1,800) 703
-------- --------
Net cash (used in) provided by
operating activities ....................... (45) 3,179
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net ...... (731) (3,722)
Proceeds from sale of equipment ...................... 6 --
Cost of acquisitions, exclusive of cash acquired ..... -- (932)
Net cash used in investing activities ................ (725) (4,654)
-------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit ............... -- 2,500
Repayments of revolving line of credit .............. (1,000) (2,500)
Additions to long term indebtedness .................. -- 106
Repayments of long-term indebtedness ................. (28) (256)
Net proceeds from exercise of employee stock options . 199 118
-------- --------
Net cash used in financing activities ........ (829) (32)
-------- --------
Net decrease in cash and cash equivalents .... (1,599) (1,507)
Cash and cash equivalents at beginning of period ....... 1,851 4,297
-------- --------
Cash and cash equivalents at end of period ............. $ 252 $ 2,790
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................... $ 5 $ 93
Cash paid for income taxes ........................... $ 883 $ 1,275
The notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Fresh America Corp. (the "Company") is an integrated food distribution
management company engaged in the procurement, processing, warehousing and
delivery of fresh produce and other refrigerated perishable products. The
Company was founded in 1989 and operates in 39 states through fifteen
distribution and processing facilities.
UNAUDITED INTERIM FINANCIAL INFORMATION - The consolidated balance sheet
as of June 27, 1997 and the related consolidated statements of income and cash
flows for the quarters and six month periods ended June 27, 1997 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 included in the
Annual Report on Form 10-K for the fiscal year ended January 3, 1997. The
results for the quarters and six month periods ended June 27, 1997 and June 28,
1996 may not be indicative of operating results for the full year.
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.
EARNINGS PER SHARE - Earnings per share have been calculated based upon
the weighted average number of common and common equivalent shares outstanding
during the period. Common stock equivalents consisting of stock options and
warrants are included in the computation of weighted average shares when their
effect is dilutive. Earnings per share are presented on a fully-diluted basis.
Effective December 1997, the Company will be required to adopt ("SFAS")
No. 128, "Earnings Per Share". SFAS No. 128 introduces the concept of basic
earnings per share, which represents net income divided by the weighted average
common shares outstanding - without the dilutive effects of common stock
equivalents (option, warrants, etc.). Diluted earnings per share will continue
to be reported when SFAS No. 128 is adopted.
5
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FISCAL YEAR - The Company's fiscal year is a 52 week or 53 week period
ending on the first Friday in January.
NOTE 2. AGREEMENT WITH SAM'S CLUB.
In August 1995, the Company entered into a five-year distribution
agreement (the "Agreement") with Sam's Club. The Agreement, which began on
December 1, 1995, replaced the Company's previously 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. For further information, see Note 2 to the
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 3, 1997.
The Agreement provides Sam's the option to reduce the number of clubs
within the Company's exclusive territory by forty per year under certain
circumstances and to discontinue service for clubs in which Sam's elects not to
offer produce, if any. In February 1997, the Company was advised by Sam's that
it was exercising the existing option under the Agreement and that Sam's would
begin to distribute directly to forty clubs currently serviced by the Company's
Atlanta distribution center. Such transition began in late March 1997, and is
expected to result in approximately $15.0 to $20.0 million less revenue for the
1997 fiscal year as compared to fiscal 1996 relative to the clubs Sam's will
distribute to directly. The Company does not believe this action will have a
material adverse effect on its consolidated financial condition. As of August 7,
1997, distribution services have been transitioned on 27 of the forty clubs.
NOTE 3. ACQUISITIONS AND AGREEMENTS.
On November 4, 1996, the Company acquired substantially all of the business
and net assets of Produce Plus, Inc. ("Produce Plus"), a privately owned
specialty food service distribution company based in Houston, Texas.
Consideration for the net assets received consisted of $829,000 in cash, 14,118
shares of Company stock valued at $18.88 per share and a contingent convertible
promissory note to be valued at an amount no greater than $600,000, such future
6
<PAGE>
FRESH AMERICA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
value being determined by certain agreed upon levels of pretax earnings of
Produce Plus for the two years ended January 1, 1999. Seventy-five percent of
the value, if any, of such note may be paid (at Produce Plus' option) in the
form of Company stock at $21.25 per share. The Company has recently agreed to
pay off the convertible promissory note at an amount less than the maximum.
On January 22, 1997, the Company acquired substantially all of the net
assets and the business of CPT Enterprises, Inc. d/b/a/ Chef's Produce Team,
("CPT") a Los Angeles-based food service company providing specialty produce to
upscale restaurants and hotels throughout California and Nevada. As
consideration for the assets received, the Company assumed liabilities of
approximately $1.5 million, with future additional consideration depending on
the achievement of certain levels of pretax earnings over three years through
fiscal 1999.
On March 7, 1997, the Company acquired the business and substantially
all of the operating assets of One More Tomato, Inc. ("OMT") for $573,000 in
cash and the assumption of certain liabilities. OMT is a tomato repackaging and
distribution company located in Houston, Texas.
On May 22, 1997, the Company acquired the business and substantially all
of the operating assets of Pitman Produce of Orlando, Inc., a privately owned
specialty food service distribution company based in Orlando, Florida. The
Company paid $243,000 in cash as consideration for the assets received.
These acquisitions were each accounted for as purchase transactions, and
accordingly, have been included in the Company's financial results since their
respective dates of acquisition. The purchase price recorded to date in these
and previous transactions exceeded the fair market value of the assets acquired;
hence total goodwill of $1,074,000 and $2,603,000 is included in the
consolidated balance sheet at January 3, 1997 and June 27, 1997, respectively,
less the amortization of such goodwill over a 15 year period. The pro forma
effect of these acquisitions, as if they were acquired on January 5, 1996 has
not been presented as none of these transactions are considered material to the
consolidated results for either period.
On February 28, 1997, the Company entered into a five year agreement
with Fast Food Merchandiser's, Inc. ("FFM"), a wholly owned subsidiary of
Hardee's Food Systems, Inc. to source and distribute produce products to all FFM
distribution centers nationwide. Coinciding with the distribution agreement, the
Company acquired the produce processing center in Richmond, Indiana from FFM for
approximately $2.9 million.
NOTE 4. DEBT.
On February 28, 1997, the Company borrowed $2.5 million under its $5.0
million revolving line of credit agreement, which expires on July 31, 1998.
Interest payments under the line of credit are due monthly and accrue at the
bank's prime rate, which was 8.5% as of June 27, 1997. The amount borrowed was
repaid on June 12, 1997.
7
<PAGE>
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 income as a percentage of net
sales.
Quarter Ended Six Months Ended
-------------------- --------------------
June 28, June 27, June 28, June 27,
1996 1997 1996 1997
-------- -------- -------- --------
Net sales ...................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............. 90.2 89.3 90.5 89.6
-------- -------- -------- --------
Gross profit ................... 9.8 10.7 9.5 10.4
Selling, general and
administrative expenses ...... 6.5 8.0 7.2 8.0
-------- -------- -------- --------
Operating income ............... 3.3 2.7 2.3 2.4
Other income (expense) ......... 0.2 .1 0.2 .1
-------- -------- -------- --------
Income before income taxes ..... 3.5 2.8 2.5 2.5
Provision for income taxes ..... 1.3 1.1 0.9 0.9
-------- -------- -------- --------
Net income ..................... 2.2% 1.7% 1.6% 1.6%
======== ======== ======== ========
COMPARISON OF QUARTER ENDED JUNE 27, 1997 WITH QUARTER ENDED JUNE 28, 1996
SEE NOTES TO THE PRECEDING FINANCIAL STATEMENTS FOR A GENERAL BUSINESS
DESCRIPTION AND DISCUSSION OF ACQUISITIONS. THE QUARTERS ENDED JUNE 27, 1997 AND
JUNE 28, 1996 BOTH CONSIST OF THIRTEEN WEEKS.
NET SALES. Net sales increased $23.9 million, or 37.0%, from $64.7
million in the second quarter of 1996 to $88.7 million in the second quarter of
1997. The increase was primarily due to: a) acquisitions made subsequent to the
second quarter of 1996 ($10.3 million); b) expansion and increase in sales of
several distribution programs amounting to $8.0 million and c) a $4.6 million
increase in Sam's revenues between the two comparable quarters. As a percentage
of total net sales, Sam's consisted of 72.3% in the second quarter of 1997
compared with 91.9% in the second quarter of 1996.
COST OF GOODS SOLD. Cost of goods sold increased by $20.8 million, or
35.6%, from $58.4 million in the second quarter of 1996 to $79.2 million in the
second quarter of 1997, primarily reflecting the increase in net sales explained
above. As a percentage of net sales, cost of goods sold decreased from 90.2% to
89.3% due to an increase in specialty food service and value-added businesses,
which have higher gross margins. Revenues from these businesses were nearly 15%
of total revenue in the second quarter of 1997 compared to less than 4% in the
same quarter in the previous year.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $2.9 million or 69.3%, from $4.2
million in the second quarter of 1996 to $7.1 million in the second quarter of
1997. As a percentage of net sales, SG&A expenses increased from 6.5% to 8.0%.
The increase in SG&A is due primarily to the SG&A expenses related to businesses
acquired subsequent to the second quarter of 1996.
OPERATING INCOME. As a result of the foregoing factors, operating income
increased by $0.2 million from $2.2 million in the second quarter of 1996 to
$2.4 million in the second quarter of 1997. As a percentage of net sales,
operating income decreased from 3.3% in the second quarter of 1996 to 2.7% in
the second quarter of 1997.
NET INCOME. As a result of the foregoing factors, net income increased
by $0.1 million from $1.4 million in the second quarter of 1996 to $1.5 million
in the second quarter of 1997. As a percentage of net sales, net income
decreased from 2.2% in the second quarter of 1996 to 1.7% in the second quarter
of 1997.
COMPARISON OF SIX MONTHS ENDED JUNE 27, 1997 TO SIX MONTHS ENDED JUNE 28, 1996.
SEE NOTES TO THE PRECEDING FINANCIAL STATEMENTS FOR A GENERAL BUSINESS
DESCRIPTION AND DISCUSSION OF ACQUISITIONS. THE SIX MONTH PERIODS ENDED JUNE 27,
1997 AND JUNE 28, 1996 BOTH CONSIST OF 25 WEEKS.
Net sales. Net sales increased $47.5 million, or 42.8%, from $110.9
million in the first six months of 1996 to $158.4 million in the first six
months of 1997. The increase was primarily due to: a) expansion and increase in
sales of several distribution programs amounting to $14.8 million , b)
acquisitions made subsequent to June 28, 1996 ($16.2 million) and c) a $14.7
million increase in Sam's revenues between the two comparable periods. As a
percentage of total net sales, Sam's consisted of 74.1% in the first six months
of 1997 compared with 92.6% in the same period in 1996.
COST OF GOODS SOLD. Cost of goods sold increased by $41.5 million, or
41.4%, from $100.4 million in the first six months of 1996 to $141.9 million in
the first six months of 1997, primarily reflecting the increase in net sales
explained above. As a percentage of net sales, cost of goods sold decreased from
90.5% to 89.6% due to an increase in specialty food service and value added
businesses, which have higher gross margins. Revenues from these businesses were
13.6% of total revenue in the first six months of 1997 compared to 4.1% in the
comparable period in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $4.7 million or 59.1%, from $8.0
million in the first six months of 1996 to $12.7 million in the first six months
of 1997. As a percentage of net sales, SG&A expenses increased from 7.2% to 8.0
%. The increase is due primarily to the SG&A expenses related to businesses
acquired subsequent to June 28, 1996.
9
<PAGE>
OPERATING INCOME. As a result of the foregoing factors, operating income
increased by $1.2 from $2.6 million in the first six months of 1996 to $3.8
million in the first six months of 1997. As a percentage of net sales, operating
income increased from 2.3% to 2.4%.
PROVISION FOR INCOME TAXES. The increase in the effective tax rate from
35.3% in the first six months of 1996 to 37.6% in the first six months of 1997
is due to 1996 including a benefit from the elimination of a valuation allowance
related to a net operating loss carryforward.
NET INCOME. As a result of the foregoing factors, net income increased
by $0.7 million from $1.8 million in the first six months of 1996 to $2.5 in the
first six months of 1997. As a percentage of net sales, net income was 1.6% in
both comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $3.2 million for the six
months ended June 27, 1997 compared to cash used by operations of $45,000 in the
six months ended June 28, 1996. The difference is primarily due to increased
profitability in the six months ended June 27, 1997 and the timing of usage of
working capital.
Cash used in investing activities increased $3.9 million from $0.7
million in the six months ended June 28, 1996 to $4.7 million in the six months
ended June 27, 1997. The increase is due to the purchase of a processing and
distribution center in Richmond, Indiana and the acquisition of other companies.
Cash used in financing activities was $32,000 in the first six months of
1997 compared to $829,000 in the first six months of 1996. In the first six
months of 1997, borrowings of $2.5 million earlier in the period were repaid. In
the corresponding period in 1996, cash of $1.0 million was used to repay an
outstanding note payable.
At June 27, 1997, the Company had working capital of $11.8 million
compared to $14.2 million at January 3, 1997. The Company has a new $14 million
revolving line of credit and term loan bank facility available which can be used
for general corporate purposes and for acquisitions. The term loan portion can
be drawn down through December 31, 1997. As of August 7, 1997, there were no
outstanding balances under such facility.
Management believes that the combination of cash generated from operating
activities, availability under its new bank line of credit and the use of
operating leases where appropriate is sufficient to meet its operating
requirements, normal capital expenditure needs, and a portion of its acquisition
and expansion funding requirements. The Company intends to continue its
expansion activities and will require additional capital to meet such
requirements. The Company believes it has access to the capital markets and can
also obtain additional credit from financial institutions in order to raise the
capital necessary to fund such expansion activities.
10
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The Company's business is seasonal, with its greatest quarterly sales
volume historically 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 and melons. Sales of refrigerated,
pre-packaged 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.
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" above.
OUTLOOK AND UNCERTAINTIES
Certain information in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements. The Company's future financial condition and
results, as well as any forward-looking statements, are subject to inherent
risks and uncertainties, including, without limitation, potential limitations on
the Company's ability to pursue its acquisition strategy, significant
competition, limitations arising from the Company's indebtedness, government
regulation, seasonality and dependence on key management. Additional information
concerning these and other risk factors is contained in the Company's Annual
Report on Form 10-K for the fiscal year ended January 2, 1997, a copy of which
may be obtained from the Company upon request.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.
Exhibit 10.1 - Credit Agreement between the Company and Bank of
America Texas, N.A. dated as of July 23, 1997.
Exhibit 11.1 - Computation of Earnings Per Common Share.
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/ ROBERT C. KIEHNLE Date: August 7, 1997
Robert C. Kiehnle
Executive Vice President and
Chief Financial Officer
12
EXHIBIT 10.1
[BANK OF AMERICA LOGO]
- --------------------------------------------------------------------------------
This Agreement dated as of July 23, 1997 is between BANK OF AMERICA TEXAS, N.A.
(the "BANK") and FRESH AMERICA CORP., a Texas corporation (the "BORROWER"). The
Borrower has requested that the Bank extend credit to the Borrower not to EXCEED
a total outstanding principal amount of $14,000,000 (as that amount may be
reduced by certain Borrowing Base restrictions) to be used by the Borrower as
provided herein and allocated as (a) a revolving line of credit of up to
$10,000,000, which may be increased in accordance with certain provisions of
this Agreement, to be funded by the Bank from time to time in a combination of
advances and letters of credit, and (b) a term loan of up to $4,000,000 to be
funded by the Bank in one or more advances between the date of this Agreement
and December 31, 1997. The Bank is willing to extend the requested credit on the
terms and conditions of this Agreement.
ACCORDINGLY, for adequate and sufficient consideration, the Borrower and the
Bank agree as follows:
1. DEFINITIONS. The following terms have the meanings indicated for the purposes
of this Agreement:
"AFFILIATE" of a Person means any other individual or entity who
directly or indirectly controls, is controlled by, or is under common control
with that Person. For purposes of this definition (a) "control," "controlled
by," and "under common control with" means possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of voting securities or other interests, by contract, or
otherwise), and (b) the Companies are "Affiliates" of each other.
"ACCEPTABLE INVENTORY" means inventory of any Company that satisfies the
following requirements:
(a) The inventory is owned by that Company free of any title defects
or any liens or interests of others except the security interest
in favor of the Bank and Permitted Liens described in SECTION
10.9(B) and (E).
(b) The inventory is permanently located at locations which the
Borrower has disclosed to the Bank and which are acceptable to
the Bank. If the inventory is covered by a negotiable document of
title (such as a warehouse receipt) that document must be
delivered to the Bank. Inventory which is in transit is not
acceptable unless it is covered by a commercial letter of credit
issued by the Bank and the seller of the inventory is required to
present shipping or title documents to the Bank as a condition to
obtaining payment.
(c) The inventory is not placed on consignment.
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(d) With respect to any Inventory located in any facility leased by
any Company either: (i) a properly executed landlord waiver
substantially in the form of ANNEX 3 to the Security Agreement
has been delivered and remains in effect; or (ii) the Company has
paid all rent due and owing under the applicable lease and is not
otherwise in default under the lease.
"ACCEPTABLE RECEIVABLE" means an account receivable of any Company which
satisfies the following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by that Company in the ordinary course of
that Company's business.
(b) There are no conditions which must be satisfied before that
Company is entitled to receive payment of the account. Accounts
arising from COD sales, consignments or guaranteed sales are not
acceptable.
(c) The debtor upon the account does not claim any defense to payment
and has not asserted any counterclaims or offsets against that
Company, but only to the extent of such claim, defense or offset.
(d) The account has arisen from an enforceable order or contract for
the absolute and final sale of the inventory or services of that
Company or accounts receivable for which the sales or services
have been fully performed in the ordinary course of business of
that Company.
(e) With respect to Sam's, that Company has either sent an invoice to
Sam's in the amount of the account or has recorded the sale in
its books and records and has other evidence that the sale is
final.
(f) The account is owned by that Company free of any title defects or
any liens or interests of others except the security interest in
favor of the Bank and Permitted Liens described in SECTION
10.9(A), (B), and (E).
(g) The debtor upon the account is not an employee or Affiliate of
that Company.
(h) The debtor upon the account is not any state, county, city, town
or municipality, EXCEPT to the extent that there are no statutory
defenses or administrative barriers to the Bank's perfection of
its security interest in such account or collection of such
account as a secured party.
(i) The debtor upon the account is not any person or entity located
in a foreign country other than Canada or Puerto Rico unless the
account is supported by a letter of credit issued by a bank
acceptable to the Bank, PROVIDED THAT accounts of debtor's
located in Canada or Puerto Rico shall only be included as
Acceptable Receivables to the extent that the amounts owing under
such accounts do not EXCEED $500,000 in the aggregate.
(j) The debtor on the account is not a person or entity to whom that
Company is obligated for goods purchased by that Company or for
services performed for that Company, but only to the extent of
the amount payable by any Company to such debtor, and only to the
extent that such amount payable is not deducted from the Adjusted
Borrowing Base under CLAUSE (B) in the definition of that term.
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(k) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within the 60 day period starting
on its due date, PROVIDED THAT the due date will not be
later than 90 days from the billing date;
(ii) The debtor obligated upon the account suspends business,
makes a general assignment for the benefit of creditors,
or fails to pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated
upon the account under any Debtor Law.
(l) The account, when added to all other accounts that are
obligations of the same debtor, (OTHER THAN Sam's) does not cause
that debtor's total obligations to the Companies to EXCEED 20% of
the balance due on all of the Companies' accounts.
(m) The account is not the obligation of a debtor (OTHER THAN Sam's)
who is in default (as defined in clause (j) above) on 20% more of
the accounts upon which debtor is obligated.
(n) The account does not arise from the sale of goods which remains
in that Company's possession or under that Company's control.
(o) The account is not evidenced by a promissory note or chattel
paper. This does not exclude accounts owing by Sam's that have
been recorded in the books of that Company as a final sale, but
have not yet been invoiced.
(p) The account is otherwise reasonably acceptable to the Bank. The
Bank will give the Borrower 10 days prior written notice before
implementing any changes in its eligibility criteria for
Acceptable Receivables.
Notwithstanding anything herein to the contrary, the Bank may, in its
sole discretion, with respect to accounts upon which the debtor is the U.S.
government or any agency or department of the U.S. government, expressly require
the applicable Company to comply with the procedures in the Federal Assignment
of Claims Act of 1940 with respect to the obligation, and if that Company is not
in compliance with such procedures thirty days after that Company has received
notice of such requirement, that account will be excluded from Acceptable
Receivables.
"ACM" is defined in SECTION 11.8 of this Agreement.
"ACT" is defined in SECTION 13.16 of this Agreement.
"ADJUSTED BORROWING BASE" means the lesser of: (a) the Revolving
Facility Commitment, as that amount may be reduced or increased in accordance
with the terms of this Agreement, or (b) the Borrowing Base, MINUS any amounts
the Companies owe to growers of agricultural products that may have statutory
rights against certain assets of the Companies under PACA.
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"APPLICABLE MARGIN" means (a) for amounts bearing interest at the LIBOR
Rate under the Revolving Facility Commitment, 1.50%, and (b) for amounts bearing
interest at the LIBOR Rate under the Term Loan Commitment, 2.00%.
"ARRANGER" is defined in SECTION 10.2 of this Agreement.
"BANKING DAY" is defined in SECTION 7.4 of this Agreement.
"BORROWING BASE" means the SUM of (a) 80% of the balance due on
Acceptable Receivables, and (b) the LESSER of $1,000,000 or 25% of the value of
Acceptable Inventory, PROVIDED THAT the amount determined under this CLAUSE (B)
may never exceed an amount equal to 10% of the total Borrowing Base.
In determining the value of Acceptable Inventory to be included in the Borrowing
Base, the Bank will use the LESSER of (i) the applicable Company's cost, or (ii)
the applicable Company's estimated market value.
"BORROWING BASE REPORT" means a report substantially in the form of
EXHIBIT D-1.
"BORROWING NOTICE" means a notice substantially in the form of EXHIBIT
C-2.
"CAPITAL EXPENDITURE" means, for any period and any Person, all
expenditures by that Person during that period for property, plant, or equipment
(including renewals, improvements, replacements, and capitalized repairs) that
should be reflected as additions to property, plant, or equipment on that
Person's balance sheet prepared in conformity with GAAP, and, for purposes of
this definition (a) the purchase of equipment acquired concurrently with the
trade-in of existing equipment or acquired with insurance proceeds shall be
included in Capital Expenditures only to the extent of the gross amount of the
purchase price less the credit granted for the equipment traded in or the amount
of insurance proceeds, as the case may be, and (b) the purchase price of
equipment acquired in connection with the sale or other disposition of capital
assets being replaced or superseded shall be included in Capital Expenditures
only to the extent of the gross amount of the purchase price less any cash
received from that sale or other disposition.
"CAPITAL LEASE" means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.
"CHANGE OF CONTROL" is defined in SECTION 12.12 of this Agreement.
"CODE" is defined in SECTION 9.14(E)(I) of this Agreement.
"COLLATERAL" is defined in SECTION 6.2 of this Agreement.
"COMPANIES" means, at any time, the Borrower and each of its
Subsidiaries.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT D-2 and signed by the Chief Executive Officer, Chief Financial
Officer, President, or Treasurer of the Borrower.
"CONFIDENTIALITY AGREEMENT" means that certain Confidentiality Agreement
dated as of February 19, 1997, executed by and between the Borrower and the
Bank.
"CONSIGNEE" is defined in SECTION 10.26 of this Agreement.
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"CPA" is defined in SECTION 10.3(A) of this Agreement.
"DEBT" means, for any Person, at any time, and without duplication, the
SUM of (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services except trade accounts payable
arising in the ordinary course of business, (d) all obligations arising under
acceptance facilities or facilities for the discount or sale of accounts
receivable, (e) all direct or contingent obligations in respect of letters of
credit, (f) liabilities secured (or for which the holder of the Debt has an
existing Right, contingent or otherwise, to be so secured) by any Lien existing
on property owned or acquired by that Person, other than accounts payable
secured by PACA Liens (g) lease obligations that have been capitalized for
financial reporting purposes, and (h) all guaranties, endorsements, and other
contingent obligations for Debt of others.
"DEBTOR LAWS" means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar laws affecting creditors' Rights.
"DEFAULT" means the occurrence of any event described in SECTION 12 of
this Agreement.
"EBITDA" is defined in SECTION 10.4 of this Agreement.
"EQUITY POOL" means at any time, the cumulative cash proceeds from the
issuance of equity securities plus non-operating cash balances acquired with
respect to Permitted Acquisitions (I.E., cash and investment balances at the
acquired entity which are free and clear of any encumbrances, available to the
Borrower without restriction, and not necessary for ongoing operation of the
acquired entity) less (a) cumulative Capital Expenditures made pursuant to
SECTION 10.10(B), and (b) cumulative Permitted Acquisitions made pursuant to
SECTION 10.13(D)(II).
"ERISA" is defined in SECTION 9.14(E)(II) of this Agreement.
"ERISA AFFILIATE" is defined in SECTION 9.14(E)(III) of this Agreement.
"EURODOLLAR RATE" is defined in SECTION 4.3 of this Agreement.
"EXPIRATION DATE" is defined in SECTION 2.2 of this Agreement.
"FIXED CHARGE COVERAGE" is defined in SECTION 10.7 of this Agreement.
"FUNDED DEBT" is defined in SECTION 10.4 of this Agreement.
"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
"GOVERNMENT SECURITIES" is defined in SECTION 10.12(A) of this
Agreement.
"GUARANTY" means a guaranty substantially in the form of EXHIBIT B.
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"INCUMBENT BOARD" is defined in SECTION 12.12 of this Agreement.
"INDIANA MORTGAGE" means a real estate mortgage acceptable in form and
substance to the Bank.
"INELIGIBLE SECURITIES" is defined in SECTION 10.2 of this Agreement.
"INTEREST COVERAGE" is defined in SECTION 10.6 of this Agreement.
"INTEREST EXPENSE" means, for any Person, for any period, and without
duplication, all interest on Funded Debt, whether paid in cash or accrued as a
liability and payable in cash during any subsequent period (including the
interest component of Capital Leases), as determined by GAAP, but excluding any
non-cash interest on Subordinated Debt so long as no cash interest is due and
payable on such Subordinated Debt prior to 90 days following the Expiration
Date.
"INVESTMENT" means, in respect of any Person, any loan, advance,
extension of credit, or capital contribution to that Person, any investment in
that Person, or any purchase or commitment to purchase (i) any equity securities
or Debt issued by that Person or (ii) substantially all of the assets or a
division or other business unit of that Person.
"LC REQUEST" means a request substantially in the form of EXHIBIT C-3.
"LIBOR RATE" is defined in SECTION 4.3(D) of this Agreement.
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners (other than title of the lessor
under an operating lease).
"LOAN DOCUMENTS" means (a) this Agreement, certificates and reports
delivered under this Agreement, and exhibits and schedules to this Agreement,
(b) all agreements, documents, and instruments in favor of the Bank ever
delivered under this Agreement, (c) all letters of credit issued under this
Agreement, and (e) all renewals, extensions, and restatements of, and amendments
and supplements to, any of the foregoing.
"LONDON RATE" is defined in SECTION 4.3(D)(I) of this Agreement.
"MATERIAL ADVERSE EVENT" means any circumstance or event that,
individually or collectively, is reasonably expected to result (at any time
before the Bank's commitment to fund under this Agreement is fully canceled or
terminated and the Companies' obligations under the Loan Documents are fully
paid and performed) in any (a) material impairment of (i) the ability of
Borrower to perform any of its payment or other material obligations under any
Loan Document, (ii) the Companies as a whole to perform any of their payment or
other material obligations under any Loan Document, or (iii) the ability of the
Bank to enforce any of those obligations or any of its Rights under the Loan
Documents, or (b) material and adverse effect on the financial condition of the
Companies as a whole as represented to the Bank in the financial statements most
recently delivered before the date of this Agreement.
"MAXIMUM RATE" is defined in SECTION 4.1 of this Agreement.
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"NET INCOME" means, for any period and any Person, the amount that
should in accordance with GAAP be reflected on that Person's income statement as
net income for that period.
"O&M PLAN" is defined in SECTION 11.8 of this Agreement.
"PACA" means the Perishable Agricultural Commodities Act, 1930, as
amended from time to time.
"PACA LIEN" means any Lien (including constructive trusts) arising under
PACA asserted, perfected, or imposed by any supplier or suppliers of
agricultural products to any Company.
"PERMITTED ACQUISITIONS" is defined in SECTION 10.13 of this Agreement.
"PERMITTED CAPITAL EXPENDITURES" is defined in SECTION 10.10 of this
Agreement.
"PERMITTED LIENS" is defined in SECTION 10.9 of this Agreement.
"PERSON" means any individual, entity, or Governmental Authority.
"PGBC" is defined in SECTION 9.14(E)(IV) of this Agreement.
"PLAN" is defined in SECTION 9.14(E)(V) of this Agreement.
"POTENTIAL DEFAULT" means any event's occurrence or any circumstances'
existence that would upon any required notice, time lapse, or both, become a
Default.
"REAL PROPERTY" is defined in SECTION 11.1(A) of this Agreement.
"REFERENCE RATE" is defined in SECTION 4.1 of this Agreement.
"RESERVE PERCENTAGE" is defined in SECTION 4.3(D)(II) of this Agreement.
"REVOLVING FACILITY COMMITMENT" is defined in SECTION 2.1 of this
Agreement.
"REVOLVING NOTE" means the promissory note substantially in the form of
EXHIBIT A-1.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
"SAM'S" means Sam's Club, a division of Wal-Mart, Inc.
"SAM'S CONTRACT" is defined in SECTION 10.16(G) of this Agreement.
"SECURITY AGREEMENT" means a security agreement in substantially the
form of EXHIBIT C-1.
"SENIOR FUNDED DEBT" is defined in SECTION 10.4 of this Agreement.
"SUBORDINATED DEBT" is defined in SECTION 10.4 of this Agreement.
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"SUBSIDIARY" of any Person means any entity of which more than 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person.
"SURVEY" is defined in SECTION 11.8 of this Agreement.
"TANGIBLE NET WORTH" is defined in SECTION 10.5 of this Agreement.
"TAXES" means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
"TERM LOAN COMMITMENT" is defined in SECTION 3.1 of this Agreement.
"TERM NOTE" means the promissory note substantially in the form of
EXHIBIT A-2.
"TERM RATE" is defined in SECTION 4.2 of this Agreement.
"TEXAS MORTGAGE" means a deed of trust in form and substance acceptable
to the Bank.
2. REVOLVING FACILITY: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line
of credit (the "REVOLVING FACILITY COMMITMENT") is $10,000,000,
subject to Adjusted Borrowing Base restrictions and increase or
reduction in accordance with the terms of this Agreement.
(b) This is a revolving line of credit with a subfacility for letters
of credit as described below. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts of any
letters of credit, including (i) the total face amount of all
undrawn and uncancelled letters of credit and (ii) amounts drawn
on letters of credit and not yet reimbursed, to exceed the
Adjusted Borrowing Base. If the Borrower exceeds this limit, the
Borrower will immediately pay the excess to the Bank upon the
Bank's demand.
(d) Borrower may, upon giving at least five (5) Banking Days' prior
written irrevocable notice to the Bank, terminate all or part of
the Revolving Facility Commitment. Each partial termination must
be in an amount of not less than $100,000 or a greater multiple
of $50,000. At the time of the termination, Borrower shall pay to
the Bank, any principal payment required to reduce the
outstanding loans under the Revolving Facility Commitment and
undrawn letters of credit to an amount not exceeding the reduced
Revolving Facility Commitment, all accrued and unpaid fees due
and owing under this Agreement, any interest attributable to the
amount of the reduction, and any related funding loss on advances
bearing interest at the Eurodollar Rate. Any part of the
Revolving Facility Commitment that is terminated may not be
reinstated.
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2.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and December 31, 1999 (the "EXPIRATION DATE"), unless a Potential
Default or Default has occurred and is continuing. Subject to SECTION 4.3(B)
regarding amounts borrowed under this Agreement bearing interest at the
Eurodollar Rate, each disbursement must be for AT LEAST $100,000 or a greater
integral multiple of $50,000 (or for the amount of remaining available credit
under the Revolving Facility Commitment, if less).
2.3 PURPOSE. The line of credit will be used for working capital and general
corporate purposes of the Companies, including Permitted Acquisitions.
2.4 REVOLVING NOTE AND REPAYMENT TERMS. Outstanding principal under the
Revolving Facility Commitment, including payments made by the Bank under a
letter of credit, is evidenced by the Revolving Note. Principal and interest on
the Revolving Note are payable as follows:
(a) The Borrower will pay interest on all amounts bearing interest at
the Reference Rate on September 30, 1997 and on the last day of
each quarter thereafter until payment in full of any principal
outstanding under the Revolving Facility Commitment.
(b) Any amount bearing interest at the Eurodollar Rate (as described
below) may be repaid at the end of each applicable interest
period, PROVIDED THAT no interest period may end after the
Expiration Date.
(c) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under the Revolving
Facility Commitment on the Expiration Date unless otherwise
accelerated pursuant to the terms hereof.
(d) The Borrower may prepay the line of credit in full or in part at
any time.
(e) If the Revolving Facility Commitment is increased in accordance
with SECTION 3.5 of this Agreement to an amount GREATER THAN
$12,000,000, the Revolving Facility Commitment shall be
permanently reduced to $12,000,000 (if not already otherwise
reduced below $12,000,000) on December 31, 1998, and the Borrower
will prepay the line of credit on that date in an amount equal to
that portion of outstanding principal under the Revolving
Facility Commitment that EXCEEDS $12,000,000 (if any), together
with interest.
(f) If at any time the Revolving Facility Commitment is increased to
greater than $10,000,000, the Borrower will execute a new
Revolving Note substantially in the form of EXHIBIT A-1 attached
hereto, including the renewal and increase language, in the
principal amount of the increased Revolving Facility Commitment.
2.5 LETTERS OF CREDIT. This line of credit may be used for the issuing of
standby and commercial letters of credit with a maximum initial maturity of one
year but not to extend beyond the Expiration Date. Each commercial letter of
credit will require drafts payable at sight. The amount of letters of credit
outstanding at any one time (including amounts drawn on letters of credit and
not yet reimbursed) may not EXCEED $2,000,000. The letters of credit may include
customary provisions acceptable to the Bank, which provide for automatic renewal
unless the Bank gives prior notice of non-renewal of such letter of credit.
The Borrower agrees:
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(a) any sum drawn under a letter of credit may, at the option of the
Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(b) if any Potential Default or Default has occurred and is
continuing under this Agreement, to immediately, upon request of
the Bank, prepay or provide cash collateral to make the Bank
whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit must be in the standard form of letter of credit
in effect from time to time, issued by the Bank.
(d) to provide the Bank with an LC Request and sign the Bank's
standard form of Application and Agreement for Standby Letter of
Credit or standard form of Application and Agreement for
Commercial Letter of Credit, as appropriate.
(e) to pay an issuance fee for issuing and processing letters of
credit equal to 1.50% per annum of the face amount of each letter
of credit issued under this Agreement.
2.6 APPLICATION OF PAYMENTS. Prior to the occurrence and continuation of any
Potential Default or Default, the Bank will apply payments on the obligations
hereunder as directed by Borrower. Thereafter, the Bank may apply payments
received from the Borrower to the obligations of the Borrower to the Bank
hereunder in the order and the manner as the Bank, in its sole discretion, may
determine.
3. TERM LOAN FACILITY: AMOUNT AND TERMS.
3.1 LOAN AMOUNT. The Bank agrees to provide a term loan to the Borrower in the
maximum principal amount of $4,000,000 (the "TERM LOAN COMMITMENT").
3.2 AVAILABILITY PERIOD. The term loan is available in one or more disbursements
from the Bank between the date of this Agreement and December 31, 1997, unless a
Potential Default or Default has occurred and is continuing. Subject to SECTION
4.3(B) regarding amounts borrowed under this Agreement bearing interest at the
Eurodollar Rate, each disbursement must be for AT LEAST $100,000 or a greater
integral multiple of $100,000 (or for the amount of remaining available credit
under the Term Loan Commitment, if less).
3.3 PURPOSE. The term loan shall be used for general corporate purposes,
including Permitted Acquisitions.
3.4 TERM NOTE AND REPAYMENT TERMS. Outstanding principal under the Term Loan
Commitment is evidenced by the Term Note. Principal and interest on the Term
Note are payable as follows:
(a) The Borrower will pay all accrued but unpaid interest on
September 30, 1997, and on the last day of each quarter
thereafter and upon payment in full of any principal outstanding
under the Term Loan Commitment.
(b) The Borrower will repay principal in seven equal installments,
due and payable on the last day of each quarter, commencing on
March 31, 1998, in an amount equal to THE RESULT
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(rounded upwards to the nearest dollar) OF (i) the outstanding
principal balance under the Term Loan Commitment as of December
31, 1997, DIVIDED BY (ii) eight. On December 31, 1999, the
Borrower will repay the remaining principal balance under the
Term Note PLUS any unpaid interest or other charges outstanding
under the Term Loan Commitment.
(c) The Borrower may prepay the principal outstanding under the Term
Loan Commitment in full or in part at any time without premium or
penalty (EXCEPT THAT the Borrower must pay any related funding
loss on amounts bearing interest at the Eurodollar Rate) in an
amount NOT LESS THAN $100,000. The prepayment must be accompanied
by payment of all accrued and unpaid interest on the portion of
the Term Loan Commitment being prepaid and will be applied to the
most remote installment of principal due under the Term Loan
Commitment.
3.5 COMMITMENT CONVERSION. At any one or more times after the date of this
Agreement and through (and including) December 31, 1997, following at least
five-days written notice (which must stipulate the effective date of the
conversion) to the Bank, the Borrower may convert all or any portion of the Term
Loan Commitment into the Revolving Facility Commitment. Each such conversion
must be for a minimum of $100,000 or a greater integral multiple of $100,000 and
shall permanently reduce the Term Loan Commitment and, subject to subsequent
reduction under SECTION 2.4(E) of this Agreement, increase the Revolving
Facility Commitment by the amount converted. If any such conversion causes the
outstanding principal of the Term Note to exceed the then reduced Term Loan
Commitment, then the Borrower shall make a mandatory prepayment of the principal
of the Term Note on the effective date of that conversion that is at least equal
to that excess, plus accrued interest on the amount of principal so prepaid.
Notwithstanding any such conversion, all borrowings under the Revolving Facility
Commitment are subject to compliance with all conditions precedent for such
borrowings in the Loan Documents, including, without limitation, SECTION 2.1(C)
of this Agreement.
3.6 TERMINATION. Borrower may, upon giving at least five (5) Banking Days' prior
written irrevocable notice to the Bank, terminate all or part of the Term Loan
Commitment. Each partial termination must be in an amount of not less than
$100,000 or a greater multiple of $50,000. At the time of the termination,
Borrower shall pay to the Bank, any principal payment required to reduce the
outstanding loans under the Term Loan Commitment to an amount not exceeding the
reduced Term Loan Commitment, all accrued and unpaid fees due and owing under
this Agreement, any interest attributable to the amount of the reduction, and
any related funding loss on advances bearing interest at the Eurodollar Rate.
Any part of the Term Loan Commitment that is terminated may not be reinstated or
converted to the Revolving Facility Commitment.
4. INTEREST RATES.
4.1 REVOLVING FACILITY COMMITMENT. Unless the Borrower elects the Eurodollar
Rate as described below, the interest rate on outstanding principal amounts
under the Revolving Facility Commitment is the LESSER of (a) the maximum lawful
rate of interest permitted under applicable usury laws, now or hereafter enacted
(the "MAXIMUM RATE"), OR (b) the rate that is equal to the Bank's Reference
Rate. The "REFERENCE RATE" is the rate of interest publicly announced from time
to time by the Bank in Irving, Texas, as its Reference Rate. The Reference Rate
is set by the Bank based on various factors, including its costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans. The Bank may price loans to its
customers at, above, or below
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the Reference Rate. Any change in the Reference Rate will take effect at the
opening of business on the day specified in the public announcement of a change
in the Bank's Reference Rate.
Notwithstanding the foregoing, if at any time the Reference Rate shall exceed
the Maximum Rate and thereafter the Reference Rate shall become less than the
Maximum Rate, the rate of interest payable shall be the Maximum Rate until the
Bank shall have received the amount of interest it otherwise would have received
if the interest payable had not been limited by the Maximum Rate during the
period of time the Reference Rate exceeded the Maximum Rate.
4.2 TERM LOAN COMMITMENT. Unless the Borrower elects the Eurodollar Rate as
described below, the interest rate on outstanding principal amounts under the
Term Loan Commitment is the LESSER of (a) the Maximum Rate, OR (b) the rate (the
"TERM RATE") that is equal to the SUM of the Bank's Reference Rate PLUS 0.25%.
Notwithstanding the foregoing, if at any time the Term Rate shall EXCEED the
Maximum Rate and thereafter the Term Rate shall become less than the Maximum
Rate, the rate of interest payable shall be the Maximum Rate until the Bank
shall have received the amount of interest it otherwise would have received if
the interest payable had not been limited by the Maximum Rate during the period
of time the Term Rate exceeded the Maximum Rate.
4.3 LIBOR RATE. Instead of the interest rate based on the Bank's Reference Rate,
the Borrower may elect to have all or portions of the principal amounts borrowed
under this Agreement bear interest at the LIBOR Rate PLUS the Applicable Margin
(the "EURODOLLAR RATE") during an interest period agreed to by the Bank and the
Borrower, PROVIDED THAT the Borrower shall not have the option or right to elect
to have all or any portion of the principal amounts borrowed under this
Agreement bear interest at the Eurodollar Rate when the Eurodollar Rate exceeds
the Maximum Rate. The Eurodollar Rate is a rate per year. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated the Eurodollar Rate and a new
interest period for the portion. Designation of a Eurodollar Rate portion is
subject to the following requirements:
(a) The interest period during which the Eurodollar Rate will be in
effect will be 30, 60, 90, or 180 days. The last day of the
interest period will be determined by the Bank using the
practices of the London inter-bank market.
(b) Each Eurodollar Rate portion will be for an amount NOT LESS THAN
Five Hundred Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a Eurodollar Rate portion
no later than 9:00 a.m. San Francisco time three (3) Banking Days
before the commencement of the interest period.
(d) The "LIBOR RATE" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
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London Rate
LIBOR Rate = ----------------
(1.00 -- Reserve
Percentage)
Where,
(i) "LONDON RATE" means the interest rate (rounded upward to
the nearest 1/16th of one percent) at which the Bank's
London Branch, London, Great Britain, would offer U.S.
dollar deposits for the applicable interest period to
other major banks in the London inter-branch market at
approximately 11:00 a.m. London time two (2) Banking Days
prior to the commencement of the interest period.
(ii) "RESERVE PERCENTAGE" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System
for Eurocurrency Liabilities, as defined in the Federal
Reserve Board Regulation D, rounded upward to the nearest
1/100 of one percent. The percentage will be expressed as
a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special and other
reserve percentages.
(e) The Borrower may not elect a Eurodollar Rate with respect to any
portion of the principal balance outstanding under the Revolving
Facility Commitment or the Term Loan Commitment that is scheduled
to be repaid before the last day of the applicable interest
period.
(f) Any portion of the principal balance outstanding under the
Revolving Facility Commitment or the Term Loan Commitment already
bearing interest at the Eurodollar Rate will not be converted to
a different rate during its interest period.
(g) Each prepayment of a Eurodollar Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid; and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day
of the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the London
inter-bank market for a period starting on the date on
which it was prepaid and ending on the last day of the
interest period for such portion.
(h) The Bank will have no obligation to accept an election for a
Eurodollar Rate portion if any of the following described events
has occurred and is continuing, and the Bank is not making loans
based on Eurodollar Rates to its customers generally:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a Eurodollar Rate portion
are not available in the London inter-bank market; or
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(ii) the Eurodollar Rate does not accurately reflect the cost
of a Eurodollar Rate portion.
The Bank will give Borrower written notice as soon as practicable
upon the occurrence of either such events and after such events
no longer exist.
(i) If at any time during any applicable interest period the
Eurodollar Rate shall EXCEED the Maximum Rate and thereafter the
Eurodollar Rate shall become less than the Maximum Rate, the rate
of interest payable shall be the Maximum Rate until the Bank
shall have received the amount of interest it otherwise would
have received if the interest payable had not been limited by the
Maximum Rate during the period of time the Eurodollar Rate
exceeded the Maximum Rate.
5. FEES AND EXPENSES.
5.1 FEES.
(a) LOAN FEE. Subject to the provisions of SECTION 5.4 hereof, the
Borrower agrees to pay a loan fee in the amount of $35,000. This
fee is due and payable upon execution of this Agreement.
(b) UNUSED COMMITMENT FEE. Subject to the provisions of SECTION 5.4
hereof, the Borrower agrees to pay a fee on any difference
between the Revolving Facility Commitment and the amount of
credit the Borrower actually uses under the Revolving Facility
Commitment, determined by the weighted average Revolving Credit
Facility loan balance and undrawn letter of credit amounts
maintained during the specified period. The fee will be
calculated at 0.25% per annum and is due and payable on the last
day of each calendar quarter, commencing September 30, 1997, and
continuing through the Expiration Date.
(c) TERM LOAN COMMITMENT FEE. Subject to the provisions of SECTION
5.4 hereof, the Borrower agrees to pay a fee in an amount equal
to 0.25% of the outstanding principal balance under the Term Loan
Commitment as of December 31, 1997, upon which date that fee is
due and payable.
(d) UNUSED TERM LOAN COMMITMENT FEE. Subject to the provisions of
SECTION 5.4 hereof, the Borrower agrees to pay a fee on any
difference between the Term Loan Commitment and the amount of
credit the Borrower actually uses under the Term Loan Commitment,
determined by the weighted average Term Loan Commitment loan
balance maintained during the specified period. The fee will be
calculated at 0.25% per annum and is due and payable on the last
day of each calendar quarter, commencing September 30, 1997, and
continuing through and including December 31, 1997.
5.2 EXPENSES.
(a) Subject to the letter agreement dated as of May 19, 1997, between
Borrower and the Bank, the Borrower agrees to promptly repay the
Bank for reasonable out-of-pocket expenses incurred under the
Loan Documents that include, but are not limited to, filing,
recording and search fees, appraisal fees, title report fees, and
documentation fees.
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(b) Subject to the letter agreement dated as of May 19, 1997, between
Borrower and the Bank, the Borrower agrees to reimburse the Bank
for any reasonable out-of-pocket expenses it incurs in the
preparation of this Agreement and the other Loan Documents and
any amendments, modifications and supplements hereto or thereto.
(c) If a Potential Default or Default has occurred and is continuing
under this Agreement, then the Borrower agrees to reimburse the
Bank for the reasonable cost of periodic audits and appraisals of
the Collateral at such intervals as the Bank may reasonably
require. The audits and appraisals may be performed by employees
of the Bank or by independent appraisers.
5.3 DEPOSITS. The Borrower shall not be required to maintain any compensating
balances as a condition to the loan facilities provided herein.
5.4 NO EXCESS FEES. Notwithstanding anything to the contrary in this SECTION 5,
in no event shall any sum payable under this SECTION 5 (to the extent, if any,
constituting interest under any applicable laws), together with all amounts
constituting interest under applicable laws and payable in connection with the
credit evidenced hereby, EXCEED the Maximum Rate or the maximum amount of
interest permitted to be charged, taken, reserved, received or contracted for
under applicable usury laws.
6. SECURITY.
6.1 GUARANTY. The Borrower shall cause all of its present and future
Subsidiaries, whether now existing or in the future formed or acquired as
permitted by the Loan Documents, to unconditionally guarantee the full payment
and performance of the Borrower's obligations under this Agreement by execution
of the Guaranty or a supplement thereto.
6.2 COLLATERAL. The Borrower shall cause full payment and performance of the
Borrower's obligations under this Agreement to be secured by Liens in favor of
the Bank on all of the items and types of property (together with the cash and
non-cash proceeds of all of the foregoing, the "COLLATERAL") described in the
present and future Loan Documents creating those Liens, including, without
limitation:
(a) Present and future accounts receivable and inventory of each
present and future Company, pursuant to the Security Agreement;
including, without limitation Borrower's rights to payment under
the Sam's contract;
(b) All of the present and future issued and outstanding capital
stock and other equity securities issued by all Subsidiaries
(which must be at least 90% of the issued and outstanding capital
stock and other equity securities of the Subsidiary) owned by any
Company, pursuant to the Security Agreement; and
(c) Prior to any disbursement under the Term Loan Commitment, certain
tracts of the Borrower's real property located at (i) 12450
Cutten Road, Houston, Harris County, Texas and (ii) 1700 N.W.
16th Street, Richmond, Wayne County, Indiana, PROVIDED THAT the
Bank shall, if no Default or Potential Default exists, release
the Liens in and to such tracts of real property upon Borrower's
payment, in full, of all principal and interest outstanding
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<PAGE>
under the Term Loan Commitment or upon termination of the entire
Term Loan Commitment in accordance with SECTION 3.6 of this
Agreement.
In addition, all personal property that is Collateral shall also secure all
other present and future obligations of the Borrower to the Bank under the Loan
Documents.
7. DISBURSEMENTS, PAYMENTS AND COSTS.
7.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made in
writing pursuant to a Borrowing Notice, or by another means acceptable to the
Bank.
7.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made to an account specified by Borrower;
(b) made in immediately available funds; and
(c) evidenced by records kept by the Bank.
7.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances,
repayments, or the designation of a Eurodollar Rate portion or
interest period given by any one of the individual signer(s) of
this Agreement or a person or persons authorized by the Board of
Directors of Borrower.
(b) The Borrower will provide telefax confirmation to the Bank of any
telephone instructions on the same day those instructions are
given. If there is a discrepancy and the Bank has already acted
on the telephone instructions, the telephone instructions will
prevail over the telefax confirmation.
(c) The Borrower indemnifies and excuses the Bank (including its
officers, employees, and agents) from all liability, loss, and
costs in connection with any act resulting from telephone
instructions it reasonably believes are made by a signer of this
Agreement or a person authorized by the Board of Directors of
Borrower. This indemnity and excuse will survive this Agreement's
termination.
7.4 BANKING DAYS. Unless otherwise provided in this Agreement, a "BANKING DAY"
is a day other than a Saturday or a Sunday on which the Bank is open for
business in Texas. For amounts bearing interest at the Eurodollar Rate (if any),
a Banking Day is a day other than a Saturday or a Sunday on which the Bank is
open for business in Texas and California and dealing in offshore dollars. All
payments and disbursements which would be due on a day which is not a Banking
Day will be due on the next Banking Day. All payments received on a day which is
not a Banking Day will be applied to the credit on the next Banking Day.
7.5 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay
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<PAGE>
the taxes. Upon request by the Bank, the Borrower will confirm that it has paid
the taxes by giving the Bank official tax receipts (or notarized copies) within
30 days after the due date. However, the Borrower will not pay the Bank's net
income taxes.
7.6 ADDITIONAL COSTS. Subject to the provisions of SECTION 5.4 hereof, the
Borrower will promptly pay the Bank, for the Bank's documented costs or losses
arising from any statute or regulation, or any request or requirement of a
regulatory agency which is applicable to all national banks or a class of all
national banks which costs and losses are charged to other borrowers of the
Bank, and in a manner consistent with such application. The costs and losses
will be allocated to the loan in a manner determined by the Bank and
consistently allocated to other borrowers of the Bank, using any reasonable
method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and
commitments for credit.
The Bank will provide Borrower with a certificate certifying the calculation and
application of such amount, which will be binding on the Borrower absent
manifest error.
Notwithstanding the foregoing, in no event shall any sum payable under this
SECTION 7.6 (to the extent, if any, constituting interest under applicable
laws), together with all amounts constituting interest under applicable laws and
payable in connection with the credit evidenced hereby, exceed the Maximum Rate
or the maximum amount of interest permitted to be charged, taken, reserved,
received or contracted for under any applicable usury laws.
7.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360 day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used. Notwithstanding the foregoing, interest at the
Maximum Rate will always be computed on the basis of a 365-day year and the
actual number of days elapsed.
7.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the LESSER of (a) the Maximum Rate OR (b) the
Bank's Reference Rate PLUS 0.25%.
7.9 DEFAULT RATE. Upon the occurrence and during the continuation of any Default
under this Agreement, advances under this Agreement will at the option of the
Bank bear interest at the LESSER of (a) the Maximum Rate OR (b) a rate per annum
which is 2.00% higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any Default.
8. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO INITIAL ADVANCE. The Bank must receive all of the items
described on the attached SCHEDULE 8 (EXCEPT those items that are specifically
noted on that schedule as being required to be delivered by a date later than
the date of this Agreement), in form and content acceptable to the Bank, before
the Bank is required to make the initial advance or issue any letters of credit
to the Borrower under this Agreement.
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8.2 ADDITIONAL CONDITIONS TO EACH EXTENSION OF CREDIT UNDER REVOLVING FACILITY
COMMITMENT. Before each extension of credit under the line of credit, including
the first, the Borrower will deliver the following to the Bank if requested by
the Bank:
(a) For advances, a Borrowing Notice; and
(b) For letters of credit, an LC Request and a fully executed form of
Application and Agreement for Standby Letter of Credit or
Application and Agreement for Commercial Letter of Credit, as
applicable, in accordance with SECTION 2.5 of this Agreement;
8.3. ADDITIONAL CONDITIONS TO ADVANCES UNDER TERM LOAN COMMITMENT. The Bank
shall not be obligated to make the initial advance under the Term Loan
Commitment until the Borrower delivers to the Bank (a) the Indiana Mortgage and
the Texas Mortgage, and (b) evidence of insurance, financing statements and
other documents, instruments and certificates customarily delivered in
connection with real estate loans (other than title insurance and surveys).
9. REPRESENTATIONS AND WARRANTIES. When the Borrower signs this Agreement, and
until the Bank is repaid in full, the Borrower makes the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation.
9.1 ORGANIZATION OF BORROWER. Each Company is duly formed and validly existing
under the laws of the state where organized.
9.2 SUBSIDIARIES AND NAMES. SCHEDULE 9.2, as supplemented from time to time by
an amendment to that schedule that is dated, executed, and delivered by the
Borrower to the Bank to reflect changes in that schedule as a result of
transactions permitted by the Loan Documents, describes (a) all of the
Borrower's direct and indirect Subsidiaries,(b) every name or trade name used by
each Company during the five-year period before the date of this Agreement, and
(c) every change of each Company's name during the four-month period before the
date of this Agreement. All of the outstanding shares of capital stock (or
similar voting interests) of the Borrower's Subsidiaries are (a) duly
authorized, validly issued, fully paid, and nonassessable, (b) owned of record
and beneficially as described in that schedule or those writings, free and clear
of any Liens, EXCEPT Permitted Liens, and (c) not subject to any warrant,
option, or other acquisition Right of any Person or subject to any transfer
restriction EXCEPT restrictions imposed by securities laws and general corporate
laws.
9.3 AUTHORIZATION. The execution and delivery by each Company of each Loan
Document to which it is a party and the performance by it of its obligations
under those Loan Documents (a) are within its corporate power, (b) have been
duly authorized by all necessary corporate action, and (c) do not violate any
provision of its charter or bylaws.
9.4 BINDING EFFECT. Upon execution and delivery by all parties to it, each Loan
Document will constitute a legal and binding obligation of each Company party to
it, enforceable against it in accordance with that Loan Document's terms EXCEPT
as that enforceability may be limited by Debtor Laws and general principles of
equity.
9.5 GOOD STANDING. Each Company is in good standing in each state in which it
does business, is properly licensed, and, where required, is in compliance with
fictitious name statutes except where the failure to qualify or comply would not
constitute a Material Adverse Event.
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9.6 NO CONFLICTS. No Loan Document conflicts with any material law, agreement,
or obligation by which any Company is bound.
9.7 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank, including the Companies' consolidated financial
statements dated as of March 31, 1997, is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Companies' consolidated financial condition; and
(b) in compliance with all government regulations that apply.
Since the date of the financial statements specified above, no Material Adverse
Event has occurred.
9.8 LAWSUITS. There is no lawsuit, tax claim, pending assessments or adjustments
of any Taxes, or other dispute pending or threatened against any Company, which
constitutes a Material Adverse Event, other than as disclosed to and consented
to by the Bank.
9.9 COLLATERAL. The Collateral is owned by the grantor of the security interest
free of any title defects or any liens or interests of others, except Permitted
Liens.
9.10 PERMITS, FRANCHISES, AND COMPLIANCE WITH REGULATIONS. Each Company
possesses all material permits, memberships, franchises, contracts and licenses
required and all trademark rights, trade name rights, patent rights and
fictitious name rights material to the business in which it is now engaged, and
each Company is in compliance with all state and federal regulatory requirements
applicable to such Company, except where failure to comply would not constitute
a Material Adverse Event.
9.11 OTHER OBLIGATIONS. No Company is in default on any obligation for borrowed
money (and after the initial advance, such obligations in excess of $250,000),
any purchase money obligation (and after the initial advance, in excess of
$250,000) or any other material lease, commitment, contract, instrument or
obligation.
9.12 NO POTENTIAL DEFAULT OR DEFAULT. There is no Potential Default or Default.
9.13 MERCHANTABLE INVENTORY. All inventory which is included in the Borrowing
Base is of good and merchantable quality and free from defects.
9.14 ERISA PLANS. Except as otherwise disclosed to and consented to by the Bank:
(a) The Borrower and each ERISA Affiliate have fulfilled their
respective obligations, if any, under the minimum funding
standards of ERISA and the Code with respect to each Plan and are
in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and have not
incurred any liability with respect to any Plan under TITLE IV of
ERISA.
(b) No reportable event has occurred under SECTION 4043(B) of ERISA
for which the PBGC requires 30 day notice.
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(c) No action by the Borrower or any ERISA Affiliate to terminate or
withdraw from any Plan has been taken and no notice of intent to
terminate a Plan has been filed under SECTION 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under
SECTION 4042 of ERISA, and no event has occurred or condition
exists which might constitute grounds for the commencement of
such a proceeding.
(e) The following terms have the meanings indicated for purposes of
this Agreement:
(i) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974,
as amended from time to time.
(iii) "ERISA AFFILIATE" means any Person that, for purposes of
TITLE IV of ERISA, is a member of Borrower's controlled
group or is under common control with Borrower within the
meaning of SECTION 414 of the Code.
(iv) "PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to SUBTITLE A of TITLE IV of ERISA.
(v) "PLAN" means any employee pension benefit plan maintained
or contributed to by the Borrower and insured by the
Pension Benefit Guaranty Corporation under TITLE IV of
ERISA.
9.15 REGULATION U. No Company is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any "MARGIN STOCK" within the meaning of REGULATION U of the Board of
Governors of the Federal Reserve System, as amended. No part of the proceeds of
any letter of credit draft or drawing or advance under this Agreement will be
used, directly or indirectly, for a purpose that violates any Law, including,
without limitation, REGULATION U.
9.16 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.
10. COVENANTS. So long as credit is available under this Agreement and until the
obligations owing to the Bank under the Loan Documents are repaid in full, the
Borrower covenants and agrees with the Bank as follows:
10.1 USE OF PROCEEDS. The Borrower shall use the proceeds of the credit only for
the purposes set forth in SECTIONS 2.3 and 3.3 of this Agreement.
10.2 USE OF PROCEEDS - INELIGIBLE SECURITIES. The Borrower may not use, directly
or indirectly, any portion of the proceeds of the credit (including any letters
of credit) for any of the following purposes:
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(a) knowingly to purchase Ineligible Securities from BA Securities,
Inc. (the "ARRANGER") during any period in which the Arranger
makes a market in such Ineligible Securities; or
(b) knowingly to purchase during the underwriting or placement period
Ineligible Securities being underwritten or privately placed by
the Arranger.
"INELIGIBLE SECURITIES" means securities which may not be underwritten
or dealt in by member banks of the Federal Reserve System under SECTION 16 of
the Banking Act of 1933 (12 U.S.C. ss.24, Seventh), as amended. The Arranger is
a wholly-owned subsidiary of BankAmerica Corporation, and is a registered
broker-dealer which is permitted to underwrite and deal in certain Ineligible
Securities.
10.3 FINANCIAL INFORMATION. The Borrower shall provide the following financial
information and statements and such additional information as requested by the
Bank from time to time:
(a) Within 90 days after the last day of the Borrower's fiscal year
end, the Companies' consolidated and Borrower prepared
consolidating annual financial statements. The consolidated
financial statements must be audited (with an unqualified
opinion) by KPMG Peat Marwick, L.L.P. or any other national
Certified Public Accountant ("CPA").
(b) Within 45 days of the first three fiscal quarters, the Companies'
quarterly consolidated and consolidating financial statements.
These financial statements may be Borrower prepared.
(c) Copies of each Company's Form l0-K Annual Report, Form l0-Q
Quarterly Report, Form 8-K Current Report and any other filing
made by any Company with the Securities and Exchange Commission
within 10 days after the date of filing with the Securities and
Exchange Commission.
(d) A Borrowing Base Report setting forth the respective amounts of
Acceptable Receivables and Acceptable Inventory as of the last
day of each month. The Borrowing Base Report shall be delivered
to the Bank within 30 days after the last day of the applicable
month, EXCEPT that for the six months commencing with the month
ending July 31, 1997, and continuing through the month ending
December 31, 1997, the Borrowing Base Report may be delivered to
the Bank within 45 days after the last day of that month if, as
of the last day of the applicable month, (i) the principal amount
outstanding under the Revolving Facility Commitment is LESS THAN
the LESSER of (A) $4,000,000, or (B) 50% of the Borrowing Base
set forth in the most recent Borrowing Base Report delivered to
the Bank, and (ii) the principal amount outstanding under the
Term Loan Commitment is LESS THAN $2,000,000. Any Borrowing Base
Report which has been timely delivered shall remain in effect
until the next Borrowing Base Report is timely delivered.
(e) Statements showing an aging of each Company's receivables within
the periods described in SECTION 10.3(D) above.
(f) Concurrently with the delivery of the financial statements
pursuant to SECTION 10.3(A) and (B), a Compliance Certificate
from the Borrower, certifying as to the Companies' compliance
with the terms, covenants, and other agreements contained in the
Loan Documents.
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(g) Copies of all amendments, waivers, and modifications to and
renewals of the Sam's Contract and any notices relating to
default thereunder.
(h) Promptly upon the Bank's reasonable request, such other
statements, lists of property and accounts, budgets, forecasts or
reports that are already in existence as to the Companies'
obligations to the Bank as the Bank may reasonably request,
including without limitation copies of the invoices or the record
of invoices from each Company's sales journal for Acceptable
Receivables and copies of the delivery receipts, purchase orders,
shipping instructions, bills of lading and other documentation
pertaining to such Acceptable Receivables. While a Default or
Potential Default exists, the Borrower shall deliver any such
documentation described above to the Bank, and so long as no
Default or Potential Default exists, the Borrower shall allow
authorized representatives of the Bank to enter onto the
Borrower's premises and inspect and make copies such
documentation.
10.4 SENIOR FUNDED DEBT/EBITDA. The ratio, determined as of the end of each
fiscal quarter of the Borrower, of the Companies' consolidated Senior Funded
Debt to EBITDA MAY NOT EXCEED 2.00 to 1.00.
"SENIOR FUNDED DEBT" means, at any time, the Companies' consolidated
Funded Debt OTHER THAN Subordinated Debt.
"FUNDED DEBT" means, at any time and for any Person, the SUM (without
duplication) of (a) the principal amount of all Debt for borrowed money, (b) the
total amount capitalized on the balance sheet of that Person with respect to
Capital Leases, and (c) Debt under acceptance facilities or facilities for the
discount or sale of accounts receivable.
"SUBORDINATED DEBT" means, at any time, Debt of any Company (A) incurred
at a time when no Potential Default or Default has occurred and is continuing
under this Agreement, (B) the incurrence of which shall not cause a Potential
Default or Default under this Agreement (C) for which no scheduled or mandatory
principal payment or sinking fund payment is due on or before the Expiration
Date, (D) whose covenants are no more restrictive than those set forth in this
Agreement, and (E) the payment of which is subordinated to Debt owed by the
Companies to the Bank in a manner acceptable to the Bank.
"EBITDA" for any period means:
(a) the SUM (without duplication) of the following for the Companies
on a consolidated basis and for that period taken as a
single-accounting period: (i) Net Income; MINUS (ii)
extraordinary gains; MINUS (iii) income attributable to minority
interests; PLUS (iv) cash dividends or distributions attributable
to minority interests, MINUS (v) income from Subsidiaries, joint
ventures and Investments recognized on a consolidated basis which
(A) the Subsidiary, joint venture or Investment is restricted by
authority, contract or law from paying to the Company in the form
of a dividend or other distribution, and (B) the Company has not
received in the form of a cash dividend or other cash
distribution, PLUS (vi) extraordinary losses; PLUS (vii) to the
extent included in determining Net Income (A) income Taxes, (B)
Interest Expense, (C) depreciation, and (D) amortization; and
(b) Unless otherwise specified, is determined (i) for a period of
four-consecutive-fiscal quarters of that Person taken as a
single-accounting period, and (ii) exclusive of the EBITDA of any
entity (A) before it became a Subsidiary of a Company or
transferred
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substantially all of its assets to a Company other than any
entity acquired by any Company within such period, which will be
accounted for as a "pooling of interests," then the most recent
four fiscal quarters performance of such entity will be used in
such calculation, regardless of the date of its acquisition by a
Company, or (B) after it is directly or indirectly disposed of
by a Company
10.5 FUNDED DEBT/TANGIBLE NET WORTH. The ratio, determined as of the end of each
fiscal quarter of the Borrower, of the Companies' consolidated Senior Funded
Debt to the sum of (a) Tangible Net Worth, PLUS (b) Subordinated Debt, MAY NOT
EXCEED 1.00 to 1.00.
"TANGIBLE NET WORTH" means (a) the gross book value of the Companies'
consolidated assets (excluding goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount and expense,
deferred research and development costs, deferred marketing expenses, and other
like intangibles), MINUS (b) total liabilities, including but not limited to
accrued and deferred income taxes, and any reserves against assets.
10.6 INTEREST COVERAGE. The Companies' consolidated Interest Coverage,
determined as of the end of each fiscal quarter of the Borrower, MAY NOT BE LESS
THAN 3.00 to 1.00.
"INTEREST COVERAGE" means, for the Companies on a consolidated basis and
for the two most recently completed quarters, the RATIO OF (a) the SUM of (i)
Net Income, (ii) Interest Expense, and (iii) income Taxes TO (b) Interest
Expense.
10.7 FIXED CHARGE COVERAGE. The Companies' consolidated Fixed Charge Coverage,
determined as of the end of each fiscal quarter of the Borrower, MAY NOT BE LESS
THAN 1.50 to 1.00.
"FIXED CHARGE COVERAGE" means, for the Companies on a consolidated basis
and for the four quarters ended on the date of determination, the RATIO OF (a)
EBITDA minus income Taxes actually paid during that period TO (b) the SUM of (i)
Interest Expense and (ii) current maturities of long term debt (excluding the
Revolving Facility Commitment unless accelerated or otherwise becoming due prior
to its scheduled maturity date) determined as of the end of that period.
10.8 OTHER DEBT. No Company shall have outstanding or incur any direct or
contingent Debt (other than to the Bank) or become liable (other than to the
Bank) for any Debt of others, in each case without the Bank's written consent.
This section does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debt in existence on the date of this Agreement as set forth on
SCHEDULE 10.8D, including renewals and extensions of that Debt
but excluding principal increases to any of it.
(e) Incurring purchase money Debt to finance the purchase of
equipment for any Company SO LONG AS the outstanding principal
amount of that Debt for all of the Companies, when aggregated
with the outstanding principal amount of the Debt permitted under
SECTION 10.8(G) below, never EXCEEDS $2,500,000.
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(f) Any Company executing and delivering seller notes in connection
with a Permitted Acquisition SO LONG AS (i) those notes are in
compliance with SECTION 10.13(D) of this Agreement, (ii) none of
those notes have any scheduled or mandatory principal or sinking
fund payment due before the date 90 days after the Expiration
Date, and (iii) those notes are unsecured.
(g) Any Company assuming Debt in connection with a Permitted
Acquisition SO LONG AS (i) that Debt is in compliance with
SECTION 10.13(D) of this Agreement, (ii) that Debt is not secured
by the Collateral, and (iii) that Debt does not cause the
limitation in SECTION 10.8(E) to be exceeded.
(h) Debt owed by any Company to any other Company that otherwise
complies with SECTION 10.13(H) of this Agreement.
(i) Subordinated Debt.
Notwithstanding anything in this SECTION 10.8 to the contrary, each indirect
Subsidiary of the Borrower shall be subject, in all respects, to the limitations
set forth in SECTION 10.14 of this Agreement.
10.9 OTHER LIENS. No Company shall enter into or permit to exist any agreement
or arrangement that directly or indirectly prohibits any Company from creating
or incurring any Lien on any of its assets or shall create, assume, or allow any
Lien (including judicial Liens) on property any Company now or later owns EXCEPT
the following ("PERMITTED LIENS"):
(a) Liens in favor of the Bank.
(b) Liens for Taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in
writing to the Bank before the date of this Agreement, including
renewals and extensions of those Liens SO LONG AS they secure
only the Debt referred to in SECTION 10.8(D) of this Agreement.
(d) Purchase money Liens granted in connection with transactions
permitted under SECTION 10.8(E) above and that never cover any
property except the property acquired with the related Debt.
(e) PACA Liens securing obligations of the Companies to creditors,
PROVIDED THAT no creditors of the Companies have asserted in
writing their rights under PACA, that, in the aggregate, EXCEED
$500,000.
(f) Liens incurred and pledges and deposits made by any Company in
the ordinary course of business in connection with workers'
compensation, unemployment insurance, old-age pensions and other
social security benefits (not including any Lien described in
SECTION 412(M) of the Internal Revenue Code of 1986, as amended).
(g) Liens imposed by law, such as carriers', warehousemen's,
mechanics, materialmen's and vendors' liens and other similar
liens, incurred in good faith in the ordinary course of the
business of any Company and securing obligations which are not
overdue.
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(h) Zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the
use of property of any Company or minor irregularities of title
with respect thereto (and with respect to leasehold interest,
mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or
under a landlord or owner of the leased property, with or without
consent of the lessee) which do not in the aggregate materially
detract from the value of said property or assets or materially
impair the use thereof in the operation of its business.
(i) Liens granted in connection with the Debt permitted by SECTION
10.8(G).
(j) Liens granted to the landlord of Borrower's facility located at
1049 Avenue H, Arlington, Texas, SO LONG AS the Borrower has paid
all rent due and owing under the applicable lease and is not
otherwise in default under the lease.
10.10 CAPITAL EXPENDITURES. No Company shall make Capital Expenditures OTHER
THAN Permitted Capital Expenditures. "PERMITTED CAPITAL EXPENDITURES" means (a)
Capital Expenditures made in connection with Permitted Acquisitions, or (b) for
any fiscal year of the Borrower beginning after January 3, 1997, a total amount
of Capital Expenditures (OTHER THAN Capital Expenditures in connection with
Permitted Acquisitions) that does not EXCEED the SUM of (i) $2,000,000 for all
Companies, PLUS (ii) amounts, up to $500,000, for the immediately preceding
fiscal year under CLAUSE (I) above that were not utilized for "PERMITTED CAPITAL
EXPENDITURES;"PROVIDED, however, the Companies may during any fiscal year of the
Borrower make additional Capital Expenditures exceeding the amounts specified in
SECTION 10.10(B) if all of the following conditions are met (i) no amounts are
outstanding under the Term Loan, (ii) the net balance remaining in the Equity
Pool immediately prior to such additional Capital Expenditure exceeds the amount
of such additional Capital Expenditure and (iii) no Capital Expenditures for any
single project, contract, new facility, or expansion of an existing facility
exceeds 25% of Tangible Net Worth at the time of such Capital Expenditures. The
acquisition of the facility located in Richmond, Indiana by the Borrower which
occurred prior to the date hereof shall not be included as a Capital Expenditure
for the purposes of the calculations made pursuant to this SECTION 10.10.
10.11 DIVIDENDS. The Borrower shall not declare or pay any dividends on any of
its shares except dividends payable in capital stock of the Borrower, and the
Borrower shall not purchase, redeem or otherwise acquire for value any of its
shares, or create any sinking fund in relation thereto, PROVIDED THAT the
Borrower may repurchase common stock for a maximum aggregate consideration of
$250,000, solely for the purpose of complying with certain employment and stock
option agreements to which the Borrower is a party.
10.12 INVESTMENTS. No Company shall make any Investments EXCEPT the following:
(a) To the extent they mature within one year from the date in
question readily marketable (i) direct full faith and credit
obligations of the United States of America or obligations
guaranteed by the full faith and credit of the United States of
America, and (ii) obligations of an agency or instrumentality of,
or corporation owned, controlled, or sponsored by, the United
States of America that are generally considered in the securities
industry to be implicit obligations of the United States of
America ("GOVERNMENT SECURITIES").
(b) Readily marketable direct obligations of any state of the United
States of America given on the date of such investment a credit
rating of at least A by Moody's Investors Service,
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Inc., or A by Standard & Poor's Corporation, in each case due
within one year from the making of the Investment.
(c) Certificates of deposit issued by, bank deposits in, eurocurrency
deposits through, bankers' acceptances of, and repurchase
agreements covering Government Securities executed by (i) the
Bank or (ii) any domestic bank or any domestic branch or office
of a foreign bank, in either case having on the date of the
investment a short-term certificate of deposit credit rating of
at least P-2 by Moody's Investors Service, Inc., or A-2 by
Standard & Poor's Corporation, in each case due within one year
after the date of the making of the Investment.
(d) Repurchase agreements covering Government Securities executed by
a broker or dealer registered under SECTION 15(B) of the
Securities and Exchange Act of 1934, as amended, having on the
date of the investment capital of at least $100,000,000, due
within 30 days after the date of the making of the Investment, SO
LONG AS the maker of the Investment receives written confirmation
of the transfer to it of record ownership of the Government
Securities on the books of a "PRIMARY DEALER" in the Government
Securities as soon as practicable after the making of the
Investment.
(e) Readily marketable commercial paper of domestic corporations
doing business in the United States of America or any of its
states or of any corporation that is the holding company for a
bank described in CLAUSE (C) above and having on the date of the
Investment a credit rating of at least P-1 by Moody's Investors
Service, Inc., or A-1 by Standard & Poor's Corporation, in each
case due within 90 days after the date of the making of the
Investment.
(f) "MONEY MARKET PREFERRED STOCK" issued by a domestic corporation
given on the date of the investment a credit rating of at least
AA by Moody's Investors Services, Inc., and AA by Standard &
Poor's Corporation, in each case having an investment period not
exceeding 50 days.
(g) A readily redeemable "MONEY MARKET MUTUAL FUND" sponsored by a
bank described in CLAUSE (C) above, or a registered broker or
dealer described in CLAUSE (D) above, that has and maintains an
investment policy limiting its investments primarily to
instruments of the types described in CLAUSES (A) through (F)
above and has on the date of those investment total assets of at
least $1,000,000,000.
(h) Investments by any Company in respect of Borrower or any other
Company SO LONG AS (i) no Potential Default or Default under any
Loan Document and no Material Adverse Event exists on that date
of the Investment or will occur as a result of the Investment and
(ii) that other Company has executed and delivered to the Bank
all of the guaranties and Lien instruments required by the Loan
Documents to be executed and delivered by that other Company.
(i) Permitted Acquisitions.
(j) Investments in other Persons; PROVIDED THAT such Investments do
not in the aggregate EXCEED $1,250,000.
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10.13 ACQUISITIONS. No Company shall consummate any acquisition of substantially
all of the stock (but in any event not less than 90%), assets, or business (or
part of a business) of a Person, OTHER THAN Permitted Acquisitions. "PERMITTED
ACQUISITION" means an acquisition by a Company of substantially all the business
(or part of a business) of a Person, whether pursuant to an asset acquisition or
a stock purchase, or subject to SECTION 10.24(C), a merger; if:
(a) no Potential Default or Default exists on the date of the
acquisition or will exist as a result of it;
(b) the business to be acquired is within the Companies' current line
of business or directly or indirectly relates to the business of
wholesale distribution, brokerage, transportation, repackaging,
or processing of fresh produce;
(c) at least 5 business days before the acquisition, the Borrower
gives to the Bank a written description of the acquisition, which
includes (i) a reasonably-detailed calculation of (and
description of the funding sources, if applicable, for) the total
Investment or purchase price involved, including, without
limitation all Debt that is to be guaranteed, assumed, or paid,
by any Company if an asset acquisition or to remain with the
acquired business if a stock acquisition, and (ii) a calculation
of the Equity Pool (if being used for such acquisition);
(d) the consideration to be paid by any Company in connection with
the acquisition that is comprised of cash and/or Debt, to the
extent such Debt is a fixed obligation of that Company that will
become a liability of the Company under GAAP prior to the
Expiration Date -- whether assumed, incurred, or to remain, but
in any event subject to SECTIONS 10.8(F) and (G) -- (i) does not
collectively EXCEED (A) if immediately following the acquisition,
no amounts will be outstanding under the Term Loan Commitment,
25% of Tangible Net Worth at the time of the acquisition, or (B)
if immediately following the acquisition, amounts will be
outstanding under the Term Loan Commitment, 15% of the Tangible
Net Worth at the time of the acquisition, or (ii) is in excess of
the applicable limit specified in SECTION 10.13(D)(I) above and
all of the following conditions are met: (A) no amounts are
outstanding under the Term Loan Commitment at the time of the
acquisition; (B) the Borrower uses no advances hereunder for the
acquisition; (C) the net balance remaining in the Equity Pool
immediately prior to the acquisition exceeds the amount of the
acquisition; (D) the cash expenditure and assumed debt for any
single acquisition may not exceed 50% of Tangible Net Worth at
the time of the acquisition; and (E) the Borrower complies with
all other conditions and limitations in SECTION 10.8(G) and
10.13;
(e) the Borrower provides the Bank with evidence, satisfactory to the
Bank, of (i) the positive operating income of the Person to be
acquired for the most recent 12-month period, or (ii) if the
business to be acquired has not had a positive operating income
for the most recent 12-month period prior to the proposed
acquisition (A) a reported net operating loss by that Person of
LESS THAN 10% of the Borrower's consolidated net operating income
for that period and (B) the Borrower's ability, had it operated
the business during that period and had serviced the Debt to be
assumed or incurred in connection the proposed acquisition, to
have complied with SECTIONS 10.4 through 10.7 of this Agreement
during that period.
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(f) the board of directors of the Person to be acquired has not
notified any Company that it opposes the offer by any Company to
acquire that Person and that opposition has not been withdrawn;
(g) any new Subsidiary created in connection with the acquisition
complies with SECTIONS 6.1 and 6.2 and its capital stock or other
equity securities owned by any Company become subject to the
Liens required by SECTION 6.2;
(h) the Companies execute and deliver such other documents and take
such action the Bank may reasonably request in order to effect
the provisions of the Loan Documents; and
(i) concurrently with the closing of the acquisition, the Borrower
provides the Bank with a certificate certifying that all the
conditions in this definition have been fulfilled for the
acquisition to be, and that it is, a "PERMITTED ACQUISITION."
10.14 SUBSIDIARIES. The Borrower shall cause each of its present and future
Subsidiaries (whether as a result of acquisition, creation, or otherwise) to
promptly and fully comply with SECTIONS 6.1 and 6.2 and shall cause its accounts
receivable, inventory, and capital stock or other equity securities owned by any
Company to become subject to the Liens required by SECTION 6.2. Any Subsidiary
of the Borrower formed or acquired after the date of this Agreement must be a
direct Subsidiary of the Borrower, UNLESS such Subsidiary is wholly owned by a
direct Subsidiary or combination of direct Subsidiaries of the Borrower. No such
indirect Subsidiary of the Borrower shall, at any time, (a) have outstanding or
incur any Funded Debt, or (b) own assets the aggregate value of which is greater
than or equal to 15% of the Companies' consolidated total assets.
10.15 LOANS TO OFFICERS. No Company shall make any loans, advances or other
extensions of credit to any of its executives, officers, directors, or
shareholders (or any relatives of any of the foregoing) exceeding $300,000 in
aggregate outstanding amount.
10.16 NOTICES TO BANK. The Borrower shall promptly notify the Bank in writing
of:
(a) Any lawsuit over $500,000 against any Company.
(b) Any substantial dispute between any Company and any government
authority that if adversely determined would have a Material
Adverse Effect.
(c) A Potential Default or Default.
(d) Any Material Adverse Event.
(e) Any change in any Company's name, legal structure, place of
business, or chief executive office if that Company has more than
one place of business.
(f) Any notices from creditors that are beneficiaries under PACA that
are asserting, perfecting, or preserving their rights under PACA
with respect to obligations exceeding $500,000 in the aggregate.
(g) Any breach by any Company of any contract or agreement, including
without limitation any breach of the Agreement, dated as of
August 28, 1995, between Sam's and the
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Borrower (the "SAM'S CONTRACT"), which breach could reasonably
be expected to cause a Material Adverse Event.
10.17 BOOKS AND RECORDS. Each Company shall maintain books, records, and
accounts necessary to prepare financial statements in accordance with GAAP.
10.18 AUDITS. Each Company shall allow the Bank and its agents to inspect its
properties and examine, audit, and make copies of books and records (other than
information subject to the attorney-client privilege or information regarding
the business or activity of any entity not owned or operated by any Company) at
any reasonable time. If any Company's properties, books or records are in the
possession of a third party, the Borrower shall request that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information (other than information
subject to the attorney-client privilege or information regarding the business
or activity of any entity not owned or operated by any Company) concerning such
properties, books and records. If no Potential Default or Default has occurred
and is continuing, then: (a) the Bank may only audit the Companies' books and
records two times in any 12-month period; (b) the Bank will give the Companies
no less than three Banking Days prior notice of the audit; (c) all audits will
be conducted during the Companies' normal business hours; and (d) all expenses
of the audits will be borne by the Bank.
10.19 COMPLIANCE WITH LAWS. Each Company shall comply with the material laws,
(including any fictitious name statute), regulations, and orders of any
government body with authority over its business, including, without limitation,
PACA.
10.20 PRESERVATION OF RIGHTS. Each Company shall maintain and preserve all
material rights, privileges, and franchises necessary for the conduct of its
business.
10.21 MAINTENANCE OF PROPERTIES. Each Company shall make any repairs, renewals,
or replacements to keep its properties in working condition.
10.22 COOPERATION. Each Company shall take any reasonable action reasonably
requested by the Bank to carry out the intent of this Agreement.
10.23 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. Each Company shall maintain all
risk property damage insurance policies covering the tangible
property comprising the Collateral. Each insurance policy must be
in an amount usual and customary for Persons in that Company's
business, but in no event less than the collateral value for such
tangible property determined by the Bank and provided to the
Borrower in writing.
(b) GENERAL BUSINESS INSURANCE. Each Company shall maintain insurance
covering property damage (including loss of use and occupancy) to
any of that Company's properties, public liability insurance
including coverage for contractual liability, product liability
and workers' compensation, and any other insurance which is usual
and customary for Persons in that Company's business. Each
insurance policy must be in an amount usual and customary for
Persons in that Company's business.
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(c) EVIDENCE OF INSURANCE. Each Company shall, upon the request of
the Bank, deliver to the Bank a copy of each insurance policy or,
if permitted by the Bank, a certificate of insurance listing all
insurance in force. The insurance required under SECTIONS
10.23(A) and (B) must be issued by an insurance company
reasonably acceptable to the Bank. The insurance required under
SECTION 10.23(A) must include a lender's loss payable endorsement
in favor of the Bank in a form reasonably acceptable to the Bank.
10.24 ADDITIONAL NEGATIVE COVENANTS. No Company shall, without the Bank's
written consent:
(a) Engage in any business activities other than the distribution,
brokerage, transportation, repackaging, or processing of fresh
produce.
(b) Liquidate or dissolve that Company's business so long as it does
not have a Material Adverse Effect.
(c) Enter into any consolidation, merger, pool, joint venture,
syndicate, or other combination OTHER THAN any of the following
if no Potential Default or Default under any Loan Document and no
Material Adverse Event exists on the date of any of the following
or will exist as a result of any of the following: (i) a merger
or consolidation between Companies (SO LONG AS, if the Borrower
is involved, it is the survivor); (ii) a merger or consolidation
in connection with any Permitted Acquisition if the survivor is,
or concurrently with that Permitted Acquisition becomes, a
Subsidiary of the Borrower if such amendment would have a
Material Adverse Effect, or cancel the Sam's Contract; or (iii)
joint ventures that do not cause the limitation in SECTION
10.12(J) to be exceeded.
(d) Sell, assign, lease, transfer, or otherwise dispose of any of its
assets (including, without limitation, equity interests in any
other Company) EXCEPT, without duplication (i) sales and
dispositions of inventory, (ii) sales of assets which are
obsolete or are no longer in use and which are not significant to
the continuation of that Company's business, (iii) sales of
assets (A) obtained as the result of mergers and consolidations
permitted under this Agreement and Permitted Acquisitions and (B)
which are unnecessary to that Company's business operations, (iv)
sales and dispositions from any Company to any other Company, (v)
dispositions of assets where substantially similar assets have
been or are being acquired, and (vi) dispositions of assets, the
net proceeds of which DO NOT EXCEED $250,000 in any fiscal year.
(e) Voluntarily suspend its business.
(f) Materially amend the Sam's Contract if such amendment would have
a Material Adverse Effect, or cancel the Sam's contract, OTHER
THAN partial cancellations caused by Sam's exercise of its option
to remove up to 40 stores per year from that agreement.
10.25 ERISA PLANS. The Borrower shall give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under SECTION 4043(B) of
ERISA for which the PBGC requires 30 day notice.
(b) Any action by the Borrower or any ERISA Affiliate to terminate or
withdraw from a Plan or the filing of any notice of intent to
terminate under SECTION 4041 of ERISA.
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(c) Any notice of noncompliance made with respect to a Plan under
SECTION 4041(B) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under
SECTION 4042 of ERISA.
10.26 CONSIGNMENTS. The Borrower shall, prior to any Company placing any
inventory on consignment with any person ("CONSIGNEE"):
(a) Provide the Bank with all consignment agreements and other
documents to be used in connection with such consignment, all of
which must be acceptable to the Bank;
(b) Cause to be filed appropriate financing statements with respect
to the consigned inventory showing the Consignee as debtor, the
consigning Company as secured party, and the Bank as assignee of
secured party;
(c) Cause to be filed appropriate financing statements with respect
to the consigned inventory showing the consigning Company as
debtor and the Bank as secured party;
(d) After all financing statements referred to above have been filed,
conduct a search of all filings made against the Consignee in all
jurisdictions in which the consigned inventory is to be located,
and deliver to the Bank copies of the results of all such
searches; and
(e) Notify, or cancel the consigning Company to notify, in writing,
all creditors of the Consignee which are or may be holders of
security interests in the inventory to be consigned that the
consigning Company expects to deliver certain inventory to the
Consignee, all of which inventory shall be described in such
notice by item or type.
10.27 INDEMNIFICATION. The Borrower shall indemnify the Bank, and its officers,
directors, agents and attorneys, from and against any and all liabilities,
obligations, losses, damages, costs and expenses which may be imposed on, or
incurred by, or asserted against, any of such parties in any way relating to or
arising out of the Loan Documents, PROVIDED THAT the Borrower shall not be
liable for any portion of such items resulting from Bank's own gross negligence
or willful misconduct. IT IS EXPRESS INTENT OF BANK AND BORROWER THAT THE
FOREGOING INDEMNITY SHALL INDEMNIFY BANK, AND THE OTHER PARTIES DESCRIBED ABOVE,
FROM ALL SUCH ITEMS ARISING OR RESULTING FROM BANK'S OR SUCH PARTIES' SOLE,
JOINT, OR CONTRIBUTORY NEGLIGENCE.
10.28 POST-CLOSING DOCUMENTS. By the deadline noted for it on SCHEDULE 8, the
Borrower shall deliver to the Bank, or cause to be delivered to the Bank, each
item, if any, beside which is noted a deadline for delivery to the Bank later
than the date of this Agreement.
11. HAZARDOUS WASTE
11.1 INDEMNITY REGARDING HAZARDOUS SUBSTANCES. The Borrower shall indemnify and
hold the Bank harmless from and against all liabilities, claims, actions,
foreseeable and unforeseeable consequential damages, costs and expenses
(including sums paid in settlement of claims and all consultant, expert and
legal fees and expenses of the Bank's counsel) or loss directly or indirectly
arising out of or resulting from any of the following:
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(a) Any hazardous substance being present at any time, whether
before, during or after any construction, in or around any part
of the real property that is Collateral (the "REAL PROPERTY"), or
in the soil, groundwater or soil vapor on or under the Real
Property, including those incurred in connection with any
investigation of site conditions or any clean-up, remedial,
removal or restoration work, or any resulting damages or injuries
to the person or property of any third parties or to any natural
resources.
(b) Any use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a
hazardous substance. This indemnity will apply whether the
hazardous substance is on, under or about any of the Companies'
property or operations or property leased to any Company, whether
or not the property is Collateral.
Upon demand by the Bank, the Borrower will defend any investigation, action or
proceeding alleging the presence of any hazardous substance in any such
location, which affects the Real Property or which is brought or commenced
against the Bank, whether alone or together with any Company or any other
person, all at the Borrower's own cost and by counsel to be approved by the Bank
in the exercise of its reasonable judgment. In the alternative, the Bank may
elect to conduct its own defense at the expense of the Borrower.
11.2 REPRESENTATION AND WARRANTY REGARDING HAZARDOUS SUBSTANCES. Before signing
this Agreement, the Borrower inquired into the previous uses and ownership of
the Real Property. Based on that due diligence, the Borrower represents and
warrants that to the best of its knowledge, no hazardous substance has been
disposed of or released or otherwise exists in, on, under or onto the Real
Property, in violation of any applicable law except as the Borrower has
disclosed to the Bank in writing.
11.3 COMPLIANCE REGARDING HAZARDOUS SUBSTANCES. To its knowledge, the Borrower
has complied, and will comply and cause all occupants of the Real Property to
comply, with all laws, regulations and ordinances governing or applicable to
hazardous substances as well as the recommendations of any qualified
environmental engineer or other expert which apply or pertain to the Real
Property or the operations of the Borrower. The Borrower acknowledges that
hazardous substances may permanently and materially impair the value and use of
the Real Property.
11.4 NOTICES REGARDING HAZARDOUS SUBSTANCES. Until full repayment of the loans
described in this Agreement, the Borrower will promptly notify the Bank if it
knows, suspects or believes there may be any hazardous substance in or around
the Real Property in violation of any applicable law, or in the soil,
groundwater or soil vapor on or under the Real Property, or that any Company or
the Real Property may be subject to any threatened or pending investigation by
any governmental agency under any law, regulation or ordinance pertaining to any
hazardous substance.
11.5 SITE VISITS, OBSERVATIONS AND TESTING. The Bank and its agents and
representatives will have the right at any time the Bank reasonably believes any
environmental problem exists on any Real Property, and upon not less than three
Banking Day's prior notice to Borrower, to enter and visit the Real Property and
any other place where any property is located for the purposes of observing the
Real Property, taking and removing soil or groundwater samples, and conducting
tests on any part of the Real Property. Representatives of the Borrower may be
present. The Bank is under no duty, however, to visit or observe the Real
Property or to conduct tests, and any such acts by the Bank will be solely for
the purposes of protecting the Bank's security and preserving the Bank's rights
under this Agreement.
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No site visit, observation or testing by the Bank will result in a waiver of any
Potential Default or Default of any Company or impose any liability on the Bank.
In no event will any site visit, observation or testing by the Bank be a
representation that hazardous substances are or are not present in, on or under
the Real Property, or that there has been or will be compliance with any law,
regulation or ordinance pertaining to hazardous substances or any other
applicable governmental law. Neither any Company nor any other party is entitled
to rely on any site visit, observation or testing by the Bank. The Bank owes no
duty of care to protect any Company or any other party against, or to inform any
Company or any other party of, any hazardous substances or any other adverse
condition affecting the Real Property.
The Bank will not be obligated to disclose to the Borrower or any other party
any report or findings made as a result of, or in connection with, any site
visit, observation or testing by the Bank. In each instance, the Bank will give
the Borrower reasonable notice before entering the Real Property. The Bank will
make reasonable efforts to avoid interfering with the Borrower's use of the Real
Property or any other property in exercising any rights provided in this
Section.
11.6 CONTINUATION OF INDEMNITY. The Borrower's obligations to the Bank under
this Article, except the obligation to give notices to the Bank, shall survive
termination of this Agreement and repayment of the Borrower's obligations to the
Bank under this Agreement, and shall also survive as unsecured obligations after
any acquisition by the Bank of the collateral securing this Agreement, including
the Real Property or any part of it, by foreclosure or any other means.
11.7 DEFINITION OF HAZARDOUS SUBSTANCE. For purposes of this Agreement, the term
"HAZARDOUS SUBSTANCES" means any substance which is or becomes designated as
"HAZARDOUS" or "TOXIC" under any federal, state or local law.
11.8 ASBESTOS OPERATIONS AND MAINTENANCE. Without limiting the generality of the
foregoing, the Borrower acknowledges that the Real Property includes no
improvement constructed prior to 1981. The Borrower agrees that at any point in
time the Borrower becomes aware that the Real Property may contain
asbestos-containing materials ("ACM"), the Borrower will engage at its own
expense an asbestos survey using a consultant acceptable to the Bank (the
"SURVEY"). The Borrower agrees, at the Borrower's sole expense, to follow any
recommendations in the Survey for an operations and maintenance plan (the "O&M
PLAN") to keep the ACM in safe condition and assure that the ACM will not be
disturbed. At the Borrower's expense, the Borrower agrees to have the Real
Property resurveyed each year while any credit is outstanding under this
Agreement, using a consultant satisfactory to the Bank, to ensure that the ACM
remains in a good and non-hazardous condition and to determine if the O&M Plan
should be revised or any other measures taken to ensure that the ACM does not
pose a hazard. The Borrower agrees, at the Borrower's sole expense, to follow
all recommendations of the asbestos consultants, as the same may be revised from
time to time.
12. DEFAULT If any of the following events occur, the Bank may do one or more of
the following: (i) declare the Borrower in default, (ii) stop making any
additional credit available to the Borrower, (iii) exercise any and all Rights
as may be available to the Bank under any of the Loan Documents, (iv) exercise
any and all Rights and remedies as may be available to the Bank at law or in
equity, and (v) declare the entire debt created and evidenced hereby to be
immediately due and payable in full, whereupon the entire unpaid principal
indebtedness evidenced hereby, and all accrued unpaid interest thereon, shall at
once mature and become due and payable without presentment, demand, protest,
grace or notice of any kind (including, without limitation, notice of intent to
accelerate, notice of
45
<PAGE>
acceleration or notice of protest), all of which are hereby severally waived by
the Borrower. If a Default occurs under SECTION 12.6, the entire debt
outstanding under this Agreement will automatically become due immediately.
12.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement,
and with respect solely to interest payments, such failure continues for five
days after the date when due.
12.2 NON-COMPLIANCE. (a) Any Company fails to meet the condition of, or fails to
perform any obligation under any Loan Document or any other agreement any
Company has with the Bank or any affiliate of the Bank other than as set forth
in SECTION 12.2(B) below; and (b) Any Company fails to comply with any covenant
set forth in SECTIONS 10.3, 10.4, 10.5, 10.6, 10.7, 10.21, and 10.23(C) hereof
for more than twenty days after such breach occurs.
12.3 SAM'S CONTRACT. Any default or material breach occurs under the Sam's
Contract.
12.4 LIEN PRIORITY. The Bank fails to have an enforceable first priority Lien
(EXCEPT for PACA Liens, statutory or contractual landlord's liens that have not
been subordinated to the Bank's Liens, and any other prior Liens to which the
Bank has consented in writing) on or security interest in any of the Collateral.
12.5 FALSE INFORMATION. The Companies have given the Bank information or
representations which were false and materially misleading when given.
12.6 DEBTOR RELIEF. Any Company (a) is not solvent, (b) fails to pay its Debts
generally as they become due, (c) voluntarily seeks, consents to, or acquiesces
in the benefit of any Debtor Law, or (d) becomes a party to or is made the
subject of any proceeding provided for by any Debtor Law (EXCEPT as a creditor
or claimant) that could suspend or otherwise adversely affect the Rights of the
Bank granted in the Loan Documents (UNLESS, if the proceeding is involuntary,
the applicable petition is dismissed within 60 days after its filing).
12.7 RECEIVERS. A receiver or similar official is appointed for any Company's
business, or the business is terminated.
12.8 JUDGMENTS. Any judgments or arbitration awards are entered against any
Company and are not discharged or stayed pending appeal within thirty (30) days,
or any Company, enters into any settlement agreements with respect to any
litigation or arbitration, the aggregate uninsured amount of $750,000.
12.9 GOVERNMENT ACTION. Any governmental authority takes action that constitutes
a Material Adverse Event.
12.10 ERISA PLANS. The occurrence of any one or more of the following events
with respect to any Company, provided such event or events could reasonably be
expected, in the reasonable judgment of the Bank, to subject any Company to any
tax, penalty or liability (or any combination of the foregoing) which, in the
aggregate, constitute a Material Adverse Effect:
(a) A reportable event shall occur with respect to a Plan which is,
in the reasonable judgment of the Bank likely to result in the
termination of such Plan for purposes of TITLE IV of ERISA.
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<PAGE>
(b) Any Plan termination (or commencement of proceedings to terminate
a Plan) or any Company's full or partial withdrawal from a Plan.
12.11 CHANGE OF CONTROL. The occurrence of a Change of Control. "CHANGE OF
CONTROL" means the existence or occurrence of any of the following: (a) more
than ten percent (10%) of the capital stock of any Subsidiary of the Borrower is
owned by any Person other than the Borrower, EXCEPT as permitted under SECTION
10.14 of this Agreement; or (b) individuals who, as of the date of this
Agreement, constitute the Board of Directors of the Borrower (the "INCUMBENT
BOARD") cease for any reason to constitute at least a majority of the Board of
Directors of the Borrower, PROVIDED THAT any individual becoming a director of
the Borrower, subsequent to the date of this Agreement, whose election or
nomination for election by the Borrower's shareholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in RULE 14A-11 of REGULATION 14A promulgated under the
Securities Exchange Act of 1934) or other actual or threatened solicitation of
proxies or contest by or on behalf of a Person other than the Board of Directors
of the Borrower.
12.12 OTHER FUNDED DEBT. In respect of any Funded Debt (OTHER THAN Funded Debt
owing to the Bank) individually or collectively of at least $750,000 (A) any
Company fails to make any payment when due and such failure continues beyond the
applicable grace or cure period, or (B) any default or other event or condition
occurs or exists beyond the applicable grace or cure period, the effect of which
is to cause or to permit any holder of that Funded Debt to cause (whether or not
it elects to cause) any of that Funded Debt to become due before its stated
maturity or regularly scheduled dates, or (C) any of that Funded Debt is
declared to be due and payable or required to be prepaid by any Company before
its stated maturity.
12.13 GUARANTY REVOCATION. Any Company party to the Guaranty revokes or attempts
to revoke the obligations under the Guaranty.
13. ENFORCING THIS AGREEMENT; MISCELLANEOUS
13.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
13.2 TEXAS LAW. Unless otherwise stated in any Loan Document, the Laws of the
State of Texas and of the United States of America govern the Rights and duties
of the parties to the Loan Documents and the validity, construction,
enforcement, and interpretation of the Loan Documents.
13.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's successors and assigns. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign the loans outstanding under the Revolving Facility Commitment and Term
Loan Commitment, and may exchange financial information about the Companies with
actual or potential participants or assigns, subject to the following
qualifications applicable only so long as no Potential Default or Default has
occurred and is continuing: (a) the Bank will continue to own not less than 51%
of the outstanding Revolving Facility Commitment and Term Loan Commitment; (b)
the Companies will deal solely with the Bank; (c) the Borrower must consent to
the
47
<PAGE>
assignment or participation, which consent shall not be unreasonably withheld;
(d) any potential participant or assignee shall execute a confidentiality
agreement substantially in the form of the Confidentiality Agreement prior to
receiving any information regarding the Companies, and (e) no participant or
assignee shall have the right to approve any amendments or waivers to this
Agreement or any other Loan Document. If a participation is sold or all or any
part of the Revolving Facility Commitment or the Term Loan Commitment is
assigned, the purchaser will have the right of set-off against the Borrower.
13.4 ARBITRATION.
(a) This Section concerns the resolution of any controversies or
claims between any Company and the Bank, including but not
limited to those that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any other Loan Document;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between any Company and the Bank, including
claims for injury to persons, property or business
interests (torts).
(b) At the request of the applicable Company or the Bank, any such
controversies or claims will be settled by arbitration in
accordance with the United States Arbitration Act. THE UNITED
STATES ARBITRATION ACT WILL APPLY EVEN THOUGH THIS AGREEMENT
PROVIDES THAT IT IS GOVERNED BY TEXAS LAW.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial
rules of arbitration.
(d) For purposes of the application of the statute of limitations,
the filing of an arbitration pursuant to this Section is the
equivalent of the filing of a lawsuit, and any claim or
controversy which may be arbitrated under this Section is subject
to any applicable statutes of limitations. The arbitrators will
have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so,
to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to an authorized court of law to be confirmed and
enforced.
(g) This provision does not limit the right of any Company or the
Bank to:
(i) exercise self-help remedies such as setoff;
48
<PAGE>
(ii) foreclose against or sell any Collateral; or
(iii) act in a court of law before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; or
(B) additional or supplementary remedies.
(h) The pursuit of a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of any Company or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
13.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes an advance after Default. If the Bank waives a Default, it may enforce
a later Default. Any consent or waiver under this Agreement must be in writing.
13.6 COSTS. If the Bank incurs any reasonable out-of-pocket expenses in
connection with enforcing this Agreement, or if the Bank takes collection action
under this Agreement, it is entitled to out-of-pocket costs and reasonable
attorneys' fees.
13.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding, the
prevailing party is entitled to recover costs and reasonable attorneys' fees
incurred in connection with the lawsuit or arbitration proceeding, as determined
by the court or arbitrator. A party shall be considered the prevailing party if
(a) it initiated the litigation and substantially obtains the relief it sought,
either through a judgment or arbitration award or the losing party's voluntary
action before arbitration, trial, or judgment, (b) the other party withdraws its
action without substantially obtaining the relief it sought, or (c) such party
did not initiate the litigation and judgment is entered into for any party, but
without substantially granting the relief sought by the initiating party or
granting more substantial relief to the non-initiating party with respect to any
counterclaim asserted by the non-initiating party in connection with such
litigation.
13.8 MULTIPLE BORROWERS. If two or more borrowers sign this Agreement, each will
be individually obligated to repay the Bank in full, and all will be obligated
together.
13.9 DESTRUCTION OF THE BORROWER'S DOCUMENTS. Subject to the terms of the
Confidentiality Agreement, the Bank will not be obligated to return any
schedules, invoices, statements, budgets, forecasts, reports or other papers
delivered by the Borrower. The Bank will destroy or otherwise dispose of such
materials at such time as the Bank, in its discretion, deems appropriate.
13.10 RETURNED MERCHANDISE. Until the Bank exercises its rights to collect the
accounts receivable as provided under any Security Agreement required under this
Agreement, each Company may continue its present policies for returned
merchandise and adjustments. Credit adjustments with respect to returned
merchandise shall be made immediately upon receipt of the merchandise by the
applicable Company or upon such other disposition of the merchandise by the
debtor in accordance with that Company's instructions. If a credit adjustment is
made with respect to any Acceptable Receivable, the amount of such adjustment
shall no longer be included in the amount of such Acceptable Receivable in
computing the Borrowing Base.
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<PAGE>
13.11 VERIFICATION OF RECEIVABLES. The Bank may at any time prior to the
occurrence and continuation of any Potential Default or Default, upon three Bank
Day's notice to Borrower, and thereafter, at any time, either orally or in
writing, request confirmation from any debtor of the current amount and status
of the accounts receivable upon which such debtor is obligated.
13.12 INDEMNIFICATION. The Borrower agrees to indemnify the Bank against, and
hold the Bank harmless from, all claims, actions, losses, costs and expenses
(including attorneys' fees and allocated costs for in-house legal services)
incurred by the Bank and arising from any contention whether well-founded or
otherwise, that there has been a failure to comply with any law regulating the
Borrower's sales or leases to or performance of services for debtors obligated
upon the Borrower's accounts receivable and disclosures in connection therewith.
This indemnity will survive repayment of the Borrower's obligations to the Bank
and termination of this Agreement.
13.13 CONFIDENTIALITY. The Bank agrees to comply with the provisions of the
Confidentiality Agreement.
13.14 NOTICES. All notices required under this Agreement shall be: (a)
personally delivered; (b) sent by first class mail, postage prepaid, or (c) sent
by fax, when transmitted to the appropriate fax number (and all communications
sent by fax must be confirmed promptly thereafter by telephone; but any
requirement in this parenthetical shall not affect the date when the fax shall
be deemed to have been delivered) to the addresses on the signature page of this
Agreement, or to such other addresses as the Bank and the Borrower may specify
from time to time in writing.
13.15 HEADINGS. Article and Section headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
13.16 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
13.17 USURY LAWS. It is the intention of the parties to comply with applicable
usury laws; accordingly, it is agreed that notwithstanding any provisions to the
contrary in this Agreement or in any of the other Loan Documents, in no event
shall this Agreement or the other Loan Documents require or permit the payment,
contracting for, charging, taking, reserving or receiving any sums constituting
interest, as defined under applicable usury laws, IN EXCESS OF the maximum
amount permitted by such laws. If any such excess of interest is contracted for,
paid, charged, taken, reserved or received under this Agreement or under any of
the other Loan Documents, on the amount of principal actually outstanding from
time to time shall EXCEED the maximum amount of interest permitted by applicable
usury laws, then in any such event (i) the provisions of this Section shall
govern and control; (ii) any such excess shall be canceled automatically to the
extent of such excess, and shall not be collected or collectible; (iii) any such
excess which is or has been received shall be credited against the unpaid
principal balance hereof or refunded to the Borrower, at the Bank's option; and
(iv) the effective rate of interest shall be automatically reduced to the
Maximum Rate. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest calculated for, paid, charged, taken,
reserved or received under this Agreement or under any other Loan Document,
shall be made, to the extent permitted by applicable usury laws, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the indebtedness, all interest at any time contracted for, paid,
charged, taken, reserved or received from the Borrower or otherwise by the
holder or holders thereof. The terms of this Section shall
50
<PAGE>
be deemed to be incorporated in every Loan Document and communication relating
to any Loan Document and the law evidenced hereby. The term "APPLICABLE USURY
LAWS" shall mean such law of the State of Texas or the laws of the United
States; whichever laws allow the higher rate of interest, as such laws now
exist, PROVIDED THAT if such laws shall hereafter allow higher rates of
interest. then the applicable usury laws shall be the laws allowing the higher
rate to be effective as of the effective date of such laws. To the extent that
TEX. REV. STAT. ANN. ART 5069-1.04, as amended (the "ACT"), is relevant to the
Bank for the purposes of determining the Maximum Rate, the parties elect to
determine the Maximum Rate under the Act pursuant to the "INDICATED RATE
CEILING" from time to time in effect, as referred to and defined in ARTICLE
1.04(A)(1) of the Act; subject, however, to any Right the Bank may have
subsequently under applicable law, to change the method of determining the
Maximum Rate.
13.18 NO ORAL AGREEMENTS. The Loan Documents represent the sum of the
understandings and agreements between the Bank and the Borrower concerning this
credit, replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit, and are intended by the Bank and the Borrower
as the final, complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other Loan Document,
this Agreement will prevail.
THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
51
<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA TEXAS, N.A.,
AS THE BANK
By: ____________________________
Connor J. Duffey, Vice President
Address where notices to the
Bank are to be sent:
Bank of America Texas, N.A.
1925 W. John Carpenter Freeway
Irving, Texas 75063
Fax No: 972-444-7167
Phone No.: 972-444-5195
Attn: Connor Duffey, Vice President
FRESH AMERICA CORP.,
AS THE BORROWER
By: ____________________________
Robert C. Kiehnle,
Executive Vice President
Address where notices to the
Borrower are to be sent:
One Lincoln Centre
5400 LBJ Freeway
Suite 1025
Dallas, Texas 75240
Fax No.: 972-774-0515
Phone No.: 972-774-0575
Attn: Chief Financial Officer
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT OF PREPAYMENT FEES. The Borrower acknowledges that prepayment of
any portion of the amounts borrowed under this Agreement bearing interest at the
Eurodollar Rate may result in the Bank incurring additional costs, expenses
and/or liabilities. The Borrower therefore agrees to pay the prepayment fee
described in the "EURODOLLAR RATE" section of this Agreement if the portion is
prepaid, whether voluntarily or by reason of acceleration, including
acceleration upon any sale of any real property that is Collateral. The Borrower
agrees that the method of calculating the fee represents a reasonable estimate
of the prepayment costs, expenses and liabilities of the Bank. The Borrower
further acknowledges that the Bank's willingness to offer an optional interest
rate to the Borrower is sufficient and independent consideration for this
Agreement to pay the fee.
X ________________________________
INITIAL HERE
52
<PAGE>
EXHIBITS AND SCHEDULES
SCHEDULES
Schedule 8 - Closing Documents
Schedule 9.2 - Companies and Names
Schedule 10.8d - Existing Debt
EXHIBITS
Exhibit A-1 - Revolving Note
Exhibit A-2 - Term Note
Exhibit B - Guaranty
Exhibit C-1 - Security Agreement
Exhibit C-2 - Borrowing Notice
Exhibit C-3 - LC Request
Exhibit D-1 - Borrowing Base Report
Exhibit D-2 - Compliance Certificate
Exhibit E - Opinion of Hughes & Luce, L.L.P.
EXHIBIT 11.1
FRESH AMERICA CORP.
COMPUTATION OF PER SHARE EARNINGS*
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 28, JUNE 27, JUNE 28, JUNE 27,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income applicable to common and common
equivalent shares ...................... $ 1,407 $ 1,531 $ 1,755 $ 2,476
========== ========== ========== ==========
Weighted average common shares outstanding 3,639 3,741 3,642 3,736
Effect of stock options and warrants ..... 217 213 213 216
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares ...................... 3,856 3,954 3,855 3,952
========== ========== ========== ==========
Net income per common and common
equivalent share - fully diluted ......... $ 0.36 $ 0.39 $ 0.46 $ 0.63
========== ========== ========== ==========
</TABLE>
* Earnings per share are presented on a fully diluted basis.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FRESH AMERICA CORP. FORM 10-Q FOR QUARTER ENDED JUNE 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-END> JUN-27-1997
<CASH> 2,790
<SECURITIES> 0
<RECEIVABLES> 26,619
<ALLOWANCES> 0
<INVENTORY> 3,389
<CURRENT-ASSETS> 33,837
<PP&E> 9,168
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,485
<CURRENT-LIABILITIES> 22,061
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 23,809
<TOTAL-LIABILITY-AND-EQUITY> 46,485
<SALES> 158,400
<TOTAL-REVENUES> 158,400
<CGS> 141,852
<TOTAL-COSTS> 141,852
<OTHER-EXPENSES> 12,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (93)
<INCOME-PRETAX> 3,971
<INCOME-TAX> 1,495
<INCOME-CONTINUING> 2,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,476
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
