EXHIBIT 10.9
LETTER LOAN AGREEMENT
---------------------
December 11th, 1995
Bank One, Texas, NA
910 Travis
Houston, Texas 77002
Attention - Corporate Banking Group
Gentlemen:
The undersigned, DIVERSIFIED SPECIALISTS, INC., a Texas corporation
("Borrower"), duly organized and existing under the laws of the State of Texas,
- ----------
has requested that BANK ONE, TEXAS, NA ("Lender") lend to Borrower the sum of
------
$20,400,000. Borrower and Lender previously entered into a Letter Loan
Agreement dated April 26, 1995, which was amended by a First Amendment to Letter
Loan Agreement dated July 31, 1995. Borrower and Lender have agreed to further
modify the terms of their agreement to include a term note and to amend certain
other terms and provisions of the Loan Agreement. For the convenience and
mutual benefit of all parties, Lender, Borrower and ROSIE ACQUISITION, L.L.C.
("Guarantor") have entered into this amended and fully restated Letter Loan
- -----------
Agreement (the "Agreement"), and do hereby agree as follows.
---------
1. Loan and Letters of Credit.
--------------------------
(a) On the terms and subject to the conditions set forth in this
letter loan agreement (the "Agreement"), Lender agrees to lend to Borrower up to
---------
$20,400,000 (the "Loan"). The Loan shall be evidenced by (i) a Revolving
----
Promissory Note (the "Revolving Note") in a form satisfactory to Lender, duly
--------------
executed by Borrower in the principal amount of $6,000,000 and made payable to
the order of Lender and (ii) a Promissory Note (the "Term Note") in a form
---------
satisfactory to Lender duly executed by Borrower in the principal amount of
$14,400,000 and made payable to the order of Lender. Principal and interest on
the Revolving Note shall be due and payable in the manner and at the times set
forth in the Revolving Note with final maturity on May 31, 1997 (the "Revolving
---------
Termination Date"). The total outstanding advances by Lender under the
- ----------------
Revolving Note will not exceed at any one time the lesser of (i) $6,000,000, or
(ii) the Borrower's Loan Limit, as defined on Schedule "A" annexed hereto.
------------
Principal and interest (including any prepayment fee) on the Term Note shall be
due and payable in the manner and at the times set forth in the Term Note with
final maturity on December ____, 2000. The Revolving Note and the Term Note are
hereinafter collectively referred to as the "Notes".
-----
(b) On the terms and subject to the conditions hereinafter set forth,
Lender agrees to make advances on the Revolving Note to Borrower for the
issuance of one or more working capital letters of credit the total aggregate
face amount of which shall not exceed at any one time the lesser of (i) $500,000
or (ii) the Borrower's Loan Limit. Each of the working capital letters of
credit shall be evidenced by an Application and Agreement for Letter of Credit
(the "Application") in a form satisfactory to Lender. Each of these working
-----------
capital letters of credit and any renewals, extensions and modifications thereof
are collectively referred to herein as the "Working Capital Letter of Credit".
--------------------------------
Repayment of drafts against the
Working Capital Letter of Credit shall be governed by this Agreement and the
Application, and shall be and is secured by the collateral and guaranties
provided herein.
(c) On the terms and subject to the conditions hereinafter set forth,
Lender agrees to issue on behalf of Borrower a Letter of Credit (the "Seller
------
Letter of Credit") in the face amount of $14,400,000 to facilitate the purchase
- ----------------
of Moss' (hereinafter defined) stock in the Borrower. The Seller Letter of
Credit shall be evidenced by an Application and Agreement for Standby Letter of
Credit (the "Application") in a form satisfactory to Lender. Repayment of
-----------
drafts against the Seller Letter of Credit shall be governed by this Agreement,
the Application, and the Term Note. Unless specified otherwise, the Seller
Letter of Credit, the Working Capital Letters of Credit and any renewals,
extensions and modifications thereof are collectively referred to as the "Letter
------
of Credit". To the extent the equity infusion described in Paragraph 3(a)(iii)
- ---------
below is less than $3,800,000 (the "Equity Shortfall"), the amount of such
----------------
Equity Shortfall shall be unavailable to the beneficiary of the Seller Letter of
Credit until such Equity Shortfall has been received by Borrower as equity and
deposited into the Deposit Account with Lender.
2. Revolving Credit Advances. Subject to the terms hereof, Borrower may
-------------------------
borrow, pay, reborrow and repay under the Revolving Note, provided, however, the
maximum principal outstanding under the Revolving Note shall not exceed at any
one time the lesser of (i) $6,000,000, or (ii) the Borrower's Loan Limit.
Borrower's requests for advances (whether for cash or Working Capital Letter of
Credit) under the Loan shall specify the aggregate amount of the advance and the
date of such advance. Borrower shall furnish to Lender a request for borrowing
in a form satisfactory to Lender. Lender shall make the requested funds or
Working Capital Letter of Credit available to Borrower at Lender's principal
banking office in Houston, Texas. If at any time prior to the Revolving
Termination Date, the outstanding advances under the Revolving Note exceed
Borrower's Loan Limit as shown on any reports delivered to Lender under
Paragraph 5(c) or as indicated by Lender's own records, Borrower shall, on the
date of the delivery of such report to Lender or on the date of notice from
Lender as to Lender's records, prepay on the Revolving Note such amount as may
be necessary to eliminate such excess.
3. Conditions Precedent.
--------------------
(a) The obligation of Lender to (i) make the initial advance under
either of the Notes or (ii) issue the Letters of Credit, is subject to the
condition precedent that Lender receive the following:
(i) Duly executed copies of each document listed on the last page
hereof relating to the Loan, in form and substance acceptable to Lender and
its legal counsel (all the documents listed on the last page hereof,
together with this Agreement and any other security documents relating to
the Loan, and any modifications thereof, are hereinafter collectively
referred to as the "Loan Documents");
--------------
(ii) An origination fee of $76,000.00;
-2-
(iii) Confirmation that Borrower has received from Guarantor an
equity infusion of at least $3,000,000.00 as payment of Guarantor's
purchase of stock in Borrower and such amount is deposited into the Deposit
Account with Lender;
(iv) Confirmation that Borrower has received $3,000,000.00 in
subordinated debt from Hibernia Corporation ("Hibernia"), the terms and
--------
conditions of which are approved by Lender and such amount is deposited
into the Deposit Account with Lender;
(v) Confirmation that DSI Acquisition, Inc. (a wholly owned
subsidiary of Guarantor) has executed a $14,400,000 promissory note, a
$6,000,000 promissory note, a $1,000,000 promissory note, and a $1,300,000
promissory note, each of which are payable to Tommy Moss ("Moss") to
----
finance the purchase of Moss' stock in Borrower, the terms and conditions
of which loan (i) shall become a debt of Borrower upon the merger of DSI
Acquisition, Inc. into Borrower, and (ii) are subordinate to the Loan, and
in all respects are approved by Lender;
(vi) An executed copy of the Agreement for Sale of Stock (the
"Stock Purchase Agreement") between Borrower, DSI Acquisition, Inc.,
-------------------------
Guarantor, and Moss, and all amendments thereto; and
(vii) Confirmation that Borrower has deposited an additional
$1,600,000 into the Deposit Account with Lender.
(b) Lender's obligation to (i) make any advances under the Loan or
(ii) issue the Letters of Credit, shall be subject to the additional conditions
precedent that, as of the date of such advance and after giving effect thereto:
(i) all representations and warranties made by Borrower to Lender in the Loan
Documents are true and correct, as if made on such date, (ii) all documents and
proceedings shall be reasonably satisfactory to legal counsel for Lender, (iii)
no condition or event exists which constitutes an Event of Default (as
hereinafter defined) or which, with the lapse of time and/or giving of notice,
would constitute an Event of Default, and (iv) all conditions precedent set
forth in subparagraph (a) above shall have been satisfied.
4. Representations and Warranties. In order to induce Lender to make the
------------------------------
Loan, Borrower represents and warrants to Lender that:
(a) The Loan Documents are the legal and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors' rights.
(b) All financial statements delivered by Borrower to Lender prior to
the date hereof are true and correct in all material respects, fairly present
the financial condition of Borrower and have been prepared in accordance with
generally accepted accounting principles, consistently applied; as of the date
hereof, there are no obligations, liabilities or indebtedness (including
contingent and indirect liabilities) which are material to Borrower and not
reflected in such financial statements; and no material adverse changes have
occurred in the financial condition or business of Borrower since the date of
the most recent financial statements which Borrower have delivered to Lender.
All financial statements of Guarantor
-3-
delivered to Lender prior to the date hereof are true and correct, and fairly
present the financial condition of Guarantor. There are no obligations,
liabilities or indebtedness (including contingent and indirect liabilities)
which are material to Guarantor and not reflected in such financial statements;
and no material adverse changes have occurred in the financial condition or
business of Guarantor since the date of such financial statements.
(c) Neither the execution and delivery of this Agreement and the other
Loan Documents, nor consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or thereof,
will contravene or conflict with any provision of law, statute or regulation to
which Borrower is subject or any judgment, license, order or permit applicable
to Borrower or any indenture, mortgage, deed of trust or other instrument to
which Borrower may be subject; no consent, approval, authorization or order of
any court, governmental authority or third party is required in connection with
the execution and delivery by Borrower of this Agreement or transactions
contemplated herein or therein.
(d) No litigation (except as previously disclosed in writing to
Lender), investigation, or governmental proceeding is pending, or, to the
knowledge of any of Borrower's officers, threatened against or affecting
Borrower, which may result in any material adverse change in Borrower's
business, properties or operations.
(e) There is no specific fact known to Borrower that Borrower has not
disclosed to Lender in writing which is likely to result in any material adverse
change in Borrower's business, properties or operations.
(f) Borrower owns all of the assets reflected on its balance sheet
(most recently submitted to Lender), free and clear of all liens, security
interests or other encumbrances, except as (i) provided in the Stock Purchase
Agreement, and (ii) previously disclosed in writing to Lender.
(g) The principal office, chief executive office and principal place
of business of Borrower is in Houston, Texas.
(h) All taxes required to be paid by Borrower have in fact been paid,
except for taxes being contested in good faith by appropriate proceedings for
which adequate reserves have been established.
(i) No written certificate or written statement herewith or heretofore
delivered by Borrower to Lender in connection herewith, or in connection with
any transaction contemplated hereby, contains any untrue statement of a material
fact or fails to state any materi al fact necessary to keep the statements
contained therein from being misleading.
(j) Borrower is not in violation of any law, ordinance, governmental
rule or regulation to which it is subject, or in default under any material
agreement, contract or understanding to which it is a party, which violation or
default would result in any material adverse change in Borrower's business,
properties or operations.
-4-
(k) Borrower's design, manufacture or distribution of any of the
Collateral (hereinafter defined) is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject.
(l) Borrower has taken all steps necessary to determine and has
determined that no hazardous substances, or other substances known or suspected
to pose a threat to health or the environment which are in violation of
Applicable Environmental Laws ("Hazard[s]") exist with respect to the Collateral
---------
(hereinafter defined). No prior use, either by Borrower or, to Borrower's
knowledge, the prior owners of the Collateral, has occurred, which violates any
laws pertaining to health or the environment ("Applicable Environmental Laws"),
-----------------------------
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), the Resource
------
Conservation and Recovery Act of 1976, as amended ("RCRA"), the Texas Water Code
----
and the Texas Solid Waste Disposal Act. Borrower's handling and maintenance of
the Collateral does not and will not result in the disposal or release of any
hazardous substance or Hazard on, in or to the Collateral. The terms "hazardous
substance" and "release" shall each have the meanings specified in CERCLA, and
the terms "solid waste" and "disposal" (or "disposed") shall each have the
meanings specified in RCRA; provided, however, that in the event either CERCLA
or RCRA is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment; and provided further that, to the extent that the laws of the State
of Texas establish a meaning for "hazardous substance", "release", "solid
waste", or "disposal" which is broader than that specified in either CERCLA or
RCRA, such broader definition shall apply.
(m) Borrower is not a party to any inventory repurchase agreements
with respect to a material amount of inventory (as determined by Lender) with
any of Borrower's customers.
(n) Borrower has delivered to Lender a true, complete and correct copy
of the duly executed and delivered Stock Purchase Agreement, and such document
is in full force and effect, and has not been amended, supplemented or modified
since the date of execution thereof.
(o) Borrower will receive a reasonably equivalent value in exchange
for the obligations of Borrower under this Agreement, the Note and the Loan
Documents. The execution and performance of this Agreement, the Note and the
Loan Documents by the Company (i) are not being made with any intent to hinder,
delay or defraud any entity to which Borrower is indebted; (ii) will not result
in Borrower having an unreasonably small capital for the business in which it is
engaged; and (iii) will not cause Borrower to incur debts that would be beyond
the ability of Borrower to pay as such debts mature. Any property transferred,
concealed or removed with intent to hinder, delay or defraud Borrower's
creditors and property which may be exempted from the debtor's estate under the
Federal Bankruptcy Code shall be excluded from the assets of Borrower for
purposes of determining insolvency. Borrower has never been adjudicated a
bankrupt or filed a case under the Federal Bankruptcy Code or had an order for
relief entered against it under the Federal Bankruptcy Code.
-5-
(p) No proceeds of the Loan will be used to acquire any security in
any transaction which is subject to Sections 13 or 14 of the Securities Exchange
Act of 1934, including particularly (but without limitation) Sections 13(d) and
14(d) thereof.
5. Affirmative Covenants. Until payment in full of the Notes and all
---------------------
other obligations and liabilities of Borrower hereunder, Borrower agrees and
covenants that (unless Lender shall otherwise consent in writing):
(a) As soon as available, and in any event within thirty (30) days
after the end of each calendar month, Borrower shall deliver to Lender unaudited
financial statements showing the consolidating financial condition of Borrower
at the close of each such month and the results of operations during such
calendar month, which financial statements shall include, but shall not be
limited to, a profit and loss statement, balance sheet, Borrower's computations
showing compliance with the covenants in subparagraphs 6(a), (b), (c) and (d)
hereinbelow, and such other matters as Lender may reasonably request; such
statements shall be prepared in accordance with generally accepted accounting
principles and certified on the face thereof by the chief financial officer of
Borrower, or any person acceptable to Lender, and shall be forwarded to Lender
with a letter of transmittal from such officer in which such officer shall
certify that Borrower is in compliance with all of the affirmative covenants
contained in this Paragraph and further stating that no Event of Default exists
in the performance by Borrower of any of the other terms, conditions and
covenants required under this Agreement to be performed by Borrower.
(b) As soon as available, and in any event within one hundred twenty
(120) days after the end of each fiscal year of Borrower, Borrower shall deliver
to Lender a copy of the annual audited consolidated financial statement of
Borrower prepared in conformity with generally accepted accounting principles,
certified (with no material qualifications or exceptions) by independent public
accountants selected by Borrower and acceptable to Lender, which show the
financial condition of Borrower at the close of such fiscal year and the results
of operations during such fiscal year, and shall include, but not be limited to,
a profit and loss statement, balance sheet, cash flow statement and such other
matters as Lender may reasonably request.
(c) As soon as available, and in any event within thirty (30) days
after the end of each month, and upon each request for an advance Borrower shall
deliver to Lender a Borrowing Base Report and Compliance Certificate in the form
of Schedule "B" attached hereto together with such other information as may be
------------
deemed necessary or appropriate by Lender; and as soon as available, and in any
event within thirty (30) days after the end of each month, an aging and listing
of all accounts receivable and inventory of Borrower in a form acceptable to
Lender.
(d) Borrower shall conduct their business in an orderly and efficient
manner consistent with good business practices and in accordance with all valid
regulations, laws and orders of any governmental authority and will act in
accordance with customary industry standards in maintaining and operating its
assets, properties and investments, and shall not change the nature or type of
their basic business.
-6-
(e) Borrower shall maintain complete and accurate books and records of
its transactions in accordance with generally accepted accounting principles,
and will give Lender access during reasonable business hours to all books,
records and documents of Borrower and permit Lender to make and take away copies
thereof.
(f) Borrower shall furnish to Lender, immediately upon becoming aware
of the existence of any condition or event constituting an Event of Default or
event which, with the lapse of time and/or giving of notice, would constitute an
Event of Default, written notice specifying the nature and period of existence
thereof and any action which Borrower is taking or propose to take with respect
thereto.
(g) Borrower shall maintain or cause to be maintained insurance from
responsible and reputable companies in such amounts and covering such risks as
is acceptable to Lender, is prudent and is usually carried by companies engaged
in businesses similar to that of Borrower including, without limitation,
casualty insurance coverage; Borrower shall furnish Lender, on request, with
certified copies of insurance policies or other appropriate evidence of
compliance with the foregoing covenant.
(h) Borrower shall promptly notify Lender of (i) any material adverse
change in their financial condition or business; (ii) any default under any
material agreement, contract or other instrument to which Borrower are a party
or by which any of its properties are bound, or any acceleration of any maturity
of any indebtedness owing by Borrower, (iii) any material adverse claim against
or affecting Borrower or any of their properties; and (iv) any litigation, or
any claim or controversy which might become the subject of litigation, against
Borrower or affecting any of Borrower's property, if such litigation or
potential litigation might, in the event of an unfavorable outcome, have a
material (which for purposes hereof shall mean $100,000 or more) adverse effect
on Borrower's financial condition or business or might cause an Event of
Default.
(i) Borrower shall preserve and maintain all licenses, privileges,
franchises, certificates and the like necessary for the operation of their
business.
(j) Borrower shall promptly furnish to Lender, at Lender's request,
such additional financial or other information concerning assets, liabilities,
operations and transactions of Borrower and each of Borrower's subsidiaries as
Lender may from time to time reasonably request.
(k) Borrower shall give notice to Lender immediately upon acquiring
knowledge of the presence of any Hazards relating to the Collateral, which is in
a condition that is resulting or could reasonably be expected to result in any
adverse environmental impact, with a full description thereof; promptly comply
with all Applicable Environmental Laws requiring the notice, removal, treatment,
or disposal of such hazardous substances; and provide Lender, within thirty (30)
days after demand by Lender, with financial assurance evidencing to Lender's
satisfaction that sufficient funds are available to pay the cost of removing,
treating and disposing of any such known Hazards and discharging any liens or
assessments that may be established relating to the Collateral.
-7-
(l) Borrower shall at all times maintain a special depository account
(the "Deposit Account") with Lender, which account and proceeds thereof shall be
---------------
subject to the terms of a Security Agreement from Borrower for the benefit of
Lender. Borrower shall deposit in the Deposit Account (i) $250,000 on the first
day of each and every March, June, September, and December and (ii) all other
principal payments required to be paid as set forth in the Term Note (including
the Excess Cash Flow Payments, as defined in the Term Note), while the Seller
Letter of Credit is outstanding, and the proceeds of the Deposit Account shall
be applied towards payment of the Term Note upon the funding of the Seller
Letter of Credit.
(m) Borrower will cause each landlord of all premises leased by
Borrower to execute and deliver to Lender instruments, in form and substance
satisfactory to Lender, by which such landlord waives its rights, if any, to all
personal property and fixtures in which Lender has a security interest. All
such instruments shall be delivered to Lender within thirty (30) days of the
date hereof.
(n) Borrower shall indemnify, defend, and hold harmless Lender and its
directors, officers, agents, attorneys and employees (collectively, the
"Indemnitee") from and against: (i) any and all claims, demands, actions, or
- -----------
causes of action that are asserted against any Indemnitee by any person if the
claim, demand, action or cause of action directly or indirectly relates to a
claim, demand, action, or cause of action that the person asserts or may assert
against Borrower, or any officer, director or shareholder of Borrower, (ii) any
and all claims, demands, actions or causes of action that are asserted against
any Indemnitee if the claim, demand, action or cause of action directly or
indirectly relates to this Agreement, the Stock Purchase Agreement, the use of
proceeds of the Notes, or the relationship of Borrower and Lender under this
Agreement or any transaction contemplated pursuant to this Agreement or the
Stock Purchase Agreement, (iii) any administrative or investigative proceeding
by any governmental authority directly or indirectly related to a claim, demand,
action or cause of action described in clauses (i) or (ii) above, and (iv) any
and all liabilities, losses, costs, or expenses (including attorneys' fees and
disbursements) that any Indemnitee suffers or incurs as a result of any of the
foregoing; PROVIDED, HOWEVER, THAT ALTHOUGH THE FOREGOING INDEMNITY SHALL
INCLUDE CLAIMS, DEMANDS, ACTIONS OR CAUSES OF ACTION BASED UPON LENDER'S
NEGLIGENCE, BORROWER SHALL HAVE NO OBLIGATION UNDER THIS SECTION TO LENDER WITH
RESPECT TO ANY OF THE FOREGOING ARISING OUT OF THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF LENDER OR THE BREACH BY LENDER OF THIS AGREEMENT.
(o) Borrower shall provide Lender with confirmation that Borrower has
received from Guarantor the Equity Shortfall within thirty (30) days of the date
hereof.
6. Negative Covenants. Until payment in full of the Notes and all other
------------------
obligations and liabilities of Borrower hereunder, Borrower covenants that it
shall not (unless Lender shall otherwise consent in writing):
(a) Permit its Net Worth to be less than (i) ($2,000,000) from the
date hereof until July 31, 1996, (ii) $100,000 from August 1, 1996 through
January 30, 1998, and (iii) for each annual period thereafter beginning January
31, 1998, $1,500,000 plus the Net
----
-8-
Worth required for the previous annual period; as used herein, the term "Net
---
Worth" shall mean the total consolidated assets of Borrower, plus all
- -----
subordinated debt, minus its total consolidated liabilities (including
contingent liabilities), all notes receivable from shareholders and affiliates,
and other items deducted in arriving at net worth;
(b) Permit, at any time, its ratio of Funded Debt to EBITDA to be more
than (i) 3.75 to 1.00 from the date hereof through September 30, 1996, (ii) 3.50
to 1.00 from October 1, 1996 through January 30, 1998, and (iii) for each annual
period thereafter beginning January 31, 1998, the required ratio of Funded Debt
to EBITDA for the previous annual period minus 0.25; as used herein, the term
-----
"Funded Debt" shall mean, as of any date, all interest-bearing indebtedness of
- ------------
Borrower and its consolidated subsidiaries, including subordinated debt, less
the amount of cash in the Deposit Account; as used herein, "EBITDA" shall mean,
------
with respect to any period, consolidated earnings before interest expense,
income taxes, depreciation and amortization of Borrower and its consolidated
subsidiaries for such period, (plus $3,400,000 for the initial twelve months
hereof for the one time costs associated with the Stock Purchase Agreement
transaction), but excluding (i) any extraordinary gains or losses and (ii) any
non-recurring items, determined in accordance with generally accepted accounting
principles, calculated for the preceding twelve months;
(c) Permit, at any time, its ratio of consolidated current assets to
consolidated current liabilities to be less than 1.00 to 1.00;
(d) Permit its Debt Service Coverage ratio for the twelve-month period
ending on the last day of each calendar month to be less than 1.20 to 1.00; as
used herein, the term "Debt Service Coverage" shall mean the ratio of Borrower's
---------------------
EBITDA to the sum of all scheduled current maturities of long term senior and
subordinated debt plus interest expense, plus cash taxes;
(e) Incur or assume (or permit its subsidiaries to incur or assume)
any indebtedness or borrow any money, except for (i) the Loan, (ii) debt
(including accounts payable) incurred in the ordinary course of business, (iii)
Borrower's consolidated indebtedness to State Street Bank which shall not exceed
an aggregate amount of $8,000,000, and (iii) the Subordinated Indebtedness
(hereinafter defined);
(f) Endorse, guarantee, or otherwise become liable for the obligations
of any person, firm or corporation, except for (i) endorsements of negotiable
instruments by Borrower in the ordinary course of business, and (ii) the
existing guaranty in favor of State Street Bank on behalf of DSI (HK), Ltd.;
(g) Mortgage, assign, encumber, incur, assume or grant a security
interest in or lien upon any of Borrower's assets, except to Lender (provided,
however, that the foregoing shall not apply to [i] an inchoate lien for taxes
which are not delinquent or which are being contested in good faith, or [ii] the
subordinate security interest granted to Hibernia and Moss as contemplated in
the Stock Purchase Agreement);
(h) Liquidate, dissolve or reorganize; or merge or consolidate with,
or acquire all or substantially all of the assets of, any other company, firm or
association; or
-9-
make or permit any substantial change in its capitalization or its business
(except as provided in the Stock Purchase Agreement);
(i) Declare or pay any dividends on any of Borrower's outstanding
stock;
(j) Sell any of its tangible assets, except in the ordinary course of
business; or sell any of its assets to any other person, firm or corporation
with the agreement that such assets shall be leased back to Borrower, unless
replaced with assets of equal value;
(k) Own, purchase or acquire, directly or indirectly, any promissory
notes, stock or securities of any other person, firm or corporation, other than
securities guaranteed as to the principal and interest by the United States
government; or make any loans or advances, except advances to employees in an
aggregate amount exceeding $50,000.00, and the loans to Moss described
hereinabove;
(l) Expend or enter into any commitment to expend any amount for the
acquisition or lease of tangible, fixed or capital assets, including repairs,
replacements and improvements, which are capitalized under proper accounting
practice, and which exceeds, in the aggregate, $1,000,000 during any twelve
month period;
(m) Directly or indirectly, engage in any business other than those in
which Borrower is presently engaged, or discontinue any of its existing lines of
business or substantially alter its method of doing business;
(n) (i) Pay any installments of principal of or interest on any
Subordinated Indebtedness, after the occurrence and during the continuance of
any Event of Default, or the payment of which would result in the occurrence of
an Event of Default, (ii) directly or indirectly make any payments upon the
Subordinated Indebtedness other than regular installments of principal and
interest, or (iii) alter, amend, modify or otherwise change the terms,
conditions and provisions of the Subordinated Indebtedness, except as may be
permitted in the Intercreditor Agreement of even date herewith of which Lender
is a party (the "Intercreditor Agreement"); as used herein, the term
-----------------------
"Subordinated Indebtedness" shall mean (i) those certain $14,400,000,
- --------------------------
$6,000,000, $1,000,000 and $1,300,000 promissory notes payable to Moss described
in Paragraph 3(a) hereof, and (ii) that certain $3,000,000 promissory note
payable to Hibernia described in Paragraph 3(a) hereof;
(o) Enter into or be a party to any transaction or arrangement,
including, without limitation, the purchase, sale, exchange or use of any
property or asset, or any interest therein, whether real, personal or mixed, or
tangible or intangible, or the rendering of any service, with any "Affiliate"
(as hereafter defined), except transactions in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to Borrower than Borrower would obtain in an
arm's length transaction with a non-Affiliate. For purposes of this subsection
the term "Affiliate" means any person, firm, corporation or other entity which
---------
directly or indirectly controls, is controlled by or is under common control
with Borrower. A person, firm, corporation or other entity shall be deemed to
control another if it owns ten percent (10%) or more of the equity interest of
such other person, firm, corporation or other entity or if it possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies
-10-
of such other person, firm, corporation or other entity, whether through
ownership or stock, by contract or otherwise; or
(p) Permit any change in the senior management of Borrower, except as
may be provided otherwise in the Intercreditor Agreement with respect to Moss,
individually.
7. Default. An "Event of Default" shall exist if any one or more of the
------- ----------------
following events (herein collectively called "Events of Default") shall occur:
-----------------
(a) Borrower shall fail to pay when due any principal of, or interest
on, the Note or any other fee or payment due hereunder or under any of the Loan
Documents;
(b) Any representation or warranty made in any of the Loan Documents
shall prove to be untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(c) Default shall occur in the performance of any of the covenants or
agreements of Borrower contained herein or in any of the other Loan Documents;
(d) Borrower shall (i) apply for or consent to the appointment of a
receiver, custodian, trustee, intervenor or liquidator of it or of all or a
substantial part of its assets, (ii) voluntarily become the subject of a
bankruptcy, reorganization or insolvency proceeding or be insolvent or admit in
writing that it is unable to pay debts as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) file a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (v) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, (vi) become the
subject of an order for relief under any bankruptcy, reorganization or
insolvency proceeding, (vii) fail to pay any money judgment against it before
the expiration of thirty (30) days after such judgment becomes final and no
longer subject to appeal, or (viii) settle or compromise any claim or
controversy or suffer a final non-appealable judgement which has a material
(which for purposes hereof shall mean $500,000.00 or more) adverse effect on
Borrower's financial condition or business or might cause an Event of Default;
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition
appointing a receiver, custodian, trustee, intervenor or liquidator of Borrower
or of all or substantially all of its assets, and such order, judgment or decree
shall continue unstayed and in effect for a period of sixty (60) days; or a
complaint or petition shall be filed against Borrower seeking or instituting a
bankruptcy, insolvency, reorganization, rehabilitation or receivership
proceeding of Borrower, and such petition or complaint shall not have been
dismissed within sixty (60) days;
(f) Borrower shall default in the payment of any indebtedness
(including without limitation the Subordinated Indebtedness) or in the
performance of any of their obligations and such default shall continue for more
than any applicable period of grace; or
-11-
(g) Any transfer, pledge or other change in the ownership of the stock
of Borrower during the term of the Loan, except for (i) such pledges to the
Lender, (ii) the stock transfers contemplated in the Stock Purchase Agreement,
(iii) stock transfer to Moss as described in the Intercreditor Agreement, and
(iv) an initial public stock offering to which Lender has consented in writing.
8. Remedies Upon Event of Default. If an Event of Default shall have
------------------------------
occurred and be continuing, then Lender, at its option, after complying with the
------------------------
notice provisions (if applicable) set forth in the Intercreditor Agreement, may
- --------------------------------------------------------------------------
(i) declare the principal of, and all interest then accrued on, the Notes and
any other liabilities of Borrower to Lender to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without notice,
presentment, demand, protest, notice of intention to accelerate, or other notice
of any kind, all of which Borrower hereby expressly waives, anything contained
herein or in the Notes to the contrary notwithstanding, (ii) reduce any claim to
judgment, and/or (iii) without notice of default or demand, pursue and enforce
any of Lender's rights and remedies under the Loan Documents or otherwise
provided under or pursuant to any applicable law or agreement.
9. Collateral and Guaranties.
-------------------------
(a) Repayment of the Notes, drafts against the Letters of Credit and
performance of the obligations described herein shall be secured, directly or
indirectly, by (i) a first priority perfected security interest in all of
Borrower's accounts, general intangibles, equipment, fixtures and inventory,
(ii) a first priority perfected security interest in sixty-five percent (65%) of
the issued and outstanding shares of stock of DSI (HK), Ltd., (iii) a first
priority perfected security interest in 77.68% of the issued and outstanding
shares of stock of Borrower, and (iv) a first priority security interest in the
Deposit Account (collectively, the "Collateral").
----------
(b) Repayment of the Notes, drafts against the Letters of Credit and
performance of Borrower's obligations described herein shall be guaranteed by
the Guarantor to the extent provided in the guaranty agreement.
(c) Notwithstanding the foregoing, so long as (i) there is no Event of
Default or event which with the passage of time or notice would become an Event
of Default, and (ii) the Term Note has been paid in full, Lender agrees to
release the security interest in the stock of Borrower that has been pledged to
secure the Loan.
10. Letter of Credit Fees.
---------------------
(a) For each Working Capital Letter of Credit, Borrower shall pay to
Lender a fee equal to the greater of (i) $150 or (ii) one percent (1%)
(determined on a per annum basis) of the dollar amount of the Letter of Credit;
such fee shall be payable at the time a Working Capital Letter of Credit is
issued and upon any renewal or extension thereof. Additionally, Borrower agrees
to reimburse Lender for all actual out-of-pocket expenses incurred by Lender,
such as advising or confirming bank fees, telex charges and the like, and to pay
those fees customarily charged by Lender for any amendments to such Letter of
Credit.
-12-
(b) For the Seller Letter of Credit, Borrower shall pay to Lender a
fee equal to (i) one-half of one percent (1/2%) (determined on a per annum
basis) of the dollar amount of that portion of the Seller Letter of Credit,
which is adequately secured by cash (i.e., on a dollar for dollar basis) in the
Deposit Account (hereinafter defined), and (ii) three percent (3%) (determined
on a per annum basis) of the dollar amount of that portion of the Seller Letter
of Credit, which is not adequately secured by cash (i.e., on a dollar for dollar
basis) in the Deposit Account. The Seller Letter of Credit Fees shall be due
and payable quarterly, in arrears, on the same date that cash deposit payments
to the Deposit Account are due. Additionally, Borrower agrees to reimburse
Lender for all actual out-of-pocket expenses incurred by Lender, such as
advising or confirming bank fees, telex charges and the like, and to pay those
fees customarily charged by Lender for any amendments to the Seller Letter of
Credit.
(c) Borrower acknowledges and agrees that the fees set forth
hereinabove are bona fide commitment fees in that it is in consideration of (i)
Lender's holding monies in readiness for Borrower in support of these Letters of
Credit, and (ii) Lender's extension of its creditworthiness in connection with
the issuance of these Letters of Credit on behalf of Borrower.
11. Miscellaneous.
-------------
(a) Waiver. No failure to exercise, and no delay in exercising, on
------
the part of Lender, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder and under the other Loan Documents shall be in addition to all other
rights provided by law. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances
without such notice or demand.
(b) Notices. Any notices or other communications required or
-------
permitted to be given by any of the Loan Documents must be given in writing and
must be personally delivered, sent by facsimile transmission or mailed by
prepaid certified or registered mail to the party to whom such notice or
communication is directed at the address of such party as follows:
(i) Borrower: Diversified Specialists, Inc.
1100 West Sam Houston Parkway, Suite A
Post Office Box 430848
Houston, Texas 77043
Attention: Mr. M. D. Davis
Telecopy No.: (713) 526-5049
With a copy to: James F. Stephenson
Sinex & Stephenson
2323 S. Shepherd, 14th Floor
Houston, Texas 77019
Telecopy No.: (713) 523-8694
-13-
(ii) Lender: Bank One, Texas, NA
910 Travis
Houston, Texas 77002
Attn: Corporate Banking Group
Telecopy No.: (713) 751-6199
(iii) Guarantor: Rosie Acquisition, L.L.C.
1100 West Sam Houston Parkway, Suite A
Post Office Box 430848
Houston, Texas 77043
Attention: Mr. M. D. Davis
Telecopy No.: (713) 526-5049
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered or
telecopied as aforesaid, or, if mailed, on the third day after it is mailed as
aforesaid. Any party may change its address for purposes of this Agreement by
giving notice of such change to all other parties pursuant to this Paragraph.
(c) Governing Law. This Agreement and the other Loan Documents are
-------------
being executed and delivered, and are intended to be performed, in the State of
Texas, and the substantive laws of Texas shall govern the validity,
construction, enforcement and interpretation of this Agreement and all other
Loan Documents, except to the extent: (i) otherwise specified therein; (ii) the
federal or state laws governing national banking associations expressly
supersede and have contrary application; or (iii) federal laws governing maximum
interest rates shall provide for rates of interest higher than those permitted
under the laws of the State of Texas.
(d) Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
(e) Entirety and Amendments. The Loan Documents embody the entire
-----------------------
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof, and
this Agreement and the other Loan Documents may be amended only by an instrument
in writing executed by the party, or an authorized officer of the party, against
whom such amendment is sought to be enforced.
(f) Headings. Paragraph and section headings are for convenience of
--------
reference only and shall in no way affect the interpretation of this Agreement.
(g) Construction and Conflicts. The provisions of this Agreement
--------------------------
shall be in addition to those of the Notes, the Loan Documents and any guaranty,
pledge or security agreement, note or other evidence of liability held by
Lender, all of which shall be construed
-14-
as complementary to each other. Nothing herein contained shall prevent Lender
from enforcing the Notes, the Loan Documents and any and all other notes,
guaranty, pledge or security agreements in accordance with their respective
terms. To the extent of any conflict or contradiction between the terms hereof
and the terms of the Notes, the Loan Documents or any other document executed in
connection herewith, the terms hereof shall control.
(h) Hazardous Substances; Indemnification. Borrower shall protect,
-------------------------------------
indemnify and hold Lender, its directors, officers, employees and agents, and
any immediate successors to Lender's interest in the Collateral and any other
person who acquires any portion of the Collateral at a foreclosure sale or
otherwise through the exercise of Lender's rights and remedies under the Loan
Documents, and all directors, officers, employees and agents of all of the
aforementioned indemnified parties, harmless from and against any and all actual
or potential claims, proceedings, lawsuits, liabilities, damages, losses, fines,
penalties, judgments, awards, costs and expenses (including, without limitation,
attorneys' fees and costs and expenses of investigation) which arise out of or
relate in any way to any use, handling, production, transportation, disposal or
storage of any hazardous substance or solid waste whether by Borrower or any
tenant or any other person during the ownership of the Collateral by Borrower,
including, without limitation, (i) all foreseeable and all unforeseeable
consequential damages directly or indirectly arising out of (A) the use,
generation, storage, discharge or disposal of the Collateral by Borrower or (B)
any residual contamination affecting any natural resource or the environment,
and (ii) the cost of any required or necessary repair, cleanup, or
detoxification of the Collateral and the preparation of any closure or other
required remedial plans. In addition, Borrower agrees that in the event the
Collateral is assigned an identification number by the Environmental Protection
Agency, the Collateral shall be solely in the name of Borrower or other
responsible person and, as between Borrower and Lender, Borrower shall assume
any and all liability for such removed Collateral. All such costs, damages, and
expenses referred to herein shall hereinafter be referred to as "Expenses".
--------
Borrower understands and agrees that its liability to the aforementioned
indemnified parties shall arise upon the earlier to occur of (a) discovery of
any violation of the Applicable Environmental Laws or (b) the institution of any
Hazardous Materials Claim, and not upon the realization of loss or damage, and
Borrower agrees to pay to Lender from time to time, immediately upon Lender's
request, an amount equal to such Expenses, as reasonably determined by Lender.
In addition, Borrower agrees that any Expenses incurred by Lender and not paid
by Borrower shall be additional indebtedness of Borrower and shall be secured by
the Loan Documents and shall accrue interest at the Maximum Rate. The agreements
contained herein shall survive the repayment of the Note and the termination of
the Loan Documents. As used herein, "Hazardous Materials Claims" shall mean any
---------------------------
and all enforcement, clean-up, removal or other governmental or regulatory
actions or orders threatened, instituted or completed pursuant to any Applicable
Environmental Laws, together with all claims made or threatened by any third
party against Borrower or the Collateral relating to damage, contribution, cost
recovery compensation, loss or injury resulting from any hazardous substance or
solid waste. Notwithstanding anything to the contrary contained in this
subparagraph or in the Loan Documents, it is hereby expressly agreed and
understood that Borrower's obligation to protect, indemnify and hold Lender and
the other aforementioned indemnified parties harmless from and against any and
all Hazardous Materials Claims and Expenses pursuant to this subparagraph shall
not apply to Hazardous Materials Claims or Expenses arising out of or relating
in any way to any use, handling, production, transportation, disposal or storage
of the Collateral directly caused by
-15-
Lender or any such other indemnified party during the management, operation,
possession or ownership of the Collateral by Lender or any such other
indemnified party, and not resulting from a condition existing prior to the
commencement of such management, operation, possession or ownership of the
Collateral by Lender or any such other indemnified party.
(i) Financial Terms. As used in this Agreement, all financial and
---------------
accounting terms not otherwise defined herein shall be defined and calculated in
accordance with generally accepted accounting principles consistently applied.
(j) Expenses of Lender. Guarantor and Borrower will, on demand,
------------------
reimburse Lender for all expenses except as otherwise provided herein, including
the reasonable fees and expenses of legal counsel for Lender, incurred by Lender
in connection with the preparation, administration, amendment, modification or
enforcement of this Agreement, the Notes and the Loan Documents and the
collection or the attempted collection of the Notes.
(k) Maximum Interest Rate. It is the intention of the parties hereto
---------------------
to comply with the usury laws of the State of Texas and the United States;
accordingly, it is agreed that notwithstanding any provision to the contrary in
the Notes, or in any of the documents securing payment hereof or otherwise
relating hereto, no such provision shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable state or
Federal law. If any excess of interest in such respect is provided for, or
shall be adjudicated to be so provided for, in the Notes or in any of the
documents securing payment hereof or otherwise relating hereto, or in the event
the maturity of the indebtedness evidenced by the Notes is accelerated in whole
or in part, or in the event that all or part of the principal or interest of the
Notes shall be prepaid, so that under any of such circumstances the amount of
interest contracted for, charged or received under the Notes or under any of the
instruments securing payment hereof or otherwise relating hereto, on the amount
of principal actually outstanding from time to time under the Notes shall exceed
the maximum amount of interest permitted by the usury laws of the State of Texas
and the United States, then, in any such event, (i) the provisions of this
paragraph shall govern and control, (ii) neither Borrower nor its heirs, legal
representatives or assigns or any other party liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount permitted by applicable state or Federal law,
(iii) any such excess which may have been collected shall be, at the holder's
option (at maturity or in the Event of Default hereunder), either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
and (iv) the effective rate of interest shall be automatically subject to
reduction to the maximum lawful contract rate allowed under the usury laws of
the State of Texas or the United States as now or hereafter construed by the
courts having jurisdiction. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under the Notes or under such other documents which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate of
interest, shall be made, to the extent permitted by the laws of the State of
Texas and the United States, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the Loans, all
interest at any time contracted for, charged or received from Borrower or
otherwise by the holder of the Notes in connection with such Loans.
-16-
11. NO ORAL AGREEMENTS. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
------------------
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If Lender agrees to the foregoing, Lender should execute this Agreement in
the space indicated below.
"BORROWER"
DIVERSIFIED SPECIALISTS, INC.
By: /s/ M.D. Davis
--------------------------
Name: M.D. Davis
------------------------
Title: CEO
-----------------------
By: /s/ Thomas V. Yarnell
--------------------------
Name: Thomas V. Yarnell
------------------------
Title: Secretary
-----------------------
"GUARANTOR"
ROSIE ACQUISITION, L.L.C.
By: /s/ M.D. Davis
--------------------------
Name: M.D. Davis
------------------------
Title: President
-----------------------
ACCEPTED:
"LENDER"
BANK ONE, TEXAS, NA
By: /s/ Barry A. Kelly
--------------------
Name: Barry A. Kelly
------------------
Title: V.P.
-----------------
-17-
List of Loan Documents
- ----------------------
1. Letter Loan Agreement
2. $6,000,000 Master Revolving Credit Note
3. $14,400,000 Term Promissory Note
4. Security Agreement from Borrower
5. UCC-1 Financing Statement from Borrower
6. Security Agreement and Pledge (Borrower's Stock)
7. Blank Stock Powers
8. Security Agreement and Pledge (DSI [HK], Ltd. Stock)
9. Blank Stock Powers
10. Security Agreement - Deposit Account
11. Guaranty from Guarantor
12. Corporate Resolutions for Borrower
13. Company Resolutions for Guarantor
14. Intercreditor Agreement - Hibernia Corporation and Tommy Moss
15. Landlord Subordination Agreement(s)
16. Opinion of Counsel
List of Schedules
- -----------------
A - Definitions
B - Borrowing Base Report & Compliance Certificate
-18-
SCHEDULE "A"
DEFINITIONS
-----------
"BORROWER'S LOAN LIMIT", as used herein, shall mean the Borrowing Base (as
defined below) less the sum of (i) the total principal amount outstanding under
the Loan and (ii) the face amount of all outstanding Letters of Credit,
determined at the time of calculation.
"BORROWING BASE", as used herein, shall mean the sum of: (i) eighty percent
(80%) of Borrower's Eligible Accounts (as defined below) outstanding on the date
of a request for a Loan advance; plus (ii) fifty percent (50%) of Borrower's Net
----
Security Value of Domestic Inventory (as defined below); provided, however,
during the period from April 1st through September 30th of each year, advances
exceeding the Borrowing Base (the "Over-Advance") will be allowed provided that
------------
the aggregate amount of the Over-Advance does not exceed the lesser of (i) the
sum of eighty percent (80%) of Eligible Accounts plus one hundred percent (100%)
----
of Domestic Eligible Inventory, or (ii) $1,000,000.
An "ELIGIBLE ACCOUNT" shall mean an account which is and shall at all times
continue to be acceptable to Lender in all reasonable respects. In general, an
account which continuously meets each of the following requirements is an
Eligible Account: (i) it is lawfully owned by Borrower, and Borrower has the
right to transfer any interest therein; (ii) it arises from the sale or lease of
goods, the goods have been shipped or delivered to the person who is obligated
on the account (the "account debtor"); (iii) it arises from the performance of
services, such services have been fully rendered, to the extent of the billing;
(iv) it is a valid obligation of the account debtor, enforceable in accordance
with its terms and free and clear of all liens, security interests,
restrictions, retainages, buy-back or repurchase agreements, setoffs, adverse
claims, assessments, defaults, prepayments, defenses and conditions precedent
other than the security interest created by this Agreement; (v) it is rendered
to the account debtor and is not evidenced by any instrument or chattel paper;
(vi) it is not aged more than sixty (60) days from the original due date
determined at the time of sale; (vii) the aggregate amount of all accounts owing
by an account debtor if more than twenty-five percent (25%) of the balance owing
by such account debtor is ineligible; (viii) it is not owed by any account
debtor closely affiliated with, related to or employed by Borrower or domiciled
outside of the United States (unless, in the case of an account debtor domiciled
outside of the United States, such account is secured by a sight domestic
irrevocable letter of credit in form acceptable to Lender issued by a federally
insured bank acceptable to Lender); (ix) it is discounted by the amount of all
discounts, allowances, rebates, credits and adjustments to such accounts; (x) it
is discounted by the amount billed by the account debtor or representing
retainage or a "hold back" of such account debtor; and (xi) problem accounts.
"NET SECURITY VALUE OF DOMESTIC INVENTORY" shall mean the net value of all
Borrower's finished goods inventory (excluding raw materials) physically located
in the United States and all such inventory in transit to the United States
which is fully insured and for which adequate proof of shipment has been
provided to Lender, less liens and security interests of all kinds against
----
inventory (other than those held by Lender and the holders of the Hibernia
Subordinated Indebtedness and without implying the consent of Lender thereto),
the value of work in process, and all processing and other handling charges
affecting the value thereof, all as determined by Lender in its sole discretion.
SCHEDULE "B"
BORROWING BASE REPORT
---------------------
AND COMPLIANCE CERTIFICATE
--------------------------
I. Total Accounts Receivable of Borrower: $ _____________
Less: Ineligible Accounts (as detailed on
attachment) - $ _____________
Eligible Accounts Receivable = $ _____________
II. Total Inventory: $ _____________
Less: Inventory Deductions - $ _____________
Eligible Inventory: = $ _____________
III. 80% x Domestic Eligible Accounts Receivable $ _____________
50% x Domestic Eligible Inventory: + $ _____________
Borrower's Loan Limit: = $ _____________
(maximum $6,000,000)
IV. Current Principal Balance: $ _____________
V. Available Funds: $ _____________
VI. Advance Request: $ _____________
VII. Over-Advance (maximum $1,000,000) + $ _____________
VIII. Total Outstanding After Advance (Maximum $6,000,000) $ _____________
------------------------------------------------
I. Current Ratio
II. Tangible Net Worth $ _____________
III. Debt to Worth Ratio _____________
-
IV. Debt Service Coverage _____________
------------------------------------------------
The undersigned officer of Borrower, hereby certifies to Lender that (i)
the computations set forth above are true, correct and complete as of the date
set forth above or as of the date of execution hereof, as the case may be, (ii)
such computations have been made in full compliance with and conformity to the
Letter Loan Agreement (the "Loan Agreement") between Borrower and Lender, (iii)
--------------
the matters set forth in Paragraph 3 of the Loan Agreement are true and correct,
and (iv) Borrower is not in default under the Loan Agreement.
All capitalized terms used herein which have been defined in the Loan
Agreement have been used in accordance with the definitions ascribed to them in
the Loan Agreement.
EXECUTED this ____ day of _____________, 19___.
DIVERSIFIED SPECIALISTS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------