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EXHIBIT 10.8
SECOND
AMENDED & RESTATED
NOTE AGREEMENT
BY AND BETWEEN
ACR GROUP, INC.
A TEXAS CORPORATION
AND
ALL SUBSIDIARIES OF
ACR GROUP, INC.
AND
THE CATALYST FUND, LTD.
A TEXAS LIMITED PARTNERSHIP
AND
SOUTHWEST/CATALYST CAPITAL, LTD.,
A TEXAS LIMITED PARTNERSHIP
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TABLE OF CONTENTS
SECTION 1. ADDITIONAL DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1 TERMS DEFINED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.2 ACCOUNTING PRINCIPLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
1.3 DIRECTLY OR INDIRECTLY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
1.4 KNOWLEDGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
1.5 REFERENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
1.6 COMPLIANCE WITH USURY LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 2. REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
2.2 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.3 AUTHORIZATION AND ENFORCEABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
2.4 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
2.5 BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
2.6 PENDING LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
2.7 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. . . . . . . . . . . . . . . . . . . . . . . . -10-
2.8 NO DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.9 GOVERNMENTAL CONSENTS; OFFERING OF NOTES. . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.10 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.11 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.12 INSURANCE COVERAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.13 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.14 RESTRICTIONS ON BORROWER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.15 EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.16 REGULATORY STATUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.17 BROKERS AND FINDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.18 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.19 PERMITS, LEASES AND CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.20 RECEIPT OF REASONABLY EQUIVALENT VALUE; NO INSOLVENCY. . . . . . . . . . . . . . . . . . -14-
2.21 WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.22 AFFILIATE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.23 ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 3. LENDER LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
3.1 LENDER LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
3.2 LENDER'S CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
3.3 INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
3.4 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 4. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
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4.1 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
4.2 VOLUNTARY PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
4.3 APPLICATION OF PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
4.4 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
4.5 DIRECT PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 5. CERTAIN PROVISIONS REGARDING THE LENDER NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
5.1 TRANSFER OF LENDER NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
5.2 REPLACEMENT OF LENDER NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 6. BORROWER'S BUSINESS COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
6.1 PAYMENT OF LENDER NOTES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
6.2 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
6.3 BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
6.4 MAINTENANCE OF EXISTENCE AND STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
6.5 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
6.6 SALE OR TRANSFER OF ASSETS OR MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
6.7 DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
6.8 LIENS AND ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
6.10 DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.11 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.12 ERISA COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.13 TRANSACTIONS WITH AFFILIATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
6.14 WARRANTS AND REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . -27-
6.15 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.16 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.17 INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
6.18 CERTAIN REGISTRATION OR APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 7. INFORMATION AS TO BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
7.1 FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
7.2 INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
7.3 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.1 NATURE OF EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
8.2 DEFAULT REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
8.3 ANNULMENT OF ACCELERATION OF LENDER NOTES. . . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
9.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
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9.2 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
9.3 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
9.4 AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
9.5 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
9.6 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
9.7 ENTIRE AGREEMENT; SUPERSEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
9.8 MULTIPLE COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
9.9 ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
9.10 ATTORNEY'S FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
9.11 DRAFTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
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SECOND AMENDED AND RESTATED
NOTE AGREEMENT
THIS SECOND AMENDED AND RESTATED NOTE AGREEMENT (the "Agreement") is
made and entered into effective as of this 28th day of January, 1998 (the
"Execution Date"), by and among ACR GROUP, INC., a Texas corporation (herein
called "Borrower"), ACR SUPPLY, INC., a Texas corporation ("ACR Supply"), TOTAL
SUPPLY, INC. F/K/A FABRICATED SYSTEMS, INC., a Texas corporation ("Total
Supply"), HEATING AND COOLING SUPPLY, INC., a Nevada corporation ("Heating"),
WEST COAST HVAC SUPPLY, INC., a Texas corporation ("West Coast"), FLORIDA
COOLING SUPPLY, INC. a Texas corporation ("Florida Cooling"), LIFETIME FILTER,
INC., a Texas corporation ("Lifetime Filter"), VALLEY SUPPLY, INC., a Texas
corporation ("Valley Supply"), ENER-TECH INDUSTRIES, INC., a Tennessee
corporation ("Ener-Tech"), TIME ENERGY SYSTEMS SOUTHWEST, INC., a Texas
corporation ("Time Energy") and CONTRACTORS HEATING & SUPPLY, INC., a Texas
corporation ("Contractors;" together with ACR Supply, Total Supply, Heating,
West Coast, Florida Cooling, Lifetime Filter, Valley Supply, Time Energy and
Ener-Tech which constitute all subsidiaries of Borrower and being herein
collectively referred to as the "Borrower Subsidiaries"), THE CATALYST FUND,
LTD., a Texas limited partnership ("CF"), and SOUTHWEST/CATALYST CAPITAL,
LTD., a Texas limited partnership ("Southwest/Catalyst"; together with CF being
collectively referred to as "Lender").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow the amount of One Million Five
Hundred Forty Thousand and No/100 Dollars ($1,540,000.00) in a single draw
collectively from Lender for the purpose of providing capital in order to pay
off the St. James Loan, as hereinafter defined (the "Lender Loan"), by
executing two notes aggregating that amount to Lender (the "Lender Notes"); and
WHEREAS, Borrower is a party to that certain Note Agreement dated as
of May 26, 1993 as amended by that certain First Amendment to Note Agreement
dated as of April 14, 1997 together with CF and certain of the Borrower
Subsidiaries (the "Note Agreement"); and
WHEREAS, Southwest/Catalyst desires to join with CF in making the
Lender Loan;
WHEREAS, Borrower and Borrower Subsidiaries have agreed to grant to
Lender a lien on its assets to secure repayment of the Lender Notes which lien
shall be subordinate to existing senior liens held by NationsBank of Texas,
N.A. securing up to $18,000,000 of senior secured credit; and
WHEREAS, Lender is willing to loan the amount of $1,540,000 to
Borrower on the date hereof upon the completion of various requirements and
conditions;
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WHEREAS, Lender is further willing and Borrower desires that Lender
provide business counsel and advice to Borrower from time to time to assist
Borrower in its growth plans; provided under no circumstances shall Borrower be
required to follow the counsel and advice of Lender nor shall Lender be deemed
to have controlled the business activities of Borrower (as more fully described
in that certain Consulting Agreement of even date herewith between Borrower and
Lender);
NOW, THEREFORE, in consideration of the premises, the provisions
hereof, and the mutual benefits to be derived therefrom, Lender and Borrower
agree as follows:
SECTION 1. ADDITIONAL DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED. As used in this Agreement, the following terms
have the respective meanings set forth below or set forth in this Section or
paragraph following such term:
1933 ACT - the Securities Act of 1933 and any successor
statute, as amended from time to time.
ACCOUNTS RECEIVABLE - all of Borrower's accounts, instruments,
receivables, accounts receivable, contract rights, chattel paper,
documents, general intangibles, book debts and all amounts due to
Borrower from a factor, arising from Borrower's sale of goods or
rendition of services in the ordinary course of Borrower's business,
whether now existing or hereinafter created, and all returned,
reclaimed, refused or repossessed goods, and all books and records
pertaining to the foregoing and the cash and non-cash proceeds
resulting therefrom and all security and guarantees therefor.
AFFILIATE - with respect to a Person, any other Person that
directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person;
provided, however, that neither Lender nor any affiliate thereof shall
be deemed to be an Affiliate of Borrower or Subsidiaries. The term
"control" as used in the foregoing sentence means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
ASSIGNMENT OF LIFE INSURANCE POLICY - The Assignment of Life
Insurance Policy delivered pursuant to Section 6.16.
AVERAGE TRADING PRICE - shall mean the average closing price
of the Borrower's common stock on the applicable securities exchange
beginning with the date of the prepayment and for each trading day
thereafter through and including the 29th calendar day thereafter.
BORROWER - ACR Group, Inc., a Texas corporation.
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BORROWER SUBSIDIARIES - ACR Supply, Total Supply, Heating,
West Coast, Florida Cooling, Lifetime Filter, Valley Supply,
Ener-Tech, Time Energy and Contractors.
BUSINESS DAY - each Monday, Tuesday, Wednesday, Thursday, or
Friday that is not a day on which banking institutions in the State of
Texas are authorized or obligated by law to close.
CHANGE IN CONTROL - when (i) any "person" (as such term is
used in Section 13(d) of the Exchange Act) becomes a beneficial owner,
directly or indirectly, of Securities of Borrower representing more
than 50% of the combined voting power of Borrower's then outstanding
Securities; (ii) individuals who were directors of Borrower
immediately prior to a meeting of the shareholders of Borrower
involving a contest for the election of directors do not constitute a
majority of the directors following such election; (iii) the
shareholders of Borrower approve the dissolution or liquidation of
Borrower; (iv) the shareholders of Borrower approve an agreement to
merge or consolidate, or otherwise reorganize, with or into one or
more entities which are not Subsidiaries, as a result of which less
than 50% of the outstanding voting securities of the surviving or
resulting entity are, or are to be, owned by former shareholders of
Borrower (excluding from the term "former shareholders" a shareholder
who is, or as a result of the transaction in question becomes, an
Affiliate of any party to such merger, consolidation or
reorganization); or (v) the shareholders of Borrower approve the sale
of substantially all of Borrower's business and/or assets to a Person
that is not a Subsidiary.
CODE - the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
COLLATERAL - the Property described in the Security Agreement
as securing Borrower's obligations under the Subject Documents and the
key man life insurance policy referred to in Section 6.16.
CURRENT ASSETS - the aggregate amount of all assets which
would, in accordance with GAAP, properly be defined as "current
assets".
CURRENT LIABILITIES - the aggregate amount of all liabilities
which would, in accordance with GAAP, properly be defined as "current
liabilities".
CURRENT RATIO - the ratio of Current Assets to Current
Liabilities.
CUSTOMERS - the account debtors obligated on the Accounts
Receivable.
DEBT - with respect to any Person, without duplication, all
obligations required by GAAP to be classified upon such Person's
balance sheet as liabilities.
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DEFAULT - an event or condition the occurrence of which, with
the lapse of time or the giving of notice or both, would become an
Event of Default.
DEFAULT RATE - a rate of interest equal to 15% per annum.
DISTRIBUTION - except as otherwise contemplated by this
Agreement, any dividend or other distribution on account of shares of
Common Stock or other equity interests in Borrower; any acquisition by
Borrower of shares of Common Stock or other equity interests in
Borrower or of warrants, rights, or other options to purchase shares
of Common Stock or other equity interests in Borrower; or any loan or
advance (excluding advances to employees for expenses to be
reimbursed) to a shareholder or other direct or indirect holder of an
equity interest in Borrower.
EBITDA - when determined, the following, calculated on a
consolidated basis for Borrower in accordance with GAAP (in each case,
for the most recently completed twelve (12) month period):
(a) net income (after interest and Distributions
permitted under Section 6.10 and excluding extraordinary gains
and losses), plus
(b) interest expense (including that portion of
any lease payment under a lease or sublease that has been (or
under GAAP should be) capitalized on a balance sheet which
would be treated as interest under GAAP), plus
(c) non-cash operating charges, such as
depreciation and amortization expense, plus
(d) income taxes.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended from time to time.
ERISA AFFILIATE - any Person described in section 4001(b)(1)
of ERISA with respect to Borrower or any Subsidiary, excluding,
however, Lender and Persons that would not be ERISA Affiliates of
Borrower or any Subsidiary but for the fact that Lender or any
transferee(s) thereof are owners of equity Securities in Borrower.
EVENT OF DEFAULT - as defined in Section 8.1.
EXCHANGE ACT - the Securities Exchange Act of 1934 and any
successor statutes, as amended and in effect from time to time.
FORCE MAJEURE - shall mean, cover and include the following:
acts of God, strikes, lock-outs, industrial disturbances, acts of the
public enemy, wars, blockades, insurrections,
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riots, epidemics, landslides, lightning, earthquakes, fires, storms,
floods, wash-outs, tornadoes, hurricanes, windstorms, arrest and
restraint of rulers and people, civil disturbances, boycotts,
explosions, breakage or accident to machinery or equipment, and any
other causes similar to those above, which are not within the
reasonable control of the party claiming force majeure, and which by
the exercise of due diligence such party is unable to overcome.
FUNDED DEBT - when determined, the following, calculated for
Borrower in accordance with GAAP: (a) all obligations for borrowed
money (whether as a direct obligor on a promissory note, a
reimbursement obligor on a letter of credit, a guarantor or
otherwise), plus (but without duplication) (b) all lease or sublease
obligations that have been (or under GAAP should be) capitalized on a
balance sheet.
GAAP - 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.
LENDER NOTES - those certain promissory notes executed by
Borrower and delivered to Lender evidencing the Lender Loan and
bearing interest at the rate of 12.5% per annum.
LIEN - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on law, statute, or contract, and
including, without limitation, the security interest or lien arising
from a mortgage, encumbrance, pledge, conditional sale, or trust
receipt or a lease, consignment or bailment for security purposes (it
being understood that an operating lease does not constitute a Lien).
MATERIAL EFFECT - any material and adverse effect on or change
in the business Properties, operations or financial position of
Borrower, taken as a whole, or the ability of Borrower to perform its
obligations under this Agreement, the Notes, the Warrant or any of the
other Subject Documents.
OFFICER'S CERTIFICATE - a certificate signed by (a) the
Chairman of the Board, the President, or the Chief Executive Officer
of Borrower or Borrower Subsidiary, as applicable, and (b) the Chief
Financial Officer of Borrower, or Borrower Subsidiary, as applicable.
ORGANIZATIONAL DOCUMENTS - with respect to a corporation, its
articles or certificate of incorporation and bylaws; with respect to a
Person, any other organizational documents of such Person; and in each
case including all amendments thereto and restatements thereof.
PERSON - any individual, partnership, corporation, limited
liability company, trust, unincorporated organization, or other legal
entity, or any government or agency or political subdivision thereof.
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PROPERTIES- any asset, whether real, personal or mixed, or
tangible or intangible, or any interest therein.
SBA DOCUMENTS - SBA Form 480, SBA Form 652, SBA Form 1031, SBA
Form 722, SBA Form 793, and any other documents required by the Small
Business Administration to be executed.
SECURITY - the meaning given such term in section 2(1) of the
1933 Act.
SECURITY AGREEMENT - the Security Agreement delivered pursuant
to Section 3.2(h), as amended from time to time as permitted thereby.
SENIOR DEBT - shall mean that certain $18,000,000 line of
credit loan due and owing by the Borrower and its Subsidiaries to the
Senior Lender.
SENIOR LENDER - shall mean NationsBank of Texas, N.A., a
national banking association.
ST. JAMES - St. James Capital Partners, L.P., a Delaware
limited partnership.
ST. JAMES LOAN - shall mean that certain loan by St. James to
Borrower in the original principal amount of $1,400,000 plus accrued
interest in the approximate amount of $140,000.
SUBJECT DOCUMENTS - any of the Agreement, the Note Agreement,
the Lender Notes, the Security Agreement, the ACR Supply Confirmation
of Security Agreement, the Total Supply Confirmation of Security
Agreement, the Heating Confirmation of Security Agreement, the West
Coast Confirmation of Security Agreement, the Florida Cooling Security
Agreement, the Lifetime Filter Security Agreement, the Valley Supply
Security Agreement, the Ener-Tech Security Agreement, the Time Energy
Security Agreement, the Contractors Security Agreement, the Warrants,
the Registration Rights Agreements, the Confirmation of Stock Pledge
Agreement, the Borrower Confirmation of Guaranty, the ACR Supply
Confirmation of Guaranty, the Total Supply Confirmation of Guaranty,
the Heating Confirmation of Guaranty, the West Coast Confirmation of
Guaranty, the Florida Cooling Guaranty Agreement, the Lifetime Filter
Guaranty Agreement, the Valley Supply Guaranty Agreement, the
Ener-Tech Guaranty Agreement, the Time Energy Guaranty Agreement, the
Contractors Guaranty Agreement and other documents, instruments, and
certificates delivered or to be delivered pursuant to the foregoing or
in connection with the transactions contemplated thereby, as amended
from time to time as permitted thereby.
SUBSIDIARY OR SUBSIDIARIES - any corporation, limited
liability company, or other entity (other than a partnership or joint
venture) of which Borrower now or hereinafter
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owns, directly or indirectly, more than 50% of the voting power or in
which Borrower has greater than a 50% economic interest or, with
respect to which, in accordance with GAAP, the financial statements of
such corporation, limited liability company or other entity are
required to be consolidated with the financial statements of Borrower,
or any partnership or joint venture with respect to which Borrower is
or has liability as a partner (other than solely as a limited partner)
and that is controlled or managed by Borrower, and with respect to
which, in accordance with GAAP, the financial statements of such
partnership or joint venture are required to be consolidated with the
financial statements of Borrower, but expressly excluding arrangements
that exist as a partnership only for tax purposes.
WARRANTS - shall mean those certain two warrants which each
provide Lender the option to purchase that certain number of shares of
common stock of Borrower representing an aggregate of 175,000 shares.
1.2 ACCOUNTING PRINCIPLES. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, this shall be done in accordance with GAAP at
the time of effect, to the extent applicable.
1.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or where such Person is prohibited
from taking such action, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
1.4 KNOWLEDGE. Except as specifically provided otherwise, any
statement in this Agreement or any Subject Document that is expressed in terms
of the knowledge or awareness of Borrower or any other Person, is intended to
and shall be deemed to mean the actual present knowledge of any officer of
Borrower or such other Person.
1.5 REFERENCES. All references herein to one gender shall include
the other. Unless otherwise expressly provided, all references to "Sections"
are to sections of this Agreement and all references to "Schedules" are to the
schedules attached hereto, each of which is made a part hereof for all
purposes.
1.6 COMPLIANCE WITH USURY LAW. It is expressly stipulated and
agreed to be the intention of Borrower and Lender to comply at all times with
applicable law governing the maximum rate or amount of interest payable on or
in connection with the Lender Notes. Accordingly, if any of the transactions
contemplated by or in connection with the Subject Documents or any other
document or instrument would be usurious under applicable law now or hereafter
governing the interest payable hereunder (including applicable United States
federal law or applicable state law, to the extent not preempted by United
States federal law), then in that event, notwithstanding anything to the
contrary in the Subject Documents or otherwise, it is agreed as follows: (a)
the aggregate of all consideration that constitutes interest under applicable
law that is contracted for, charged, taken, reserved, or received under the
Lender Notes or any of the other
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Subject Documents or otherwise in connection with the Lender Notes with respect
thereto under no circumstances shall exceed the maximum amount of interest
allowed by applicable law, and any excess shall be credited on such Lender
Notes by the holder thereof (or if such shall have been paid in full, refunded
to the Borrower); and (b) in the event that maturity of the Lender Notes is
accelerated by reason of an election by the holder thereof resulting from any
default hereunder or otherwise, or in the event of any required or permitted
prepayment or conversion, then such consideration that constitutes interest may
never include more than the maximum amount allowed by applicable law, and
excess interest, if any, provided for in such Lender Notes or otherwise shall
be canceled automatically as of the date of such acceleration or prepayment
and, if theretofore prepaid, shall be credited on such Lender Notes (or if such
Lender Notes shall have been paid in full, refunded to Borrower), and the
provisions of such Lender Notes and any other Subject Documents or other
document or instrument shall immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced accordingly, without
the necessity of the execution of any new document, so as to comply with the
then applicable law. Determination of the rate of interest for purposes of
determining whether this transaction is usurious under any applicable laws, to
the full extent permitted by applicable law, shall be made by amortizing,
prorating, allocating, and spreading throughout the full stated term hereof
until payment in full, all sums at any time contracted for, charged, taken,
reserved, or received from Borrower for the use, forbearance, or detention of
money in connection herewith. To the extent that article 5069-1.04 of the
Texas Revised Civil Statutes is relevant to Lender for the purpose of
determining the maximum rate of interest permitted by applicable law, Lender
hereby elects to determine the applicable rate ceiling under such article by
the indicated (weekly) rate ceiling from time to time in effect, subject to
Lender's right subsequently to change such method in accordance with applicable
law.
1.7 NOTE AGREEMENT. This Agreement hereby constitutes a renewal,
modification, extension and amendment of the Note Agreement. All of the terms
and provisions of the Note Agreement shall remain in full force and effect and
be supplemental to this Agreement except as specifically amended by this
Agreement. In the event of any conflict between the Note Agreement and this
Agreement, this Agreement shall control.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF BORROWER AND SUBSIDIARIES
Each of the Borrower and Borrower Subsidiaries represent and warrant
to Lender that, as of the date hereof:
2.1 ORGANIZATION. Borrower is a corporation duly formed, validly
existing and in good standing under the laws of the State of Texas and has all
requisite corporate power and authority to own and operate its Properties, to
conduct its business as such business now is, or presently is proposed to be,
conducted, and to enter into this Agreement and the other Subject Documents to
which it is, or is to become, a party and the transactions contemplated thereby
and is duly qualified to do business in each other jurisdiction where the
character of its Properties or business there
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conducted makes such qualification necessary, unless the failure to so qualify
would not have a Material Effect. Each Borrower Subsidiary is a corporation
duly formed, validly existing and in good standing under the laws of their
respective states of incorporation and has all requisite corporate power and
authority to own and operate its Properties, to conduct its business as such
business now is, or presently is proposed to be, conducted, and to enter into
this Agreement and the other Subject Documents to which it is, or is to become,
a party and the transactions contemplated thereby and is duly qualified to do
business in each other jurisdiction where the character of its Properties or
business there conducted makes such qualification necessary, unless the failure
to so qualify would not have a Material Effect.
2.2 CAPITALIZATION.
(a) All of the Borrower Subsidiaries are wholly owned by
Borrower. Other than the Warrants, the Warrant granted to CF pursuant to the
Note Agreement and as disclosed on Schedule 2.2 hereto, no warrants, options
or any other agreements are outstanding that would permit any other party other
than Lender to acquire any ownership interest in Borrower or any Subsidiary.
(b) Except with respect to the Borrower Subsidiaries, Borrower
does not own any other Subsidiaries, nor does it own an equity or ownership
interest in any corporation, partnership, limited liability company, trust,
unincorporated organization or other legal entity. Except as disclosed on
Schedule 2.2, there are no agreements or understandings that may require
Borrower to issue additional shares of common stock or other equity Securities
or to purchase any shares of common stock or other equity Security of Borrower
or any other Security convertible into any of the foregoing.
2.3 AUTHORIZATION AND ENFORCEABILITY. Each of the Borrower and
the Borrower Subsidiaries has all necessary corporate power and authority
(whether under its Organizational Documents, applicable law, or otherwise) to
execute and deliver this Agreement, the Lender Notes, and the other Subject
Documents and to perform all of its obligations hereunder and thereunder. The
execution, delivery, and performance of this Agreement, the Lender Notes, and
the other Subject Documents by Borrower and the Borrower Subsidiaries have been
duly authorized by all requisite corporate action on the part of Borrower.
This Agreement has been duly executed and delivered by Borrower and Borrower
Subsidiaries constitutes, and the Lender Notes and other Subject Documents when
executed and delivered in accordance with the terms of this Agreement will
constitute, a valid and binding obligation of Borrower and each Borrower
Subsidiary, enforceable against Borrower and the Borrower Subsidiaries in
accordance with their terms, except for the effect of bankruptcy, insolvency,
moratorium, and other similar laws affecting creditors' rights generally and of
general equitable principles (regardless of whether arising in a proceeding in
equity or law).
2.4 FINANCIAL STATEMENTS. The balance sheets, the statements of
operations and retained earnings, and the statements of cash flows for the
fiscal quarter ended dated November 30, 1997, and the fiscal year ended
February 28, 1997, fairly present in all material respects, in accordance with
GAAP applied on a consistent basis except as disclosed in the notes thereto,
the financial position and the results of operations of Borrower as at the
dates and for the periods therein set forth. Except
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as disclosed to Lender in any Schedule hereto or as otherwise disclosed in
connection with this transaction, there are no Debts, liabilities or
obligations, whether absolute, accrued, contingent or otherwise, of the
Borrower as of the Execution Date that are not fully reflected in the November
30, 1997 and the February 28, 1997 balance sheets or the notes thereto, and
that are reasonably likely, in one case or in the aggregate, to have a Material
Effect, and, since such date there has been no Material Effect. Except as
otherwise disclosed to Lender, to the best knowledge of Borrower, there has
been no occurrence or other event or condition that might reasonably be
expected to result in a Material Effect after the date hereof, excluding any
occurrence or other event or condition affecting the United States' economy or
the industry of the Borrower generally. With respect to Debt in the ordinary
course of business, Borrower is current on all such Debt except trade debt and
except as disclosed to the Lender on Schedule 2.4.
2.5 BUSINESS. Borrower and the Borrower Subsidiaries are in the
business principally of manufacturing and distributing heating, ventilation,
air conditioning and refrigeration products.
2.6 PENDING LITIGATION. Except as disclosed on Schedule 2.6,
there is no action, suit, proceeding, arbitration, or investigation pending
against Borrower or the Borrower Subsidiaries or, to the knowledge of Borrower
or the Borrower Subsidiaries, (x) threatened against Borrower or the Borrower
Subsidiaries, or (y) affecting any of Borrower's or the Borrower Subsidiaries'
Properties, or (z) against any officer, director, or shareholder of Borrower or
any of the Borrower Subsidiaries, in his capacity as such, or relating to his
activities with Borrower or the Borrower Subsidiaries, in each case, that would
reasonably be expected to result in a Material Effect. Except as disclosed in
Schedule 2.6, neither Borrower nor any of the Borrower Subsidiaries is in
default with respect to any order of any court, other governmental agency, or
arbitrator.
2.7 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. On the basis of
what Borrower actually knows or should have known after due inquiry, (i) the
business and operations of Borrower and the Borrower Subsidiaries have been and
are being conducted in accordance with all judgments, orders, and decrees and
all laws, rules, and regulations to which it or its Properties is subject,
including without limitation, all franchising laws, (ii) Borrower and each of
its Subsidiaries have obtained all licenses, permits, franchises, and other
governmental authorizations required in connection with the ownership of its
Properties or the conduct of its business except, in each case, where the
failure to so comply or obtain would not have a Material Effect, (iii) Borrower
and each of its Subsidiaries have performed in all material respects all
obligations it is required to perform to date and is not in violation of or in
default under any of its Organizational Documents or any loan agreement,
promissory note, mortgage, lease, contract, commitment, or agreement to which
it is a party or by which it or any of its Properties may be bound, and (iv) no
event or condition has occurred and is continuing that constitutes, or, with
the giving of notice or passage of time, or both, would constitute a violation
or default by it under any of the foregoing except, in each case, where failure
to so perform or not be in violation or default or where the occurrence of any
such event or condition would not have a Material Effect.
2.8 NO DEFAULTS. No condition or event has occurred and is
continuing that constitutes a Default or an Event of Default.
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2.9 GOVERNMENTAL CONSENTS; OFFERING OF NOTES. On the basis of
what Borrower and the Borrower Subsidiaries actually know or should have known
after due inquiry, the execution, delivery, and performance by Borrower and the
Borrower Subsidiaries of this Agreement, the Lender Notes, the Warrants, and
the other Subject Documents, and the use of the proceeds of the Lender Notes,
with or without the giving of notice or the passage of time or both, will not
(x) violate any provision of any law, rule, regulation, judgment, order, or
decree of any court, other governmental agency, or arbitrator to which Borrower
or the Borrower Subsidiaries or any of their Properties is subject, or any
provision of their respective Organizational Documents, or (y) result in the
breach by it or constitute a default by it under any indenture, contract, or
other agreement, document, or instrument to which Borrower or any Borrower
Subsidiary is a party or by which they or any of their Properties may be bound,
except where any such breach or default would not have a Material Effect or (z)
result in the creation or imposition of any Lien of any nature whatsoever upon
any Properties of Borrower or the Borrower Subsidiaries. No consent,
authorization, approval, permit, or order of, or declaration to or filing with,
any court, governmental agency, or arbitrator is or will be required by
Borrower or the Borrower Subsidiaries in connection with the execution,
delivery, and performance of this Agreement and the other Subject Documents by
Borrower and the Borrower Subsidiaries or the offer, issuance, sale, or
delivery of the Lender Notes. None of Borrower, its Affiliates, and any
Persons acting on behalf of any of them has, directly or indirectly, sold or
offered for sale, or solicited any offers to buy, the Lender Notes, or
otherwise approached or negotiated with any Person, so as to subject the offer
or sale of the Lender Note to the provisions of Section 5 of the 1933 Act or to
comparable registration provisions of any applicable state securities laws.
2.10 TAXES. Borrower and each of the Borrower Subsidiaries have
prepared and duly and timely filed with the appropriate governmental agencies
all federal, state, and local income, franchise, real and personal property,
excise, severance, payroll, and other tax returns and reports required to be
filed, except where failure to so file would not have a Material Effect and,
except as permitted by Section 6.5, has paid all taxes shown to be due thereon.
Neither Borrower nor any of the Borrower Subsidiaries has executed or filed
with the Internal Revenue Service any agreement extending the period for
assessment and collection of any federal tax or is not a party to any action or
proceeding by any governmental authority for assessment and collection of
taxes, and no claim for assessment and collection of taxes that has been
asserted against Borrower or the Borrower Subsidiaries remains unpaid.
Borrower at Lender's request will provide copies of its federal tax returns for
the fiscal years ended February 28, 1996 and 1997.
2.11 USE OF PROCEEDS. Simultaneous with the execution hereof,
Borrower will use the proceeds of the Lender Notes solely for the purposes of
repaying in full the St. James Loan. No such proceeds shall be used in
violation of any law, rule, regulation, judgment, order, or decree of any
court, other governmental agency, or arbitrator, and no Default or Event of
Default shall exist immediately following the use of such proceeds on account
of such use. None of the transactions contemplated by this Agreement or any
other Subject Document will violate or result in violation of Section 7 of the
Exchange Act or any regulation issued pursuant thereto, including, without
limitation, Regulations G (12 C.F.R. Section 207, as amended), T (12 C.F.R.
Section 220, as amended), and X (12 C.F.R. Section 224, as amended) of the
Board of Governors of the Federal Reserve System, or any law or regulation
concerning foreign investment, and Borrower neither owns nor intends to carry
or
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purchase with the proceeds any "margin security" within the meaning of said
Regulation G or X, including without limitation, margin securities originally
issued by it.
2.12 INSURANCE COVERAGE. Borrower and each of the Borrower
Subsidiaries maintain all the insurance required to be maintained by them to
satisfy their obligations under Section 6.16. All required premiums currently
due as to all insurance policies maintained by Borrower and the Borrower
Subsidiaries have been paid and all such policies are in full force and effect.
The insurance coverage maintained by Borrower and each of the Borrower
Subsidiaries has been obtained by Borrower and each of the Borrower
Subsidiaries in such amounts as similar assets are customarily insured by
companies of established reputation which own similar assets.
2.13 [INTENTIONALLY OMITTED].
2.14 RESTRICTIONS ON BORROWER. Neither Borrower nor any of the
Borrower Subsidiaries is: (a) a party to any contract or agreement, or subject
to any corporate or other restriction, that could reasonably be expected to
have a Material Effect, (b) a party to any material contract or agreement that
restricts the right or ability of Borrower to incur Debt, other than this
Agreement, the other Subject Documents and the Loan and Security Agreement with
the Senior Lender, and, except for the Liens granted to the Lender or the
Senior Lender, neither Borrower nor any of the Borrower Subsidiaries has agreed
or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any Lien upon any Property of Borrower or any of the
Borrower Subsidiaries, whether now owned or hereafter acquired.
2.15 EMPLOYEE MATTERS. Except with respect to the Borrower's
401(k) plan and as disclosed on Schedule 2.15:
(a) neither Borrower nor any ERISA Affiliate sponsors,
maintains, or contributes to, or has at any time in the six-year
period preceding the date hereof sponsored, maintained, or contributed
to, any "employee pension benefit plan," as such term is defined in
section 3(2) of ERISA, that is intended to be qualified under sections
401 and 501 of the Code; and without limiting the scope of the
foregoing, neither Borrower nor any ERISA Affiliate sponsors,
maintains, or contributes to, or has at any time in the six-year
period preceding the date hereof sponsored, maintained, or contributed
to, (i) any employee pension benefit plan that is subject to title IV
of ERISA or (ii) any "multiemployer plan," as such term is defined in
Section 3(37) or 4001(a)(3) of ERISA;
(b) no act or transaction has occurred that could result
in imposition on Borrower or any ERISA Affiliate (either directly or
indirectly by reason of any indemnification or hold-harmless
agreement) of a tax or penalty imposed pursuant to Section 4975 of the
Code or Section 502 of ERISA; and
(c) neither Borrower nor any ERISA Affiliate sponsors,
maintains, or contributes to any "employee welfare benefit plan," as
such term is defined in Section 3(1) of ERISA, or to any other plan
which provides benefits to former employees thereof, that may not be
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terminated by such Borrower in its sole discretion at any time without
any material liability to it.
2.16 REGULATORY STATUS. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of any of the
foregoing or a "public-utility company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or regulated as a
utility or common carrier under any other federal, state, or local law.
Borrower is not an "investment company" or a company "controlled" by an
"investment company,"as such terms are defined in the Investment Company Act of
1940, as amended, and Borrower is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to
be registered under section 8 of such Act.
2.17 BROKERS AND FINDERS. Except as disclosed on Schedule 2.17
hereto, no Person has any right, interest, or valid claim against Lender,
Borrower, or any Affiliate of Borrower because of any agreement, undertaking,
act or omission of Borrower or any Affiliate of Borrower or other Person acting
on behalf of Borrower or any Affiliate of Borrower for any commission, fee, or
other compensation as a result of the transactions contemplated by this
Agreement or the Subject Documents.
2.18 DISCLOSURE. The information furnished in writing by or on
behalf of Borrower or any Affiliate of Borrower to Lender pursuant to or in
connection with this Agreement or the transactions contemplated hereby, which
information addresses or otherwise relates to the subject matter hereof or of
any of the other Subject Documents, taken as a whole, does not contain any
untrue statement of a material fact necessary to make the statements contained
therein or herein not misleading in light of the circumstances under which they
are made and taking into account any update thereof; provided, however, that in
the case of projections, Borrower represents and warrants only the factual
information serving as a basis for such projections and not the assumptions and
estimates therein. There is no fact or circumstance that Borrower knows or
reasonably should have known and that is not disclosed to Lender in writing,
that would have a Material Effect.
2.19 PERMITS, LEASES AND CONTRACTS. Borrower will furnish Lender
within five (5) days of request by Lender, a list of all permits, leases and
contracts to which Borrower and each Borrower Subsidiary is a party as of the
date hereof which require payments by Borrower or any Borrower Subsidiary, in
excess of $25,000 on an annual basis other than the Subject Documents and other
than purchase and sale orders in the ordinary course of business.
2.20 RECEIPT OF REASONABLY EQUIVALENT VALUE; NO INSOLVENCY.
Borrower has received reasonably equivalent value in exchange for its
obligations under this Agreement and the other Subject Documents to which
Borrower may be a party. Borrower is not insolvent nor will Borrower become
insolvent as a result of the transactions contemplated by this Agreement and
the other Subject Documents.
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2.21 WARRANTS. The number of shares of Borrower that may be
purchased pursuant to the Warrants aggregates One Hundred Seventy-Five Thousand
(175,000) shares of the common stock of Borrower.
2.22 AFFILIATE TRANSACTIONS. Neither Borrower nor any Borrower
Subsidiary has entered into any transaction with an Affiliate except in the
ordinary course of business on terms no less favorable to Borrower or Borrower
Subsidiary, nor more favorable to such Affiliate, than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate
except that inventory and fixed assets may be sold or transferred between
Affiliates.
2.23 ENVIRONMENTAL LAWS. To the best of each of the Borrower's and
each Borrower Subsidiaries' knowledge, except as disclosed on Schedule 2.23:
(a) the business and Properties of the Borrower and the
Borrower's Subsidiaries have been operated in compliance with all
applicable Environmental Laws, noncompliance with which would have a
Material Effect;
(b) none of the Borrower and the Borrower's Subsidiaries
has received any written communication, whether from a governmental
authority, citizens' group, employee, or otherwise, alleging that the
Parent or any Subsidiary is not in compliance with any Environmental
Law applicable to it and its business and Properties which allegation
is reasonably likely to be true and, if true, to have a Material
Effect; and
(c) no "Hazardous substance," as such term is define din
the federal Comprehensive Environmental Response, Compensation, and
Liability Act, no petroleum or petroleum products, and no "solid
waste," as such term is defined in the federal Resource Conservation
and Recovery Act, has been leaked, spilled, deposited, or otherwise
released in violation of any Environmental Laws by the Parent or any
Subsidiary on any Property owned or operated by the Parent or any
Subsidiary, and neither the Parent nor any Subsidiary has handled,
treated, stored, or disposed of, or arranged for the handling,
treatment, storage, or disposed of, any production in the ordinary
course of business), or solid waste in violation of any Environmental
Laws by the Borrower or any Subsidiaries on any Property not currently
owned by the Borrower or a Borrower's Subsidiaries , which violation
would have a Material Effect.
SECTION 3. LENDER LOAN
3.1 LENDER LOAN. Subject to the terms and conditions herein,
Lender agrees to make the Lender Loan to Borrower.
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3.2 LENDER'S CONDITIONS. Lender's obligation to make the Lender
Loan pursuant to Section 3.1 shall be subject to the satisfaction or waiver by
it in writing of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES TRUE - each of the
representations and warranties made by Borrower and the Borrower
Subsidiaries in this Agreement, any other Subject Document, or any
certificate delivered pursuant hereto or thereto shall be true and
complete as of the Execution Date;
(b) COMPLIANCE WITH THIS AGREEMENT - Borrower and each
Borrower Subsidiary shall have performed and complied with all
agreements and conditions on its part required to be performed or
complied with pursuant to this Agreement and the other Subject
Documents on or before the Execution Date;
(c) NO MATERIAL EFFECT - no event shall have occurred and
no condition shall exist that has resulted or, in Lender's good-faith
judgment, will result in a Material Effect;
(d) OFFICERS' CERTIFICATES - Lender shall have received
Officers' Certificates from Borrower and each of the Borrower
Subsidiaries dated the Execution Date, in a form mutually acceptable
to Borrower and Lender, certifying that (i) the conditions specified
in Section 3.2(a), (b) and (c) have been fulfilled, and (ii) no event
has occurred and no condition exists that has resulted in or, in such
officers' good-faith judgment, will result in a Material Effect;
(e) SECRETARY'S CERTIFICATES - the Secretary of Borrower
and each Borrower Subsidiary shall have delivered to Lender (i)
certified copies of Borrower's and each Borrower Subsidiary's
Organizational Documents and of resolutions of Borrower's and each
Borrower Subsidiary's board of directors and, if required, by their
shareholders authorizing Borrower's and each Borrower Subsidiary's
execution, delivery, and performance of this Agreement, the Lender
Notes, and the other Subject Documents to which it is or is to become
a party, which resolutions shall provide that they may be relied upon
by Lender unless Lender is notified subsequent to the Execution Date
by Borrower to the contrary, and (ii) a certificate of incumbency
dated the Execution Date with respect to each individual executing
this Agreement, the Lender Notes, or any other Subject Document on
Borrower's or any Borrower Subsidiary's behalf;
(f) LENDER NOTES - Borrower shall have executed and
delivered to Lender the Lender Notes dated the Execution Date in the
aggregate principal amount of One Million Five Hundred Forty Thousand
and No/100 Dollars ($1,540,000.00). The Lender Notes shall bear
interest at the rate of twelve and one-half percent (12.5%) per annum;
(h) SECURITY AGREEMENT AND FINANCING STATEMENTS -
Borrower shall have executed and delivered to Lender a Security
Agreement, together with as many executed
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copies as may be reasonably required by Lender of all financing
statements required to be filed and all registrations required to be
noted to perfect the Liens created pursuant thereto;
(i) OPINION OF COUNSEL - Robert D. Remy, counsel for
Borrower, shall have delivered to Lender an opinion in form and
substance reasonably satisfactory to Lender and Lender's counsel;
(j) PROCEEDINGS SATISFACTORY - all proceedings taken in
connection with the issuance of the Lender Notes and the execution and
delivery of all Subject Documents shall be reasonably satisfactory to
Lender and Lender's counsel, and Lender and Lender's counsel shall
have received copies of such closing documents as they may reasonably
request in connection therewith, all in form and substance
satisfactory to Lender and Lender's counsel;
(k) INSURANCE - Borrower shall have delivered to Lender
on the Execution Date or within a reasonable time thereafter (i)
evidence satisfactory to Lender that it has secured the "key man"
policy required by Section 6.16, and (ii) a collateral assignment of
such "key man" policies in favor of Lender; and
(l) DUE DILIGENCE FEE - Lender shall have received from
Borrower on or before the Execution Date a total due diligence fee of
two percent (2.0%) of the Lender Loan, such amount being equal to
Thirty Thousand Eight Hundred and No/100 Dollars ($30,800), which
shall be due and payable on the Execution Date.
(m) SBA DOCUMENTS - Borrower shall deliver to Lender on
the Execution Date all of the SBA Documents executed by Borrower as
required.
(n) DUE DILIGENCE - the Lender shall be satisfied in its
sole discretion with the results of its due diligence review of the
Properties, operations, and business (existing and prospective) of the
Borrowers.
(o) FIRST AMENDED AND RESTATED CONSULTING AGREEMENT -
Borrower shall have executed and delivered to Lender a First Amended
and Restated Consulting Agreement with Lender.
(p) ACR SUPPLY CONFIRMATION OF SECURITY AGREEMENT AND
FINANCING STATEMENTS - (i) ACR Supply shall have executed and
delivered to the Lender a Confirmation of Security Agreement together
with as many executed copies as may be required by the Lender of all
financing statements required to be filed and all registrations
required to be noted to perfect the Liens created pursuant thereto,
(ii) the Lender shall have received evidence that such financing
statements have been filed in the jurisdictions requested by the
Lender, and (iii) ACR Supply shall have delivered to the Lender all
parts of the Collateral required to be delivered to the Lender in
order to perfect the Liens created pursuant to such Security
Agreement.
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(q) TOTAL SUPPLY CONFIRMATION OF SECURITY AGREEMENT AND
FINANCING STATEMENTS - (i) Total Supply shall have executed and
delivered to the Lender a Confirmation of Security Agreement together
with as many executed copies as may be required by the Lender of all
financing statements required to be filed and all registrations
required to be noted to perfect the Liens created pursuant thereto,
(ii) the Lender shall have received evidence that such financing
statements have been filed in the jurisdictions requested by the
Lender, and (iii) Total Supply shall have delivered to the Lender all
parts of the Collateral required to be delivered to the Lender in
order to perfect the Liens created pursuant to such Security
Agreement.
(r) HEATING CONFIRMATION OF SECURITY AGREEMENT AND
FINANCING STATEMENTS - (i) Heating shall have executed and delivered
to the Lender a Confirmation of Security Agreement together with as
many executed copies as may be required by the Lender of all financing
statements required to be filed and all registrations required to be
noted to perfect the Liens created pursuant thereto, (ii) the Lender
shall have received evidence that such financing statements have been
filed in the jurisdictions requested by the Lender, and (iii) Heating
shall have delivered to the Lender all parts of the Collateral
required to be delivered to the Lender in order to perfect the Liens
created pursuant to such Security Agreement.
(s) WEST COAST CONFIRMATION OF SECURITY AGREEMENT AND
FINANCING STATEMENTS - (i) West Coast shall have executed and
delivered to the Lender a Confirmation of Security Agreement together
with as many executed copies as may be required by the Lender of all
financing statements required to be filed and all registrations
required to be noted to perfect the Liens created pursuant to thereto,
(ii) the Lender shall have received evidence that such financing
statements have been filed in the jurisdictions requested by the
Lender, and (iii) West Coast shall have delivered to the Lender all
parts of the Collateral required to be delivered to the Lender in
order to perfect the Liens created pursuant to such Security
Agreement.
(t) FLORIDA COOLING SECURITY AGREEMENT AND FINANCING
STATEMENTS - (i) Florida Cooling shall have executed and delivered to
the Lender a Security Agreement together with as many executed copies
as may be required by the Lender of all financing statements required
to be filed and all registrations required to be noted to perfect the
Liens created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Florida Cooling shall
have delivered to the Lender all parts of the Collateral required to
be delivered to the Lender in order to perfect the Liens created
pursuant to such Security Agreement.
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(u) LIFETIME FILTER SECURITY AGREEMENT AND FINANCING
STATEMENTS - (i) Lifetime Filter shall have executed and delivered to
the Lender a Security Agreement together with as many executed copies
as may be required by the Lender of all financing statements required
to be filed and all registrations required to be noted to perfect the
Liens created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Lifetime Filter shall
have delivered to the Lender all parts of the Collateral required to
be delivered to the Lender in order to perfect the Liens created
pursuant to such Security Agreement.
(v) VALLEY SUPPLY SECURITY AGREEMENT AND FINANCING
STATEMENTS - (i) Valley Supply shall have executed and delivered to
the Lender a Security Agreement together with as many executed copies
as may be required by the Lender of all financing statements required
to be filed and all registrations required to be noted to perfect the
Liens created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Valley Supply shall
have delivered to the Lender all parts of the Collateral required to
be delivered to the Lender in order to perfect the Liens created
pursuant to such Security Agreement.
(w) TIME ENERGY SECURITY AGREEMENT AND FINANCING
STATEMENTS - (i) Time Energy shall have executed and delivered to the
Lender a Security Agreement together with as many executed copies as
may be required by the Lender of all financing statements required to
be filed and all registrations required to be noted to perfect the
Liens created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Time Energy shall
have delivered to the Lender all parts of the Collateral required to
be delivered to the Lender in order to perfect the Liens created
pursuant to such Security Agreement.
(x) ENER-TECH SECURITY AGREEMENT AND FINANCING STATEMENTS
- (i) Ener-Tech shall have executed and delivered to the Lender a
Security Agreement together with as many executed copies as may be
required by the Lender of all financing statements required to be
filed and all registrations required to be noted to perfect the Liens
created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Ener-Tech shall have
delivered to the Lender all parts of the Collateral required to be
delivered to the Lender in order to perfect the Liens created pursuant
to such Security Agreement.
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(y) CONTRACTORS SECURITY AGREEMENT AND FINANCING
STATEMENTS - (i) Contractors shall have executed and delivered to the
Lender a Security Agreement together with as many executed copies as
may be required by the Lender of all financing statements required to
be filed and all registrations required to be noted to perfect the
Liens created pursuant to thereto, (ii) the Lender shall have received
evidence that such financing statements have been filed in the
jurisdictions requested by the Lender, and (iii) Contractors shall
have delivered to the Lender all parts of the Collateral required to
be delivered to the Lender in order to perfect the Liens created
pursuant to such Security Agreement.
(z) CONFIRMATION OF BORROWER GUARANTY - the Borrower
shall have executed and delivered to the Lender a Confirmation of
Guaranty Agreement.
(aa) CONFIRMATION OF ACR SUPPLY GUARANTY - ACR Supply
shall have executed and delivered to the Lender a Confirmation of
Guaranty Agreement.
(bb) CONFIRMATION OF TOTAL SUPPLY GUARANTY - Total Supply
shall have executed and delivered to Lender a Confirmation of Guaranty
Agreement.
(cc) CONFIRMATION OF HEATING GUARANTY - Heating shall have
executed and delivered to the Lender a Confirmation of Guaranty
Agreement.
(dd) CONFIRMATION OF WEST COAST GUARANTY - West Coast
shall have executed and delivered to the Lender a Confirmation of
Guaranty Agreement.
(ee) FLORIDA COOLING GUARANTY - Florida Cooling shall have
executed and delivered to the Lender a Guaranty Agreement.
(ff) LIFETIME FILTER GUARANTY - Lifetime Filter shall
have executed and delivered to the Lender a Guaranty Agreement.
(ff) VALLEY SUPPLY GUARANTY - Valley Supply shall have
executed and delivered to the Lender a Guaranty Agreement.
(gg) TIME ENERGY GUARANTY - Time Energy shall have
executed and delivered to the Lender a Guaranty Agreement.
(hh) ENER-TECH GUARANTY - Ener-Tech shall have executed
and delivered to the Lender a Guaranty Agreement.
(ii) CONTRACTORS GUARANTY - Contractors shall have executed
and delivered to the Lender a Guaranty Agreement.
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(jj) CONFIRMATION OF STOCK PLEDGE AGREEMENT - the Borrower
shall have executed and delivered to the Lender a Confirmation of
Stock Pledge Agreement and all of the shares of stock of the Borrowing
Subsidiaries to be delivered to the Lender pursuant thereto in the
form required by such Confirmation of Stock Pledge Agreement.
(kk) REGISTRATION RIGHTS AGREEMENTS - the Borrower shall
have executed and delivered to the Lender a Registration Rights
Agreements for each of CF and Southwest/Catalyst.
3.3 INVESTMENT. Lender represents to Borrower that it is an
"accredited investor," as such term is defined in Rule 501 of Regulation D
under the 1933 Act and that it is acquiring the Lender Notes and the Warrants
for its own account for the purpose of investment and not with a view to resale
or distribution thereof in violation of any securities law, and Lender has no
present intention of selling or distributing the Lender Notes or the Warrants
in violation of any securities law. It is understood that, in making its
representations and warranties in Section 2.9, Borrower is relying, to the
extent applicable, upon the representations in this Section 3.3.
3.4 EXPENSES. Borrower shall pay on the Execution Date (a) all
reasonable fees and expenses by Borrower, of Boyer, Ewing & Harris
Incorporated, Lender's counsel, in connection with the negotiation,
preparation, delivery and execution of the Subject Documents and any related
amendment, waiver or consent, and (b) after an Event of Default, all reasonable
out-of-pocket costs, fees and expenses of Lender paid or incurred by Lender in
connection with the enforcement of the obligations of the Borrower arising
under the Subject Documents (including, but not limited to, reasonable
attorneys' fees, expenses and court costs).
SECTION 4. PAYMENTS
4.1 [INTENTIONALLY OMITTED].
4.2 VOLUNTARY PREPAYMENT. As of any Business Day, but only if
Borrower shall have notified Lender specifying the date therefor no later than
the second day before such date, Borrower may prepay all or part of the
principal amount outstanding under the Lender Notes; provided, however, that
(i) in the event that the Average Trading Price of Borrower's common stock is
less than $3.50 per share at the time of the prepayment, in connection with any
prepayment during the three years following the Execution Date, Borrower shall
pay Lender a prepayment fee equal to three percent (3%) of the amount prepaid
during the first year, two percent (2%) of the amount prepaid during the second
year, and one percent (1%) of the amount prepaid during the third year, (ii) in
the event that the Average Trading Price of Borrower's common stock is equal to
or greater than $3.50 but less than $4.00 per share at the time of the
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prepayment, in connection with any prepayment during the three years following
the Execution Date, Borrower shall pay Lender a prepayment fee equal to one
percent (1%) of the amount prepaid during either the first year, the second
year or the third year, and (iii) in the event that the Average Trading Price
of Borrower's common stock is equal to or greater than $4.00 per share at the
time of the prepayment, there will be no prepayment penalty; and provided,
further, that any prepayment of principal must be in the amount of at least
$50,000.00. After the third anniversary of the Execution Date, Borrower may
from time to time prepay all or part of the principal amount outstanding under
the Lender Notes, so long as such payment is at least $50,000.00, without
penalty or premium of any kind, but with accrued interest to the date of
prepayment on the amount so prepaid, provided that any prepayments of principal
shall be applied to the principal installments due on the Lender Notes in
inverse order of their maturities.
4.3 APPLICATION OF PAYMENTS. All payments received in respect of
the Lender Notes, this Agreement, or the Subject Documents shall be applied
first to the unpaid costs and expenses for which Borrower is liable to Lender
under the Subject Documents and for which Borrower has been billed by Lender,
next to interest on the Lender Notes, and next to principal on the Lender
Notes.
4.4 INTEREST. Interest on the Lender Notes shall be twelve and
one-half percent (12.5%) per annum and shall be computed on a daily basis
consisting of a 360-day year. Interest on obligations of Borrower pursuant to
this Agreement (other than obligations of Borrower pursuant to the Lender
Notes) shall bear interest if not paid when due at the Default Rate.
4.5 DIRECT PAYMENT. The Borrower shall pay all amounts payable
with respect to the Lender Notes (without any presentment of the Lender Notes
and without any notation of such payment being made thereon) and the other
Subject Documents by either (a) wire transfer of immediately available funds
for credit prior to the close of business Houston time on the date such payment
is due to CF's Account Number 900-622-2 at Southwest Bank of Texas (ABA
#113011258) and to Southwest/Catalyst's Account Number 9033947 at Southwest
Bank of Texas (ABA# 113011258), or (b) checks delivered on the date such
payment is due to the Lender's offices. Such wire transfer instructions may be
changed to that specified by notice from the Lender thereof to the Borrower on
or before the 10th day prior to the date fixed for such payment; provided,
however, that if multiple Persons shall constitute the Lender, the Borrower
shall be required to make payment only to the Lenders' Representative and the
Lenders' Representative shall be fully responsible for distributing such
payment to the appropriate Person(s) constituting the Lender. Each such payment
shall be accompanied by sufficient information to identify the source and the
application thereof. The Lender agrees that in the event it shall sell or
transfer any of the Lender Notes in accordance with the provisions of Section
5, (a) prior to delivering such Lender Note to the purchaser or transferee, it
shall make a notation thereon of all principal, if any, paid on such Lender
Note and will also note thereon the date to which interest has been paid on
such Lender Note, and (b) it promptly shall notify the Borrower of the name and
address of the transferee of such Lender Note; provided, however, that failure
to comply with the preceding
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provisions of this sentence shall not relieve the Borrower of its obligations
to make payments under such Lender Note as and when the same become due.
SECTION 5. CERTAIN PROVISIONS REGARDING THE LENDER NOTES
5.1 TRANSFER OF LENDER NOTES. Following any transfer of either of
the Lender Notes or interest therein by Lender, or any merger or other change
in Lender's name or identity, upon surrender of such Lender Notes at the
address of Borrower described in Section 9.1, Borrower, at the request of
Lender and at Lender's expense, shall execute and deliver a new note or notes
in exchange therefor in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Lender Note. Each such new note shall be
payable to such Person as Lender may request and shall be a note substantially
in the form of the Lender Note, as applicable, and dated the date upon which
the Lender Note was surrendered.
5.2 REPLACEMENT OF LENDER NOTES. Upon receipt by Borrower of
evidence reasonably satisfactory to it of the ownership of either of the Lender
Notes and that such Lender Note has been lost, stolen, destroyed, or mutilated
and (i) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to Borrower, or (ii) in the case of mutilation, upon surrender
thereof, Borrower at Lender's expense, will execute and deliver in lieu thereof
a new Lender Note in the form and the denomination of, issued in the name of
Lender, and dated the date of such lost, stolen, destroyed, or mutilated Lender
Note, which former Lender Note shall be deemed canceled. Every new note issued
pursuant to this Section 5.2 in lieu of any destroyed, lost, stolen, or
mutilated Lender Note shall constitute an original contractual obligation of
Borrower, and Lender shall be entitled to all the benefits of this Agreement;
provided, however that Lender shall indemnify and hold harmless Borrower from
any liability that might arise from issuance of a replacement Lender Note.
SECTION 6. BORROWER'S BUSINESS COVENANTS
Borrower covenants that on and after the date hereof and as long
thereafter as any of the indebtedness evidenced by either of the Lender Notes
or any other Subject Document but excluding the Warrants is outstanding:
6.1 PAYMENT OF LENDER NOTES, ETC. Borrower shall punctually pay
or cause to be paid the principal and interest to become due in respect of the
Lender Notes according to the terms thereof. Borrower shall perform its
respective obligations under all other Subject Documents to which it is or
becomes a party.
6.2 USE OF PROCEEDS. Borrower shall use the proceeds of the
Lender Notes for the purposes described in Section 2.11, and shall obtain an
assignment of all liens of St. James to Lender. No proceeds from the Lender
Notes shall be used for any purpose other than those described in Section 2.11
without the prior written consent of Lender, such consent not to be
unreasonably withheld or delayed.
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6.3 BUSINESS. Without the prior written consent of Lender,
Borrower shall not engage in any business other than the activities described
in Section 2.5.
6.4 MAINTENANCE OF EXISTENCE AND STATUS. Borrower and each of the
Borrower Subsidiaries shall (a) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate or other applicable
existence, and, except where failure to do so would not have a Material Effect,
(b) qualify or register as a foreign corporation, limited partnership or other
entity, as applicable, in each jurisdiction in which the nature of its
Properties or business makes such qualification necessary, and (c) cause the
representations and warranties in Section 2.1 to remain true and correct.
6.5 PAYMENT OF TAXES AND CLAIMS. Borrower and the Borrower
Subsidiaries shall each pay, before they become delinquent:
(a) all relevant taxes, assessments, and governmental
charges or levies imposed upon it or its Property, and
(b) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords, and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, however, that any of the foregoing items need not be paid (i) while
being contested in good faith and by appropriate proceedings or while levy and
execution thereon have been stayed, and so long as adequate book reserves or
other action required by GAAP have been established with respect thereto, (ii)
payment thereof is covered in full (subject to the customary deductible) by
insurance, or (iii) so long as the failure to pay timely any such items, singly
or in the aggregate, does not have a Material Effect.
6.6 SALE OR TRANSFER OF ASSETS OR MERGER. (a) Except for sales of
goods in the ordinary course of business, without the consent of Lender,
neither Borrower nor any of the Borrower Subsidiaries shall sell, lease,
transfer, or otherwise dispose of any of its Properties without the prior
written consent of Lender other than (i) the sale, discount or transfer of
delinquent accounts receivable in the ordinary course of business for purposes
of collection, (ii) occasional sales of immaterial assets for consideration not
less than fair market value, (iii) dispositions of assets that are obsolete or
have negligible fair market value, and (iv) sales of equipment for a fair and
adequate consideration (but if replacement equipment is necessary for the
proper operation of the business of the seller, the seller must promptly
replace the sold equipment); provided however, Borrower and the Borrower
Subsidiaries may sell, lease, transfer, or otherwise dispose of any of their
Properties without the prior written consent of Lender to the extent that such
transfers or dispositions do not exceed the amount of $100,000.00 in aggregate
per annum.
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(b) Without the prior written consent of Lender, which
consent shall not be unreasonably withheld, Borrower shall not
consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into it.
6.7 DEBT. Without the prior written consent of Lender, neither
Borrower nor Lender shall have or incur any Debt other than (a) the
indebtedness described on Schedule 6.7 attached hereto, and (b) provided that
no Default or Event of Default has occurred and is continuing at the time of
incurrence thereof, new purchase money Debt or other Debt not to exceed Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in any calendar year.
6.8 LIENS AND ENCUMBRANCES. Except for the Liens securing the
Senior Debt, neither Borrower nor any of the Borrower Subsidiaries shall cause,
permit, or agree or consent to cause in the future (upon the happening of a
contingency or otherwise), any of its Property, whether now owned or hereafter
acquired, to be subject to a Lien, except:
(a) Liens securing taxes, assessments, or governmental
charges or levies or the claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords, and other like Persons, provided
the payment thereof is not at the time required by Section 6.5;
(b) Liens incurred or deposits made in the ordinary
course of business (i) in connection with workers' compensation,
unemployment insurance, social security, and other like laws or (ii)
to secure the performance of letters of credit, bids, tenders,
contracts, leases, statutory obligations, surety, appeal, and
performance bonds, and other similar obligations not incurred in
connection with the borrowing of money, or the obtaining of advances,
or the payment of the deferred purchase price of Property; but only to
the extent in each such case Borrower is in substantial compliance
with the material obligations relating to the foregoing;
(c) attachments, judgments, and other similar Liens
arising in connection with court proceedings, including, without
limitation, adverse judgments on appeal provided the execution or
other enforcement of such Liens is effectively stayed within 60 days
after the entry thereof and the claims secured thereby are being
contested in good faith and by appropriate proceedings, or as long as
adequate book reserves or other action required by GAAP have been
established with respect thereto, or payment thereof is covered in
full (subject to the customary deductible) by insurance;
(d) Liens securing the Lender Notes and other obligations
under the Subject Documents;
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(e) purchase money Liens on assets other than inventory
not to exceed $100,000 in the aggregate;
(f) purchase money Liens on inventory not to exceed 25%
of the consolidated inventory (as defined by GAAP) of Borrower;
(g) other Liens that arise by operation of law;
(i) encumbrances and restrictions on the use of real
property which do not materially impair the use thereof;
(j) any interest or title of a lessor in assets being
leased to Borrower;
(k) Liens on real property and equipment of Lifetime
Filter securing indebtedness to O'Leary Family Partnership;
(l) Liens on equipment of Contractors securing
indebtedness to Gambray, Inc.;
(m) Liens on real property of ACR Supply, Inc. securing
indebtedness to NationsBank of Texas, N.A.; and
(n) Liens on assets purchased with borrowings under
$500,000 term loan from Senior Lender.
6.9 BORROWER'S FINANCIAL COVENANTS.
(a) The amount derived by dividing (i) the consolidated EBITDA of
Borrower by (ii) the consolidated interest expense of Borrower, ("Times
Interest Earned") as calculated by amounts derived from the Parent's audited
income statements for the fiscal years ending on the last day of February of
each of 1998, 1999, 2000, 2001, 2002, and 2003 shall, at a minimum, equal 2.0.
(b) Borrower's consolidated net income before income taxes
("NIBT"), as calculated four (4) times per year on a rolling quarter basis for
the current quarter and the most recent three prior quarters as determined from
amounts reflected on Borrower's unaudited consolidated income statements as of
August 31, November 30, and May 31, and on Borrower's audited consolidated
income statements as of the last day of February, of each of 1998, 1999, 2000,
2001, 2002, and 2003 (to the extent set forth below) shall, at a minimum, be at
least $1,000,000.
(c) Borrower's consolidated net book value of tangible assets, as
calculated by amounts reflected on Borrower's unaudited consolidated balance
sheets as of August 31, November 30, and May 31, and on Borrower's audited
consolidated balance sheets as of the last day of February, of each of 1998,
1999, 2000, 2001, 2002, and 2003 (to the extent set forth below) shall, at a
minimum, be $500,000.00.
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(d) Borrower's consolidated ratio of Funded Debt to the net book
value of tangible assets ("Debt to Worth Ratio") as calculated by amounts
reflected on Borrower's consolidated unaudited balance sheets as of August 31,
November 30, and May 31, and on Borrower's audited consolidated balance sheets
as of the last day of February, of each of 1998, 1999, 2000, 2001, 2002, and
2003 (to the extent set forth below) shall, at a maximum, be 2.75.
(e) Borrower's consolidated current ratio (current assets divided
by current liabilities) as calculated by amounts reflected on Borrower's
unaudited consolidated balance sheets as of August 31, November 30, and May 31,
and on Borrower's audited consolidated balance sheets as of the last day of
February, of each of 1998, 1999, 2000, 2001, 2002, and 2003 (to the extent set
forth below) shall, at a minimum, be 1.75.
6.10 DISTRIBUTIONS. Borrower may not declare, make or permit (or
incur any liability to make, declare or permit) any Distribution without the
prior written consent of Lender.
6.11 COMPLIANCE WITH LAWS. Borrower and each Borrower Subsidiary
shall conduct their business and affairs and maintain their Properties in
compliance with all applicable laws, rules, regulations, judgments, orders, and
decrees (including, without limitation, environmental laws) the failure to
comply with which would have a Material Effect.
6.12 ERISA COMPLIANCE. Except to the extent necessary to operate
the Borrower's 401(k) plan, Borrower shall not, and shall not permit any
ERISA Affiliate to:
(a) engage in any "prohibited transaction," as such term
is defined in section 406 of ERISA or section 4975 of the Code;
(b) sponsor, maintain, or contribute to any "employee
pension benefit plan," as such term is defined in section 3(2) of
ERISA, that is subject to title IV of ERISA;
(c) contribute to or assume an obligation to contribute
to any "multi-employer plan," as such term is defined in section 3(37)
or 4001(a)(4) of ERISA; or
(d) acquire an interest in a Person that causes such
Person to become an ERISA Affiliate if such Person sponsors,
maintains, or contributes to, or at any time in the six-year period
preceding such acquisition has sponsored, maintained, or contributed
to, (i) any multiemployer pension plan or (ii) any employee pension
benefit plan that is subject to title IV of ERISA.
6.13 TRANSACTIONS WITH AFFILIATES. Neither Borrower nor any
Borrower Subsidiary will enter into any transaction with an Affiliate except in
the ordinary course of business on terms no less favorable to Borrower or
Borrower Subsidiary, nor more favorable to such Affiliate, than would be
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obtainable in a comparable arm's length transaction with a Person who is not an
Affiliate except that inventory and fixed assets may be sold or transferred
between Affiliates.
6.14 WARRANTS AND REGISTRATION RIGHTS AGREEMENT. For and in
consideration of the consulting services to be provided by Lender to Borrower
from time to time, Borrower shall execute and deliver as of the Execution Date,
the Warrants and the Registrations Rights Agreements.
6.15 [INTENTIONALLY OMITTED]
6.16 INSURANCE. Borrower and the Borrower Subsidiaries will
maintain insurance in full force and effect with insurance companies of
recognized standing on all of its properties of an insurable nature in such
manner and amounts and against such casualties and contingencies as similar
assets are customarily insured by companies of established reputation which own
similar assets. Borrower and the Borrower Subsidiaries shall also maintain in
full force and effect with insurance companies of recognized standing general
liability, worker's compensation, health, medical, and such other insurance as
is customarily maintained by companies that own assets similar to that of
Borrower and the Borrower Subsidiaries and as may be reasonably requested by
the Lender in amounts reasonably requested by the Lender. In addition,
Borrower will secure and pay for "key man" insurance policies covering Alex
Trevino, Jr., which policy shall (i) be in the amount of $2,000,000 and name
Borrower as beneficiary thereunder; provided, however, that the amount of such
key man life insurance can be reduced from time to time so long as the amount
of such life insurance is always equal to or greater than the aggregate
outstanding principal balance of the Notes and the Lender Notes at any given
point in time, (ii) be collaterally assigned to the Lender on terms acceptable
to the Lender, (iii) provide for a minimum of 30 days' prior written notice to
the Lender of any cancellation, and (iv) have a guaranteed renewal period of at
least five (5) years from the Execution Date. At any time and from time to
time, Borrower will furnish evidence of all insurance required by this Section
6.16 to the Lender upon request by the Lender.
6.17 [INTENTIONALLY OMITTED]
6.18 CERTAIN REGISTRATIONS OR APPROVALS. Borrower and the Borrower
Subsidiaries shall not, and shall not permit any Person acting on behalf of it
or any Affiliate to, take any action that would subject the offer or sale of
the Lender Notes to the provisions of section 5 of the 1933 Act or to
comparable provisions of any applicable state securities laws or that is
intended to have the effect of preventing or otherwise hindering the sale of
the Lender Notes by the Lender. If the Lender Notes require declaration or
registration with or approval of any governmental official or authority (other
than registration under the 1933 Act or state securities or blue sky laws),
Borrower and the Borrower Subsidiaries at their sole expense shall take all
requisite action in connection with such declaration and shall use all
reasonable efforts to cause the Lender Notes to be duly registered or approved
as may be required.
SECTION 7. INFORMATION AS TO BORROWER
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Borrower covenants that on and after the date hereof and as long
thereafter as any of the indebtedness evidenced by the Lender Notes or any
other Subject Document is outstanding:
7.1 FINANCIAL AND BUSINESS INFORMATION. Borrower shall deliver,
or shall cause to be delivered, to Lender, in such quantities as it reasonably
may request:
(a) QUARTERLY STATEMENTS - promptly after preparation and
in any event on or before the 45th day after each calendar quarter:
(i) consolidated and consolidating balance sheets
of Borrower as at the end of such calendar quarter, and
(ii) consolidated and consolidating statements of
operations and cash flow of Borrower for such calendar
quarter; and
(iii) the consolidated EBITDA for Borrower for the
most recently completed four fiscal quarters, and the then
existing Funded Debt and interest expense for the preceding
four quarters, expressed as a coverage ratio for purposes of
compliance with Section 6.9 hereof;
all in reasonable detail and certified as complete and correct in all
material respects, in accordance with GAAP, subject to changes
resulting from year-end adjustments, by the President or Chief
Financial Officer of Borrower; and
(b) ANNUAL STATEMENTS - promptly after preparation and in
any event on or before the 90th day thereafter:
(i) consolidated and consolidating balance sheet
of Borrower as at the end of such year, and
(ii) consolidated and consolidating statements of
consolidated operations and cash flow of Borrower for such
year, all in reasonable detail and accompanied by an opinion
on such statements of independent certified public accountants
of recognized standing selected by Borrower, which opinion
shall state that (x) except as expressly set forth in such
opinion, such consolidated financial statements of Borrower
fairly present in all material respects the consolidated
financial condition and results of operations and cash flow of
Borrower in accordance with GAAP (except for changes in
application in which such accountants concur), and (y) the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
included such tests of the accounting records and such other
auditing procedures as they considered necessary in the
circumstances;
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(c) REPORTS AND ANNOUNCEMENTS - (i) promptly upon its
becoming available, and in any event within fifteen (15) days of
filing or receipt, as applicable, copies of each regular or periodic
report and any registration statement, prospectus, or material written
communication in respect thereof filed by Borrower with, or received
by Borrower in connection therewith from, any securities exchange or
the Securities and Exchange Commission, state securities agency, or
any successor agency, or (ii) promptly after issuance, a copy of any
press release intended for distribution by multiple media sources;
(d) ERISA - promptly upon becoming aware of the
occurrence of any "reportable event," as such term is defined in
section 4043 of ERISA, or "prohibited transaction," as such term is
defined in section 406 of ERISA or section 4975 of the Code, in either
case in connection with any employee pension benefit plan or trust
created thereunder with respect to Borrower or any ERISA Affiliate, a
written notice specifying the nature thereof, what action is being
taken or is proposed to be taken with respect thereto and, when known,
any action taken by the Internal Revenue Service, the Department of
Labor, or the Pension Benefit Guaranty Corporation with respect
thereto;
(e) NOTICE OF DEFAULT OR EVENT OF DEFAULT - as soon as
practicable, but in any event on or before the fifth (5th) Business Day
after becoming aware of the existence of a Default or an Event of
Default, a written notice specifying the nature and period of
existence thereof and what action is being taken or is proposed to be
taken with respect thereto;
(f) BANKRUPTCY EVENT - immediately following, but in any
event on or before the third (3rd) Business Day, the occurrence of an
event of the type described in Section 8.1(f), (g), or (h), a written
notice specifying such event and its status; and
(g) REQUESTED INFORMATION - promptly following request, such other
data and information respecting the business affairs, assets and
liabilities of Borrower and its Subsidiaries not otherwise required to
be kept confidential in accordance with any agreement or applicable law
(but only if any disclosure of such information will not constitute a
waiver of any attorney-client privilege) as from time to time
reasonably may be requested by Lender.
Notwithstanding anything to the contrary contained in this Section 7.1, in the
event that counsel to Borrower reasonably determines that the disclosure of any
of the foregoing information might reasonably be expected to result in a
violation of applicable federal or state securities laws, then Borrower shall
be permitted to postpone furnishing such information or portion thereof until
such potential violation of applicable securities laws no longer exists.
7.2 INSPECTION. Upon reasonable notice and at reasonable
intervals and at the Lender's expense, Borrower shall allow Lender or Lender's
representative (including representatives of the United States Small Business
Administration) during business hours or at other reasonable times to inspect
any of its or Borrower Subsidiaries' Properties, to review reports, files, and
other
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records not otherwise required to be kept confidential in accordance with any
agreement or applicable law (but only if any disclosure of such information by
Borrower will not constitute waiver of any attorney-client privilege) and to
make and take away copies, and subject to Section 7.3, to discuss, from time to
time, any of its affairs, conditions, and finances with its directors,
officers, employees with management duties and certified public accountants.
7.3 CONFIDENTIALITY. From and after the date of this Agreement,
Lender shall hold confidential all information, unless specifically identified
by Borrower as public, heretofore or hereafter obtained in connection with this
Agreement or any Subject Document, or obtained pursuant to the requirements of
this Agreement or any Subject Document (the "Information"); provided, however,
that Lender may make disclosure reasonably required (i) in connection with the
enforcement of Lender's rights under this Agreement and the Subject Documents,
or otherwise in connection with litigation involving Lender's rights under this
Agreement and the Subject Documents (and subject to customary protective
orders); provided, however, that in any such case the Information shall only be
transmitted or disclosed to attorneys and accountants and other advisors of
Lender who "need to know" the Information and who are informed of the
confidential nature of the Information and agree in writing to keep such
Information confidential as set forth in this Section 7.3, (ii) in accordance
with such Lender's customary procedures for handling confidential information
of this nature and in accordance with safe and sound financial practices, to
inform Lender's partners and their advisors from time to time of the nature of
Borrower's business, key personnel, capital structure, and pertinent financial
information about the Borrower's performance, and other relevant data typically
disclosed by Lender to such Persons; provided, that they are informed of the
confidential nature of such information, (iii) in connection with an assignment
of the Lender Notes as allowed under this Agreement; provided, however, that on
or about the date of any such disclosure to any prospective assignee notice
thereof shall be given Borrower, and also provided further that prior to any
such disclosure, each assignee or prospective assignee shall have agreed to be
bound by the provisions of this Section 7.3, and (iv) by any governmental
authority having jurisdiction over Lender or by any applicable rule of law;
provided, however, that in such event Lender shall use its reasonable efforts
to provide Borrower with five (5) Business Days prior written notice of such
disclosure so that Borrower may seek a protective order or other appropriate
remedy, and provided, further, that in the event such protective order or other
remedy is not obtained, or Lender is unable to give Borrower prior notice
Lender will furnish the Information legally required to be provided to such
governmental authority. In no event shall Lender be obligated or required to
return any materials furnished by Borrower; provided, however, each prospective
assignee shall be required to agree that if it does not become an assignee it
shall return upon Borrower's written request all materials furnished to it by
Lender in connection with this Agreement; provided, moreover, that Lender shall
give Borrower prompt written notice of each prospective assignee from whom
Lender does not promptly request such return of materials so that Borrower may
make a request if it chooses. Nothing in this Section 7.3 shall abrogate any
Person's obligations regarding non-public information under any applicable law.
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7.4 ACCESS TO BOARDS OF DIRECTORS. Subject to the provisions of
Section 7.3, Borrower, at the request of the Lender, shall permit
representatives of the Lender to meet with any of the Borrower's or the
Borrower Subsidiaries' boards of directors or any member thereof, at such time
or place as may be reasonably requested by the Lender.
SECTION 8. EVENTS OF DEFAULT
8.1 NATURE OF EVENTS. An "Event of Default" shall exist if any of
the following occurs and is continuing:
(a) PAYMENTS - Borrower fails to make any payment to
Lender (whether principal, interest, or otherwise) on the Lender Notes when
such payment is due;
(b) PARTICULAR COVENANT DEFAULTS - except as provided in
Section 8.1(a) or Section 8.1(c), Borrower fails fully and punctually to
perform or comply with any covenant in Sections 6.2, 6.3, 6.4, 6.6, 6.7, 6.10,
6.18 and 7.1(e) and (f);
(c) OTHER COVENANT DEFAULTS - any of the Borrowers fail
punctually to perform or comply with any other provision of this Agreement or
other Subject Documents to which it is or becomes a party, and such failure
continues beyond the 30th day after such failure shall first become known to
such Borrower;
(d) REPRESENTATIONS OR WARRANTIES - any material
representation, or other statement by Borrower or any Affiliate of Borrower in
this Agreement or any other Subject Document is materially false or misleading
as of the date made;
(e) DEFAULT ON INDEBTEDNESS OR OTHER SECURITY - an event
of default has occurred and is continuing with respect to any Debt permitted to
be incurred by Borrower or a Borrower Subsidiary pursuant to Section 6.7, or
any other Debt (other than trade accounts payable arising in the ordinary
course of business) of Borrower or a Borrower Subsidiary or any portion
thereof, equal to or exceeding $50,000 singly or in the aggregate; provided,
however, that no Event of Default shall exist under this Section 8.1(e) if
Borrower or a Borrower Subsidiary is contesting in good faith the right of the
holder of such Debt or other Securities, excluding any current interest in
equity Securities of Borrower or a Borrower Subsidiary, to accelerate the
payment of the Debt or such other Security, and has established adequate
reserves therefor;
(f) INVOLUNTARY BANKRUPTCY PROCEEDING - a receiver,
liquidator, custodian, or trustee of Borrower or any Borrower Subsidiary, or of
any material Property thereof is appointed by court order and such order
remains in effect on the ninetieth (90th) day after its entry; or a petition is
filed, a case is commenced, or relief is ordered against Borrower or any
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, or liquidation law of any jurisdiction,
whether now or hereafter in effect, and is not dismissed with (90) days of such
filing, commencement, or order;
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(g) VOLUNTARY PETITIONS - Borrower or any Borrower
Subsidiary files a petition commencing a case in voluntary bankruptcy or
seeking relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution, or liquidation law
of any jurisdiction, whether now or hereafter in effect, or consents to the
filing of any petition or the commencement of any case against it under any
such law;
(h) ASSIGNMENTS FOR BENEFIT OF CREDITORS - Borrower or
any Borrower Subsidiary makes an assignment for the benefit of its creditors,
or consents to the appointment of a receiver, trustee, custodian, or liquidator
thereof, or of all or any material portion of the Property of any of them;
(i) UNDISCHARGED FINAL JUDGMENTS - any final judgment or
judgments for the payment of money or any warrant of sequestration against any
assets of Borrower or any Subsidiary having a value, in each case, aggregating
in excess of $100,000 is or are outstanding against Borrower or any Borrower
Subsidiary and such judgments remain outstanding on the ninetieth (90th) day
after entry and have not been discharged in full or stayed, or made the subject
of pending appeal;
(j) COLLATERAL - except as permitted by Section 6.8,
should Borrower or a Borrower Subsidiary cease to own good and indefeasible
title to a material portion of the Collateral for any reason or more than
$100,000 of the Collateral shall become subject to a Lien that is prior to
Liens in favor of Lender and not permitted by Section 6.8;
(k) DISSOLUTION - a dissolution of Borrower or any
Subsidiary occurs;
(l) CHANGE IN CONTROL - a Change in Control of Borrower
or any Subsidiary; or,
(m) OFFICER OR DIRECTOR LIABILITY - The indictment of any
officer or director of Borrower for a felony crime which might reasonably be
expected to have a Material Effect.
8.2 DEFAULT REMEDIES. If an Event of Default exists, Lender may
exercise any right, power, or remedy permitted by law and shall have, in
particular, without limiting the generality of the foregoing, the right to
declare the entire principal and all interest accrued on the Lender Notes to
be, and, upon Lender's sending notice to Borrower of said declaration, the
Lender Notes shall thereupon become, forthwith due and payable, without any
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived. Immediately upon receipt of any such notice, Borrower
shall pay to Lender the entire principal of and interest accrued on the Lender
Notes.
8.3 ANNULMENT OF ACCELERATION OF LENDER NOTES. If a declaration
is made pursuant to Section 8.2 by Lender, then and in every such case such
declaration and the consequences thereof may be rescinded and annulled by (and
only by) Lender by written instrument; provided, however, that no such
rescission and annulment shall extend to or affect any subsequent Default or
Event of Default or impair any right consequent thereon.
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SECTION 9. MISCELLANEOUS
9.1 NOTICES. (a) Except as otherwise provided in the Subject
Documents and subject to Section 9.5, all communications under the Subject
Documents shall be in writing to the following addresses or by telefax to the
following addresses: (i) if to Lender, at the following addresses or such
other address as Lender shall have furnished Borrower by notice on or before
the fifth (5th) Business Day prior thereto:
The Catalyst Fund, Ltd. and
Southwest/Catalyst Capital, Ltd.
Three Riverway, Suite 770
Houston, Texas 77056
Attention: Rick Herrman / Ron Nixon/Stephen Gillioz
Facsimile No. (713) 623-0473
with a copy to:
Boyer, Ewing & Harris Incorporated
9 Greenway Plaza, Suite 3100
Houston, Texas 77046
Attention: J. Randolph Ewing
Facsimile No. (713) 871-2024
(ii) if to Borrower, at the following address or such other
address as Borrower may have furnished by notice to Lender on or before the
fifth (5th) Business Day prior thereto:
ACR Group, Inc.
3200 Wilcrest, Suite 440
Houston, Texas 77042
Attn: Mr. Alex Trevino, President
Facsimile No. (713) 780-4067
with a copy to: Robert D. Remy
Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Facsimile No. (713) 465-8018
(b) Any communication so addressed and mailed by
first-class registered or certified mail, postage prepaid, shall be deemed to
be received on the third Business Day after so mailed, and if delivered by
personal delivery (including by courier) or facsimile to such address, upon
delivery during normal business hours (receipt confirmed by telephone in the
case of facsimile).
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9.2 SURVIVAL. Each representation, warranty, or covenant made by
Borrower in this Agreement or any other Subject Documents shall survive the
Execution Date and the delivery of the documents and instruments described in
Section 3.2, regardless of any investigation made by Lender or on its behalf.
All obligations of Borrower and the Borrower Subsidiaries hereunder shall
survive the Execution Date and shall terminate upon the payment of the Lender
Notes. At the Execution Date, Lender has no actual knowledge of an Event of
Default by Borrower.
9.3 SUCCESSORS AND ASSIGNS. Borrower may not assign any of its
rights or delegate any of its duties to any Person without prior written
consent of Lender. This Agreement shall be binding upon the successors and
assigns of each of the parties and, except as expressly set forth in this
Section 9.3, shall inure to the benefit of the successors and permitted assigns
of each of the parties. The provisions of this Agreement are intended to be for
the benefit of all Persons constituting Lender, from time to time, in
accordance with the terms of this Agreement.
9.4 AMENDMENT AND WAIVER. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with and only with the
written consent of Borrower and Lender.
9.5 GOVERNING LAW. THIS AGREEMENT, THE LENDER NOTES, THE OTHER
SUBJECT DOCUMENTS, AND THE LEGAL RELATIONS AMONG THE PARTIES HERETO AND
THERETO, AND ALL RIGHTS AND OBLIGATIONS HEREUNDER AND THEREUNDER, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE
STATE OF TEXAS AND THE UNITED STATES WITHOUT REFERENCE TO THE LAW OF ANOTHER
JURISDICTION.
9.6 SEVERABILITY. If any provision in this Agreement or the
Lender Notes is rendered or declared illegal, invalid, or unenforceable by
reason of any rule of law, public policy, or final judicial decision, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby are not affected in any manner adverse to Borrower or
Lender. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, Borrower and Lender shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties hereto as closely as possible to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
9.7 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement and the other
Subject Documents constitute the entire agreement of the parties and the
Affiliates with respect to the matters contained herein and therein and
supersede all prior contracts and agreements with respect thereto, whether
written or oral. THIS WRITTEN LOAN AGREEMENT AND THE OTHER SUBJECT DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
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SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
9.8 MULTIPLE COUNTERPARTS. The parties may execute more than one
counterpart of this Agreement, each of which shall be an original but all of
which together shall constitute one and the same instrument.
9.9 ARBITRATION. Any controversy or claim between or among the
parties hereto including but not limited to those arising out of or relating to
this Agreement or any Subject Documents, including any claim based on or
arising from an alleged tort, shall be determined by binding arbitration to be
held in Harris County, Texas in accordance with the Federal Arbitration Act (or
if not applicable, the applicable state law), the rules of practice and
procedure for the arbitration of commercial disputes of the American
Arbitration Association ("AAA"), and the "Special Rules" set forth below. In
the event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any
party to this agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
(a) SPECIAL RULES. Prior to the initiation of any arbitration the
Parties agree to submit all claims to mediation to be conducted by a mediator
in good standing with the AAA. Upon submission of a dispute to the AAA, the
Borrower and Lender shall each submit to the rules and regulations of the AAA
for the purposes of conducting such mediation.
(b) RESERVATION OF RIGHTS. Nothing in this Section 9.9 shall be deemed
to (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Agreement; or (ii) be a
waiver by Lender of the protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right of any party (A)
to exercise self help remedies such as (but not limited to) offset, or (B) to
nonjudicially foreclose against any real or personal property collateral, or
(C) to obtain from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief, writ of possession or the appointment of a
receiver, or (iii) except for limiting the right of judicial foreclosure, limit
the right of any party to enforce its rights under any Subject Document with
respect to matters as to which there is no legal dispute. Any party may
exercise such self help rights, nonjudicially foreclose upon such property, or
obtain such provisional or ancillary remedies before, during or after the
pendency of any arbitration proceeding brought pursuant to this Agreement.
Neither the exercise of self help remedies or any nonjudicial foreclosure, nor
the institution or maintenance of an action for provisional or ancillary
remedies shall constitute a waiver of the right of any party, including the
claimant in any such action, to arbitrate the merits of the controversy or
claim occasioning resort to such remedies. Any attorney-client privilege and
other protection against disclosure of confidential information, including,
without limitation, any protection afforded the work-product of any attorney,
that could otherwise be claimed by any party shall be available to and may be
claimed by any such party in any arbitration proceeding. No party waives any
attorney-client privilege or any other protection against disclosure
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of confidential information by reason of anything contained in or done pursuant
to or in connection with this Section 9.9.
9.10 ATTORNEY'S FEES. If any litigation or arbitration proceeding
is instituted to enforce or interpret the provisions of this Agreement or the
transactions described herein, the prevailing party in such action shall be
entitled to recover its reasonable attorneys' fees from the other party hereto.
9.11 DRAFTING. Both parties hereto acknowledge that each party was
actively involved in the negotiation and drafting of this Agreement and that no
law or rule of construction shall be raised or used in which the provisions of
this Agreement shall be construed in favor or against either party hereto
because one is deemed to be the author thereof.
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EXECUTED as of the date first above written.
BORROWER:
ACR GROUP, INC.,
a Texas corporation
By:
------------------------------
Alex Trevino, Jr., President
BORROWER SUBSIDIARIES
ACR SUPPLY, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
TOTAL SUPPLY, INC. f/k/a
FABRICATED SYSTEMS, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
HEATING AND COOLING SUPPLY, INC.
a Nevada corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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WEST COAST HVAC SUPPLY, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
FLORIDA COOLING SUPPLY, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
LIFETIME FILTER, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
VALLEY SUPPLY, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
TIME ENERGY SYSTEMS SOUTHWEST, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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ENER-TECH INDUSTRIES, INC.,
a Tennessee corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
CONTRACTORS HEATING & SUPPLY, INC.,
a Texas corporation
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
LENDER:
THE CATALYST FUND, LTD.,
a Texas limited partnership
By: RDR Management I, Inc.,
its general partner
By:
--------------------------
Ron Nixon, Vice President
SOUTHWEST/CATALYST CAPITAL,
LTD., a Texas limited partnership
By: SWC Management, Inc.,
its general partner
By:
--------------------------
Ron Nixon, Vice President
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SCHEDULES
2.2 Capitalization
2.4 Noncurrent Debt
2.6 Pending Litigation
2.15 Employee Matters
2.17 Brokers and Finders
2.23 Environmental Laws
6.7 Debt
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