FIRST AMENDMENT TO LOAN AGREEMENT
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THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
made and entered into as of July 19th, 2002, by and among TEMTEX
INDUSTRIES, INC. ("Temtex"), TEMCO FIREPLACE PRODUCTS, INC.
("Temco") (Temtex and Temco are , individually and collectively,
jointly and severally, referred to herein as the "Borrower"), and
THE FROST NATIONAL BANK, a national banking association, doing
business as FROST CAPITAL GROUP, and formerly known as CREEKWOOD
CAPITAL GROUP (hereinafter called, "Lender").
WHEREAS, Borrower and Lender are parties to that certain
Loan Agreement dated September 6, 2000, by and between Borrower
and Lender (as amended, modified or supplemented from time to
time, the "Loan Agreement");
WHEREAS, Borrower has also advised Lender that Temtex
desires to incur indebtedness pursuant to (i) those certain
Convertible Subordinated Promissory Notes, dated as of
July 19, 2002, in the aggregate principal amount of $750,000,
issued by Temtex and payable to the order of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
the ▇▇▇▇▇▇▇ ▇▇▇ Living Trust, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
and (ii) that certain Secured Term Note, dated as of July 19,
2002, in the aggregate principal amount of $750,000, issued by
Temtex and Temco and payable to the order of ▇▇▇▇▇ ▇. Upfield
(collectively, the "Proposed Transaction");
WHEREAS, Borrower has requested that Lender consent to the
Proposed Transaction;
WHEREAS, Borrower and Lender desire to amend the Loan
Agreement and each of the Security Agreements dated September 6,
2000, by and between Frost and each of Temtex and Temco,
respectively (the "Security Agreements") in the manner provided
in Article II below;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
Definitions
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Section 1.01 Definitions. Capitalized terms used in this
Amendment, to the extent not otherwise defined herein, shall have
the same meaning as in the Loan Agreement, as amended hereby.
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ARTICLE II
Amendments
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Section 2.01 Amendment to Section 1.02; Amendment and
Restatement of Certain Defined Terms. Effective as of the date
hereof, the definitions of "Borrowing Base" and "Subordinated
Debt" contained in Section 1.02 of the Loan Agreement are hereby
amended and restated in their entirety to read as follows,
respectively:
"Borrowing Base" shall mean at any time an amount not
to exceed the lesser of: (a) Four Million and no/100
Dollars ($4,000,000.00), or (b) the sum of the Accounts
Advance Amount determined as of the date the Borrowing
Base is calculated. The Borrowing Base will not
include any Properties of Subsidiaries of Borrower.
"Subordinated Debt" shall mean the indebtedness,
obligations and liabilities of Borrower owing to
Subordinated Lenders including, without limitation, (i)
that owing pursuant to the Subordinated Note Documents,
which is subordinated in right of payment to payment of
the Indebtedness upon terms and conditions and pursuant
to the Subordination Agreement and (ii) that owing
pursuant to the Upfield Secured Term Note, which is
subordinated in right of payment to the Indebtedness to
the extent set forth in the Intercreditor Agreement.
Section 2.02 Amendment to Section 1.02; Addition of
Certain Defined Terms. Effective as of the date hereof, the
following definitions are hereby added to Section 1.02 of the
Loan Agreement in their proper alphabetical order with the other
definitions in that Section to read as follows:
"Convertible Notes" shall mean those certain Convertible
Subordinated Promissory Notes, dated as of July 19, 2002,
issued by Temtex and payable to the order of each of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, the ▇▇▇▇▇▇▇ ▇▇▇ Living Trust, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ in the aggregate original
principal amount of $750,000.
"Intercreditor Agreement" shall mean that certain
Intercreditor Agreement, dated as of July 19, 2002, by
and between Lender and ▇▇▇▇▇ ▇. Upfield ("Upfield") as
acknowledged and agreed to by Borrower, which provides
for such parties' relative rights and priorities with
respect to the assets of Borrower and other related
matters.
"Subordinated Note Documents" shall mean the
Convertible Notes, the Note Purchase Agreement with
respect thereto and any other documents executed in
connection therewith, each in form and substance
satisfactory to Lender and as in effect as of the date
hereof.
"Subordination Agreement" shall mean that certain
Subordination Agreement, dated as of July 19, 2002, by
and between Lender, Upfield and the holders of the
Convertible Notes, as acknowledged and agreed to by
Borrower, which provides for such parties relative
rights and priorities with respect to the Subordinated
Note Documents, on the one hand, and the Loan Agreement
and the Upfield Secured Term Note, on the other hand,
and other related matters.
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"Upfield Secured Term Note" shall mean that certain
Secured Term Note, dated as of July 19, 2002, issued by
Borrower and payable to the order of Upfield in the
original principal amount of $750,000 in form and
substance satisfactory to Lender and as in effect as of
the date hereof.
Section 2.03 Amendment to Section 1.02; Deletion of
Certain Defined Terms. Effective as of the date hereof, the
definitions of "Eligible Inventory" and "Inventory Advance
Amount" contained in Section 1.02 of the Loan Agreement are
hereby deleted in their entirety.
Section 2.04 Amendment to Section 4.01(e). Effective as
of the date hereof, Section 4.01(e) of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"(e) INTENTIONALLY DELETED."
Section 2.05 Amendment to Section 4.01(g)(ii). Effective
as of the date hereof, Section 4.01(g)(ii) of the Loan Agreement
is hereby deleted in its entirety.
Section 2.06 Amendment to Section 5.01. Effective as of
the date hereof, Section 5.01 of the Loan Agreement is hereby
amended to add new Sections 5.01(k) and (l) thereto, which
sections shall read as follows:
"(k) the indebtedness of Temtex pursuant to the
Subordinated Note Documents, provided that it is at all
times subordinated to the Note pursuant to the
Subordination Agreement; and
(l) the indebtedness of Borrower pursuant to the
Upfield Secured Term Note, provided that it is at all
times subject to the Intercreditor Agreement."
Section 2.07 Amendment to Section 5.02. Effective as of
the date hereof, Section 5.02 of the Loan Agreement is hereby
amended to add a new Section 5.01(h) thereto, which section shall
read as follows:
"(h) the Liens of Upfield on the Inventory and
equipment of Borrower to secure the indebtedness of
Borrower pursuant to the Upfield Secured Term Note,
provided that such Liens are at all times subject to
the Intercreditor Agreement."
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Section 2.08 Amendment to Section 5.16. Effective as of
the date hereof, Section 5.16 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
"Section 5.16 Restricted Payments. Borrower
shall not, directly or indirectly, declare, order, pay,
make or set apart any sum for any payment or prepayment
of principal, premium, if any, or interest on, any
Subordinated Debt, except as is permitted by
documentation expressly approved by Lender (including,
with respect to the Subordinated Note Documents and the
Upfield Secured Term Note, the Subordination Agreement
and the Intercreditor Agreement, respectively)."
Section 2.09 Amendment to Section 5.18. Effective as of
the date hereof, Section 5.18 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
"Section 5.18 Limitation on Capital Expenditures.
Neither Borrower nor any Subsidiary will incur any
capital expenditures (including payments with respect
to capitalized lease obligations), if as a result
thereof, the capital expenditures of the Company and
its Subsidiaries in the aggregate, other than payments
with respect to capitalized leases obligations
identified on Schedule 3.19, would exceed $300,000
during any year. Notwithstanding the foregoing,
Borrower may make up to an additional $100,000 in the
aggregate of capital expenditures from the proceeds of
the Upfield Secured Term Note and the Convertible Notes
for the purposes of modernizing inventory systems and
other systems."
Section 2.10 Amendment Exhibit B. Effective as of the
Effective Date, Exhibit B to the Loan Agreement is hereby amended
and restated in its entirety in the form attached hereto as
Exhibit B.
Section 2.11 Amendment to Security Agreements. Effective
as of the date hereof, each of the Security Agreements is hereby
amended to add a new Section 6.12 thereto, which section shall
read as follows:
"Section 6.12 Intercreditor Agreement. Notwithstanding
anything set forth herein, Debtor and Secured Party acknowledge
and agree that the liens and security interests granted herein on
or in respect of the Upfield Priority Collateral (as defined in
the hereinafter described Intercreditor Agreement) are subject to
the Intercreditor Agreement dated as of June 19, 2002, between
Secured Party and ▇▇▇▇▇ ▇. Upfield ("Upfield"), and that if
Debtor fails to perform any obligation or duty hereunder with
respect to the Upfield Priority Collateral solely because doing
so would cause Debtor to breach its obligations or duties owing
to Upfield with respect to such collateral, Debtor will not be in
violation hereof. Notwithstanding Section 4.10 hereof, Secured
Party consents to the grant of liens by Debtor to Upfield and the
filing of the UCC-1 financing statements evidencing the same,
provided that such liens are as described in and shall be subject
to the Intercreditor Agreement. "
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ARTICLE III
Conditions Precedent
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Section 3.01. Conditions. The effectiveness of this
Amendment is subject to the satisfaction of the following
conditions precedent:
(a) Lender shall have received (i) this Amendment, duly
executed by the Borrower and Lender, (ii) a certificate of the
Secretary of the Borrower acknowledging (A) that the Borrower's
Board of Directors has adopted, approved, consented to and
ratified resolutions which authorize the execution, delivery and
performance by the Borrower of this Amendment, and (B) the names
of the officers of the Borrower authorized to sign this Amendment
together with specimen signatures of such officers, (iii) the
Intercreditor Agreement, in form and substance satisfactory to
Lender, duly executed by Borrower and Upfield; (iv) the
Subordination Agreement in form and substance satisfactory to
Lender, duly executed by Lender, Upfield and holders of the
Subordinated Note Documents and acknowledged and agreed to by
Borrower, (v) the Subordinated Note Documents, in form and
substance satisfactory to Lender, duly executed by Borrower and
the holders of the Subordinated Note Documents, (vi) the Upfield
Secured Term Note and the Security Agreement and other documents
delivered in connection therewith, in form and substance
satisfactory to Lender, duly executed by Borrower and Upfield, as
applicable and (vii) such additional documents, instruments and
information as the Agents or any Lender may reasonably request;
(b) Lender shall have received evidence of the consummation
of the Proposed Transaction on terms and conditions satisfactory
to Lender and all conditions thereto shall have been satisfied or
waived with Lender's consent;
(c) Lender shall have received directly and in immediately
available funds a portion of the proceeds of the Upfield Secured
Term Note in an amount not less than $457,000, for application
to the outstanding balance of the Advances;
(d) The representations and warranties contained herein and
in the Loan Agreement, as amended hereby, and the other Credit
Documents shall be true and correct in all material respects as
of the date hereof, as if made on the date hereof;
(e) After giving effect to this Amendment, no Default or
Event of Default shall have occurred and be continuing; and
(f) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to the Lender and its legal counsel.
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ARTICLE IV
Limited Consent
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Upon satisfaction of the terms and conditions in Article III
hereof, the Lender hereby consents to the Proposed Transaction,
which would otherwise result in a Default under Sections 5.01 and
5.02 of the Loan Agreement. Except as specifically provided in
this Article IV, nothing contained in this Amendment shall be
construed as a waiver by Lender of any covenant or provision of
the Loan Agreement, the other loan documents, this Amendment, or
of any other contract or instrument between Borrower and Lender,
and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof
shall not waive, affect or diminish any right of Lender to
thereafter demand strict compliance therewith. Lender hereby
reserves all rights granted under the Loan Agreement, the other
loan documents, this Amendment and any other contract or
instrument between Borrower and Lender.
ARTICLE V
Ratifications, Representations and Warranties
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Section 5.01. Ratifications. The terms and provisions set
forth in this Amendment shall modify and supersede all
inconsistent terms and provisions set forth in the Loan Agreement
and except as expressly modified and superseded by this
Amendment, the terms and provisions of the Loan Agreement are
ratified and confirmed and shall continue in full force and
effect.
Section 5.02. Representations and Warranties. Borrower
hereby represents and warrants to Lender that (a) the execution,
delivery and performance of this Amendment and any and all other
loan documents executed and/or delivered in connection herewith
have been authorized by all requisite corporate action on the
part of Borrower and will not violate the Certificate of
Incorporation or Bylaws of Borrower, (b) the representations and
warranties contained in the Loan Agreement, as amended hereby,
and any other loan document are true and correct on and as of the
date hereof as though made on and as of the date hereof, (c)
Borrower is in full compliance with all covenants and agreements
contained in the Loan Agreement, as amended hereby, and (d) none
of the machinery or equipment owned or possessed by Borrower on
the date of the Closing has been relocated to Mexico or any other
location, other than a location identified on Schedule 1 to
either of the Security Agreements.
ARTICLE VI
Miscellaneous
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Section 6.01. Survival of Representations and Warranties.
All representations and warranties made in the Loan Agreement or
any other document or documents relating thereto, including,
without limitation, any loan document furnished in connection
with this Amendment, shall survive the execution and delivery of
this Amendment and the other loan documents, and no investigation
by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them.
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Section 6.02. Reference to Loan Agreement. Each of the
loan documents, including the Loan Agreement and any and all
other agreements, documents or instruments now or hereafter
executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Loan Agreement as amended hereby, are hereby
amended so that any reference in such loan documents to the Loan
Agreement shall mean a reference to the Loan Agreement as amended
hereby.
Section 6.03. Expenses of Lender. As provided in the Loan
Agreement, Borrower agrees to pay on demand all reasonable costs
and expenses incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and the
other loan documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including
without limitation the reasonable costs and fees of Lender's
legal counsel, and all reasonable costs and expenses incurred by
Lender in connection with the enforcement or preservation of any
rights under the Loan Agreement, as amended hereby, or any other
loan document, including without limitation the reasonable costs
and fees of Lender's legal counsel.
Section 6.04. Severability. Any provision of this
Amendment held by a court of competent jurisdiction to be invalid
or unenforceable shall not impair or invalidate the remainder of
this Amendment and the effect thereof shall be confined to the
provision so held to be invalid or unenforceable. Furthermore,
in lieu of each such invalid or unenforceable provision there
shall be added automatically as a part of this Amendment a valid
and enforceable provision that comes closest to expressing the
intention of such invalid or unenforceable provision.
Section 6.05. Successors and Assigns. This Amendment is
binding upon and shall inure to the benefit of Lender and
Borrower and their respective successors and assigns, except
Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of
Lender.
Section 6.06. Counterparts. This Amendment may be executed
in one or more counterparts, each of which when so executed shall
be deemed to be an original, but all of which when taken together
shall constitute one and the same instrument.
Section 6.07. Headings. The headings, captions, and
arrangements used in this Amendment are for convenience only and
shall not affect the interpretation of this Amendment.
SECTION 6.08. NO ORAL AGREEMENTS. THE AGREEMENT, THIS
AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
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SECTION 6.09. RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT
IT HAS NO DEFENSE, COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM
OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED
TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY
THE "OBLIGATIONS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY
KIND OR NATURE FROM LENDER. BORROWER HEREBY VOLUNTARILY AND
KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL
POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES,
COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN,
ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN
WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS
EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST
LENDER, ITS PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY LOANS, INCLUDING, WITHOUT
LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING,
COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL
RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE LOAN AGREEMENT OR OTHER AGREEMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AMENDMENT.
SECTION 6.10. APPLICABLE LAW. THIS AMENDMENT SHALL BE
DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
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IN WITNESS WHEREOF, this Amendment has been duly executed by
Borrower and Lender to be effective as of the date first above
written.
BORROWER:
TEMTEX INDUSTRIES, INC.
By:_________________________
Name: ______________________
Title:______________________
TEMCO FIREPLACE PRODUCTS, INC.
By: ________________________
Name: ______________________
Title: _____________________
LENDER:
THE FROST NATIONAL BANK
(d/b/a/ FROST CAPITAL GROUP and
f/k/a CREEKWOOD CAPITAL GROUP)
By: _________________________
Name: _______________________
Title: ______________________
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EXHIBIT "B"
Subordinated Lenders
Upfield
Holders of the Convertible Notes